[Senate Hearing 110-1063]
[From the U.S. Government Publishing Office]




                                                       S. Hrg. 110-1063

          RECENT SETBACKS TO THE COAST GUARD DEEPWATER PROGRAM

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

                                HEARING

                               before the

     SUBCOMMITTEE ON OCEANS, ATMOSPHERE, FISHERIES, AND COAST GUARD

                                 OF THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 14, 2007

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation






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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                   DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska, Vice Chairman
    Virginia                         JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
BYRON L. DORGAN, North Dakota        KAY BAILEY HUTCHISON, Texas
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 GORDON H. SMITH, Oregon
MARIA CANTWELL, Washington           JOHN ENSIGN, Nevada
FRANK R. LAUTENBERG, New Jersey      JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas                 JIM DeMINT, South Carolina
THOMAS R. CARPER, Delaware           DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri           JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
              Margaret Spring, Democratic General Counsel
             Lisa J. Sutherland, Republican Staff Director
          Christine D. Kurth, Republican Deputy Staff Director
             Kenneth R. Nahigian, Republican Chief Counsel
                                 ------                                

     SUBCOMMITTEE ON OCEANS, ATMOSPHERE, FISHERIES, AND COAST GUARD

MARIA CANTWELL, Washington,          OLYMPIA J. SNOWE, Maine, Ranking
    Chairman                         TRENT LOTT, Mississippi
JOHN F. KERRY, Massachusetts         GORDON H. SMITH, Oregon
BARBARA BOXER, California            JOHN E. SUNUNU, New Hampshire
BILL NELSON, Florida                 JIM DeMINT, South Carolina
FRANK R. LAUTENBERG, New Jersey      DAVID VITTER, Louisiana
THOMAS R. CARPER, Delaware
AMY KLOBUCHAR, Minnesota









                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 14, 2007................................     1
Statement of Senator Cantwell....................................     1
Statement of Senator Kerry.......................................    10
Statement of Senator Lautenberg..................................     6
Statement of Senator Lott........................................     7
Statement of Senator Klobuchar...................................    12
Statement of Senator Snowe.......................................     3
Statement of Senator Vitter......................................     9

                               Witnesses

Allen, Admiral Thad W., Commandant, U.S. Coast Guard, Department 
  of Homeland Security...........................................    12
    Prepared statement...........................................    15
Caldwell, Stephen L., Acting Director, Homeland Security and 
  Justice Issues, U.S. Government Accountability Office..........    34
    Prepared statement...........................................    35
Jarvis, Captain Kevin P., U.S. Coast Guard, Retired..............    57
    Prepared statement...........................................    60
Mackay, Dr. Leo S., Vice President and General Manager, Coast 
  Guard Systems, Lockheed Martin Maritime Systems and Sensors....    79
    Prepared statement...........................................    81
Skinner, Richard L., Inspector General, Department of Homeland 
  Security.......................................................    25
    Prepared statement...........................................    27
Teel, Philip A., President, Northrop Grumman Ship Systems (NGSS).    72
    Prepared statement...........................................    74

                                Appendix

Hon. Daniel K. Inouye, U.S. Senator from Hawaii, prepared 
  statement......................................................    91
Response to written questions submitted to Admiral Thad W. Allen 
  by:
    Hon. Maria Cantwell..........................................    91
    Hon. Daniel K. Inouye........................................    98
    Hon. John F. Kerry...........................................    99
    Hon. Trent Lott..............................................   102
    Hon. Olympia J. Snowe........................................   104
    Hon. David Vitter............................................   107
Response to written questions submitted to Richard L. Skinner by:
    Hon. Maria Cantwell..........................................   108
    Hon. Daniel K. Inouye........................................   109
    Hon. John F. Kerry...........................................   110
    Hon. Trent Lott..............................................   111
    Hon. Olympia J. Snowe........................................   113
    Hon. David Vitter............................................   116
Response to written questions submitted to Stephen L. Caldwell 
  by:
    Hon. Maria Cantwell..........................................   116
    Hon. Daniel K. Inouye........................................   118
    Hon. John F. Kerry...........................................   119
    Hon. Olympia J. Snowe........................................   120
    Hon. David Vitter............................................   121
Response to written questions submitted to Captain Kevin P. 
  Jarvis by:
    Hon. Maria Cantwell..........................................   121
    Hon. Daniel K. Inouye........................................   125
Response to written questions submitted to Philip A. Teel by:
    Hon. Maria Cantwell..........................................   125
    Hon. Daniel K. Inouye........................................   135
    Hon. Trent Lott..............................................   138
    Hon. Olympia J. Snowe........................................   139
    Hon. David Vitter............................................   141
Response to written questions submitted to Dr. Leo S. Mackay by:
    Hon. Maria Cantwell..........................................   142
    Hon. Daniel K. Inouye........................................   145
    Hon. Olympia J. Snowe........................................   147
    Hon. David Vitter............................................   147

 
          RECENT SETBACKS TO THE COAST GUARD DEEPWATER PROGRAM

                              ----------                              


                      WEDNESDAY, FEBRUARY 14, 2007

                               U.S. Senate,
Subcommittee on Oceans, Atmosphere, Fisheries, and 
                                       Coast Guard,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:38 p.m. in room 
SR-253, Russell Senate Office Building. Hon. Maria Cantwell, 
Chairman of the Subcommittee, presiding.

           OPENING STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. Good afternoon, the Subcommittee of the 
Commerce, Science, and Transportation Committee on Oceans, 
Atmosphere, Fisheries, and Coast Guard will come to order. I 
thank my colleague, Senator Snowe, for being here. I know we'll 
be joined by other colleagues during this hearing, and I thank 
the witnesses for being here today, as well.
    As the Chair of the Subcommittee on Oceans, Atmosphere, 
Fisheries, and Coast Guard, I'm proud to welcome you to our 
first hearing of the 110th Congress. It's going to be a busy 
year for this Subcommittee, and I look forward to working with 
Senator Snowe, as well as Senators Inouye and Stevens on how we 
address issues affecting our oceans and our coasts.
    I appreciate that our witnesses are taking time from their 
busy schedules, and no one was, basically, shooed away by a 
little weather in Washington, D.C. and that you have made an 
opportunity for us to hear from all of you.
    I want to thank you, Admiral Allen, for joining us today. I 
look forward to your testimony, and I want you to know that I 
believe that we are allies in getting the Coast Guard the 
assets that it needs. And in our conversations, you have always 
struck me as a man of true action, a problem solver, and a 
respected leader. And we owe you a debt of gratitude, both as 
the Atlantic Area Commander during 9/11, and for your heroic 
efforts in the aftermath of Hurricane Katrina. So, thank you.
    I also want to thank Mr. Skinner and Mr. Caldwell for being 
here, as well. Welcome, and thank you for providing Congress 
with the critical information needed, and the oversight role 
and responsibilities that we are here to hear about today. I 
look forward to your expert testimony.
    Obviously, our Nation needs a strong Coast Guard, for our 
national security, and our domestic security. The Coast Guard's 
key mission of maritime safety, aiding navigation, protecting 
natural resources, ensuring national security, are of enormous 
benefit to our country. It is the Coast Guard that ensures that 
vessel traffic moves smoothly, that our ports are secure, and 
our fishery laws are enforced, and our shores stay clean.
    I think I've said this at this hearing before, Senator 
Snowe, and others--there's no agency that does more with less 
in the United States than the Coast Guard, and we thank them 
for their added responsibilities post-9/11. I know well, in 
Washington State with Puget Sound, which is one of the most 
busy, complex waterways in the world--the Port of Tacoma being 
the third-largest port in the Nation. It moves about 11,000 
cargo containers daily, and we have cruise ship traffic that 
makes for a very demanding sea port.
    Last year, 2,000 oil tankers and tank barges made more than 
4,000 trips across Puget Sound, which makes oil transportation 
safety very important. Our passenger ferry system, which the 
Coast Guard helps us on with security today, carries more 
people on an annual basis, I believe, than Amtrak does. That 
says nothing of other complexities of that waterway with 
fishing and recreational boating.
    So, all of this is to say that the Coast Guard is very 
important to us, as a nation, and I very much understand its 
importance, along with its international border and drug 
interdiction missions and responsibilities.
    Today, we are here to discus problems, though, that we have 
seen with the Deepwater Program. And, to look for ways to move 
forward.
    Before we begin, I want everyone at this hearing to know 
that, in my opinion, all options are on the table. And that is, 
that we will look at the Deepwater Program and the challenges 
that we have seen in the last several years, and I believe, do 
whatever it takes to correct the problems and give the 
resources and assets to the Coast Guard that they need.
    Four recent, independent reports now show us that the 
Deepwater Program is, indeed, in deep trouble. The Program is 
not delivering as promised. If someone thought this was a 
creative way, an experiment--which I think was the original 
intention--I think that it has shown a failure at a cost of 
millions of dollars to the taxpayers.
    Today, the Deepwater Program has failed to deliver on key 
assets--a 123-foot patrol boat conversion, the 8 Coast Guard 
patrol boats that are now out of service, and $100 million is 
in question. After spending $25 million, the Coast Guard 
suspended the Fast Response Cutter Project, because the 
contractor design failed to meet testing requirements. The 
first two National Security Cutters are at least $500 million 
over budget, and the current design and construction fails to 
meet the Coast Guard performance goals, and I know we're going 
to hear a lot about that. And the Deepwater's unmanned aerial 
vehicle, Eagle Eye, has huge delays, and problems with the 
prototype.
    Obviously, there are issues and concerns about the National 
Security Cutter, and the cost. I believe that if the current 
Deepwater contract isn't delivering the results--which I 
believe that it isn't--then we must look for a new approach. I 
am concerned that the contract gives industry too much 
authority to grant contracts to itself without open 
competition. This offers little incentive to control costs, and 
sidelines the Coast Guard when it comes to oversight.
    Just this last week, the Department of Defense Acquisition 
University--an organization of experts on defense contracting--
released a report on Deepwater, I believe it was released 
February 5. The report makes key recommendations for improving 
Deepwater, and also points out the positive steps the Coast 
Guard has already taken to reform their acquisition process. It 
specifically recommends that the Coast Guard, ``define and 
implement a revised acquisition strategy that does not rely on 
a single industry entity or contract to produce or support all, 
or the majority, of U.S. Coast Guard capabilities.''
    Today, I hope we can begin to move forward quickly and 
constructively on that revised strategy, so that the Coast 
Guard receives the ships, planes, and technologies that it 
needs, and at a fair price to the American taxpayer.
    I am committed to doing all that is necessary to ensure 
that this program gets on the right track, that the Coast Guard 
gets what it needs in upgrading its fleet and air assets, in 
order to carry out its mission of safety, security on our 
Nation's coastlines and waterways.
    This hearing is an opportunity for a fair and honest 
discussion about Deepwater--both the successes, as well as the 
failures--and how we can move forward on getting the resources 
that we need for our coastal areas of our country. So, I look 
forward to working with my colleagues who are here today, and I 
want to again, thank them for joining us, and I would like to 
turn to my colleagues, if they would--Senator Snowe, if you 
would like to make an opening statement.

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Madam Chair, and I certainly 
appreciate this opportunity to congratulate you on assuming 
your position as chair of this subcommittee. It is a critical 
subcommittee in terms of the jurisdiction over the Coast Guard, 
and the contributions that you have made--you're not unfamiliar 
with all the issues, the programs that are involved, and I 
appreciate the leadership that you'll be providing on this 
subcommittee.
    I just want to say a few words about one of the reasons why 
we are here today, and as chair of this subcommittee for, 
pretty much all of my career in the U.S. Senate thus far. We're 
here to discuss the single-most vital Homeland Security 
acquisition program that's confronting our Nation. That is, of 
course, Deepwater.
    Regrettably, despite the tremendous urgency of upgrading 
the Coast Guard's assets on the water and in the air, we're 
compelled to focus our attention to the Coast Guard's apparent 
failure managing this multi-billion, multi-year project.
    I know that, Madam Chair, you share my concerns about the 
troubling panic that developed and emerged concerning the 
mismanagement of this program over a number of years. It was 
disclosed, initially, in The New York Times, and obviously the 
Inspector General, whom we'll be hearing from as well, 
discovered and revealed, and it's indisputable that we must 
restore accountability to the Deepwater Program, for the sake 
of our critical Coast Guard service, and our homeland security.
    I'm deeply troubled that this mismanagement was a breach of 
trust, with the American people and also undermines a program 
that is so vitally important to our future.
    First, we must understand exactly what happened, in order 
to move forward, and why. And starting with the National 
Security Cutter. As was revealed in the initial reports, back 
on December 9, in The New York Times, and by the Inspector 
General last month, ``the Coast Guard was fully aware of the 
significant design problems with this cutter since at least 
2004, if not earlier. The investigators found that the design 
of the ship, if not corrected at considerable cost to the 
United States taxpayer may not allow it to meet a 30-year 
fatigue-life.'' In addition, they reported that the design and 
performance deficiencies were fundamentally the result of the 
Coast Guard's failure to exercise its technical and management 
oversight.
    And now, I'm profoundly troubled with further reports that 
the Coast Guard intentionally omitted problems of the National 
Security Cutter, when submitting documents to the Inspector 
General. Unquestionably, the Coast Guard has further 
jeopardized the trust that is so essential to the support of 
this vital program, if this is true.
    Indeed, I'm not only troubled to learn of the Coast Guard's 
problem with managing Deepwater and working with the Inspector 
General, I'm equally distressed about how these transgressions 
may have damaged the Coast Guard's relationship with those of 
us in Congress, who have been the champions of this program. I 
have been, as I said, the chair of this oversight subcommittee, 
for more than 10 years.
    Deepwater has been the subject of numerous hearings since 
2001, under my leadership. In addition, I have requested two 
GAO audits of the Coast Guard's Deepwater oversight. I asked 
Secretary Chertoff to conduct a best-practices review of 
Deepwater management, inserted language in three separate Coast 
Guard authorization bills directing the Coast Guard to report 
on Deepwater assets and time-lines. In fact, last October my 
staff visited the Northrop Grumman Shipyard in Mississippi, 
where the Coast Guard gave them a tour of the National Security 
Cutter from stem to stern. They received no indication of any 
problems, whatsoever.
    Despite the numerous means by which we exerted our 
oversight, the Coast Guard failed to alert us to any 
allegations or investigations into the problems with the 
Deepwater Program. Not once during these hearings, briefings or 
visits, was there any mention of the significance of structural 
design issues, or fatigue-life concerns.
    Not once did the Coast Guard relate to Congress the 
intensity of the debate, and the seriousness of the issue 
within the Coast Guard itself. And, of course, with the 
Inspector General--even though it was a pending report, even 
though it had not been finalized--surrounding what many have 
called the flagship of the Deepwater effort--the failure to 
inform us of such serious structural failings of the National 
Security Cutter was unprecedented, and unacceptable.
    It's simply unconscionable the Coast Guard did not bring 
these issues to light prior to December 2006, and again, it was 
a result of a story that was disclosed in The New York Times.
    Transparency and accountability are essential to any 
program of this enormity and magnitude, and even more so given 
the innovative nature of Deepwater's public/private 
partnership. And yet, the Coast Guard has had considerable 
difficulties with oversight and execution of the Deepwater 
acquisitions. Here we are, stunned by the scale and the scope 
of management failures that threaten to derail the entire 
program. Our taxpayers, our national security, are not well-
served by the ``ruthless execution''--and I put that in quotes, 
because that's what we were told repeatedly--that the Coast 
Guard has demonstrated in charging forward on the National 
Security Cutter, despite grave concerns with the ship.
    Admiral, understanding what went wrong in all of these 
instances is only the first of many steps essential to 
correcting Deepwater's course. The second step is for all 
parties to hold themselves accountable for their roles and 
decisions. Admiral, I appreciate that you've assured me in 
writing, and of course, in our subsequent meetings and 
telephone calls, that you hold yourself personally accountable 
and responsible for all of the Coast Guard actions, regardless 
of when the decisions were made, and I appreciate that. It will 
be critical that the commitment to reorganize Coast Guard 
leadership that you expressed in yesterday's State of the Coast 
Guard Address comes to fruition to help stem the tide of poor 
decisions that brought us to this point.
    Moreover, in light of the recently released report of the 
Defense Acquisition University, recommending changes in 
Deepwater's acquisition strategy, contract structure and 
management, I expect the Coast Guard to develop and present to 
Congress a detailed plan, outlining its strategy for regaining 
control of this program, before coming to a final agreement 
with the ICGS in the next Deepwater award term.
    Any new strategy must include the Coast Guard improving its 
acquisition procedures and re-asserting its oversight 
responsibilities. To do anything less, places the entire 
Deepwater Program in jeopardy, and does a profound disservice 
to the brave men and women of the Coast Guard who desperately 
require these resources.
    As for the allegations of stonewalling and finger-pointing 
in the IG's investigation, I will introduce legislation that 
directs the Department of Homeland Security to develop an audit 
plan, so that the Inspector General would not be encumbered in 
his future work. It is simply unacceptable that lack of clarity 
in the Inspector General's authority should hamper 
investigations on such a critical national security program.
    The reasons we need to improve, and perhaps even reform, 
the Deepwater process are rooted in the urgency for modernizing 
the Coast Guard fleet. I chaired the April 2004 budget hearing, 
when your predecessor brought in a thin, rusted piece of metal 
from the hull of a Coast Guard cutter to make his point about 
the state of the fleet. It has been almost 3 years, and those 
decaying vessels--some up to 64 years old--are still patrolling 
the waters off our coast.
    But, despite the degrading conditions of its assets, just 
last year, the Coast Guard responded to over 28,000 mariners in 
distress, and stopped more than 140,000 tons of cocaine from 
reaching our shores. Clearly, our Nation must have a Coast 
Guard that is equipped, trained, and ready to meet our maritime 
and homeland security challenges.
    We have all had a chance to see firsthand the Coast Guard's 
tremendous dedication, as well as your outstanding leadership, 
Admiral Allen, during Hurricane Katrina. And we will never 
forget that. And I've been enormously impressed with the can-do 
spirit of the Coast Guard, and the leadership you exhibited 
during Hurricane Katrina, and I know the leadership that you 
provide now, during this troubling period, for the Coast Guard.
    And I say all of this, because I do think it's important, 
to understand what went wrong, why it went wrong, and how we're 
going to move forward in the best way, that's in the best 
interest of the Coast Guard, for our national homeland security 
interest, for the Congress, and for the taxpayer. And I am 
deeply disturbed, but we've had many conversations about this. 
But, the fact that we were never presented with any indication 
or evidence that there were serious problems with the National 
Security Cutter, in fact, the Coast Guard told me it was a 
success story. When my staff was down there at the shipyard, in 
October, there was no revelation whatsoever.
    I say all of this because as we move forward I know I can 
place my trust in you, Admiral Allen--that we will have an open 
and transparent relationship, and one of accountability, 
regardless of who is asking these questions. It is so 
important, because we're talking about a $24 billion program, 
and assets that are desperately needed, and the men and women 
of the Coast Guard desperately deserve them. And so, I say that 
knowing that we will have to work together to determine what is 
the best way forward, given the circumstances that we're now 
confronting.
    So again, I thank you, Madam Chair, I thank you, Admiral 
Allen, Mr. Skinner, Mr. Caldwell, and subsequent panel, for all 
that you're doing to making contributions to ensure that this 
is a program that can somehow move forward in the way that's 
consistent with the interests of this country.
    Senator Cantwell. Thank you, Senator Snowe, and thank you 
for that statement, and your willingness to work on this issue, 
and again, I enjoyed the short tenure that we've had in working 
together on this subcommittee.
    Senator Lautenberg, would you like to make a statement?

          STATEMENT OF THE HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Madam Chairman, I thank you very much 
for holding this hearing, and as I look around this table, I 
see all the states that have enormous connections with the 
Coast Guard, enormous dependence on the Coast Guard. We respect 
the men and women of the Coast Guard greatly. I have always 
been an admirer of the Coast Guard's leadership and courage, 
and their importance in terms of protecting us from all kinds 
of ills. However, the portfolio of their responsibilities 
continues to expand, even as we shortchange their budgets.
    It's surprising, Madam Chairman, when we look at the 
setbacks that we have here, caused by lack of oversight and 
neglect by the Administration. The nearly 9 million residents 
of my home state expect the Bush Administration to be smart 
stewards of our tax dollars, but I'm concerned that they failed 
in the oversight of the Deepwater Program.
    And it fell so short of expectations. The Deepwater 
contract, originally projected to be $17 billion, with final 
delivery slated for 2018, has since blown up. The figures are 
familiar to everybody. But it's worth repetition: now Deepwater 
will cost more than $24 billion, with 9 years longer to 
complete action.
    There's a report that was done at the request of the Navy 
about what our sea situation might be in the latter part of 
this century. And the assignments broaden out to a whole, 
different array of things, including protecting our shores from 
refugees seeking higher land, and seeking faster ships and 
improved defense readiness. The impact of this mess and delay, 
combined with the Administration's under-staffing and under-
funding of the Coast Guard, means the men and women of the 
Coast Guard don't have the tools to do their jobs. And the men, 
women and children of America are not as safe as they should 
be.
    By way of example, if we look at the HH-65 helicopter. More 
powerful engine, they can carry more people--we saw these 
helicopters and their crews in action during Hurricane Katrina. 
Everyone was struck by the heroism of the Coast Guardsmen--the 
risks they were willing to take to help others by taking 
stranded residents from rooftops. With more of these 
helicopters in service, more Americans might have been 
evacuated.
    So, I support the funding for Deepwater, but I don't 
support the complacency that has been exhibited by the 
Administration when it comes to its contracting oversight. And 
I saw it as a member of the Homeland Security and Government 
Affairs Committee when it had to do with Halliburton. We 
couldn't get an oversight hearing there, and I wrote five 
letters requesting one. The response from leadership was that 
it would have been duplicative.
    So, Madam Chair, once again, thank you for delving into 
this problem. It's one that we must solve, not only for our 
protection, but also our consciences, as stewards.
    Senator Cantwell. Thank you, Senator Lautenberg.
    Senator Lott?

               STATEMENT OF THE HON. TRENT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. Thank you, Senator Cantwell, and good luck to 
you and your leadership of this very important Subcommittee. I 
look forward to working with you, as Chair, along with the rest 
of this subcommittee.
    As was just observed by Senator Lautenberg, this is a 
heavily-laden Coast Guard-dependent subcommittee. We all have 
coastlines, and we know how important the Coast Guard is, so I 
think this is a very appropriate hearing. Our goal is to work 
with the Coast Guard and Department of Homeland Security to 
upgrade and improve the Coast Guard's capabilities across the 
board. Obviously, developing a National Security Cutter is a 
key component of that.
    Admiral Allen, I also thank you very much for your 
leadership of the Coast Guard. Thank you for what you did after 
Hurricane Katrina, when you helped bring order out of a lot 
chaos in those states that were hit by Katrina. I'm very proud 
to see you in the position you now have as Commandant of the 
Coast Guard. I have a lot of faith in you.
    With regard to the particular issue here, I think it's 
important that we learn from you what has happened, and what 
you're doing about it, and what your goals are. And, I think 
it's also important we understand from the Deepwater 
contractors what really goes on in a program like this, what 
effort is underway to get it in better shape, and to correct 
some of the misunderstandings, misinformation, and hyperbole 
that we have seen in some of the news media about what's going 
on with the program.
    I suspect that the people who are going to testify on this 
panel, and the next one, know more about ships, ship conversion 
and cutters than anybody in The New York Times, or anybody who 
talks to The New York Times. So, I hope we can get the record 
straight here today.
    Now, I've worked with this program for years. We should 
have started the Coast Guard's asset replacement back in the 
1990s, but we didn't. And then when we started moving into it. 
The original funding parameter was set at $500 million over 20 
years, and was unrealistically low. So, we are now pushing 
aggressively to catch up with replacing these aging assets, and 
getting modern cutters. Not being realistic in time or cost 
expectations has led to some of the Deepwater Program's 
problems.
    There's no question that there have been some mistakes made 
in how this program has been managed. I also know from 
experience, in working with the Coast Guard, the Navy and all 
kind of shipbuilders in my own state and neighboring states, 
that there has never been a new ship class design that didn't 
undergo some problems, some modifications, and some changes. In 
the case of the National Security Cutter, changes were required 
as a result of the additional national security and homeland 
security requirements after September 11. You put requirements 
on this cutter that nobody had originally anticipated.
    So, there are, I think, some legitimate explanations of 
some of the problems. There's no question in my mind that the 
contractors have got to do a better job of working with the 
Coast Guard, and that the Coast Guard's contract management 
capabilities need to be improved. This is a big program. The 
Coast Guard doesn't have a lot of experience with this size of 
vessel, or the number and cost of these vessels.
    Now, some people are saying, ``Oh, we may need radical 
surgery, we need to cancel the Deepwater contract.'' Do we want 
this cutter or not? Do we want to move forward and modernize 
the Coast Guard or not? Do we need to make changes? Yes. But, I 
think we need to be careful that we don't do anything rash, 
which will wind up costing more, and delaying--even further--
the replacement of an aging fleet with modern capability and 
technologies.
    Unfortunately, I have a commitment that I'm going to have 
to fulfill, so I won't be here for the testimony. But I'm glad 
that we're going to have the opportunity to hear from you, 
Admiral Allen, and from the contractors. We'll have a better 
understanding of what has gone on, and what's going to be done 
differently, and better, in the future.
    And thank you, Madam Chair, for allowing me to make this 
kind of statement. Thank you.
    Senator Cantwell. Thank you, Senator Lott.
    Senator Vitter?

              STATEMENT OF THE HON. DAVID VITTER, 
                  U.S. SENATOR FROM LOUISIANA

    Senator Vitter. Thank you, Madam Chair.
    And, I also want to start by thanking Admiral Allen for his 
leadership after Katrina and for the heroic service of the 
Coast Guard immediately after Katrina, actually starting during 
parts of Katrina. There were choppers in the air during the 
significant winds, beginning to rescue people from their 
rooftops, so we deeply appreciate that.
    I, Madam Chair, have been a strong supporter of the 
Deepwater Program, and I'll continue to be, because of the 
need, because of the absolute necessity of developing this new 
fleet. But, like all of the Committee members, I'm very 
concerned about some of the problems with regard to the patrol 
boats that have come up. And I'll obviously get to questions 
during the question phase of the hearing.
    But, two things, just to focus our witnesses on ahead of 
time. One of our shipbuilders in Louisiana who has been 
involved in this program is Bollinger Shipyards. Relatively 
early on in the process, when they were beginning to work on, 
about, the fourth hull, they understood that this conversion 
really wasn't working, that there were significant problems 
with it, because of the state of those very old hulls, and they 
made a specific proposal to build entirely new hulls for $5 
million each, versus this conversion, which was costing $4 
million each, with unacceptable results.
    And I'd like to know why that proposal was rejected, and 
why we're clearly on a better path, because what was eventually 
done is significantly more expensive than that.
    And second, as we move forward with this new bridge 
strategy, I am concerned about this push to develop composite 
hulls, which isn't here yet. I thought one of the fundamental 
precepts of the Deepwater Program was to use off-the-shelf 
technology in a fairly straightforward way. I believe this 
focus on a composite hull is completely at odds with that, and 
is basically mushrooming this Deepwater Program into an R&D 
program, with everything--including much greater costs and 
unpredictabilities--that go hand-in-glove with that.
    So, I have some real concerns with that, as well as some 
concerns about the cost-benefit comparison between steel hulls 
for the new FRCs and these future, hopeful, composite hulls. 
So, we'll get into that later in a question. Thank you, Madam 
Chair.
    Senator Cantwell. Thank you, Senator Vitter.
    Senator Kerry?

             STATEMENT OF THE HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. Senator Cantwell, thank you very much. And 
it's good to see you in the chair. I've had the pleasure of 
chairing this Subcommittee before and I----
    Senator Cantwell. We thank you for that leadership.
    Senator Kerry. Well, it's a great Subcommittee, and I'm 
pleased to be on this Subcommittee.
    Senator Klobuchar was, just a moment ago, claiming special 
status because, I think, she's the only Member here who has a 
state that isn't actually on an ocean. We'll have to see 
whether that's followed through on, or not.
    Madam Chairman, thank you for having this important 
meeting. I join my colleagues in expressing our enormous 
respect and admiration for the Coast Guard, and the work 
they've done, and are doing in all of our waters, and we're 
grateful for that.
    The Coast Guard's Deepwater Program--I've been on this 
committee now for, I guess, about 20 years--and I can remember 
when we were sitting here with various Coast Guard commandants 
pleading for money for the Deepwater capacity for the Coast 
Guard. And we have been, literally, billions of dollars behind 
in our commitments here in the Congress to giving the Coast 
Guard the capacity that it both needs and deserves. And they've 
been working under very, very difficult circumstances, 
particularly with the augmentation of drug responsibilities, 
which came significantly in the 1980s, and also now, of course, 
port security. So, it's a complicated equation without enough 
resourcing.
    Sadly, a structure has been created that isn't working. The 
Coast Guard's Deepwater Program has been plagued by poor 
engineering, by lax oversight, and cost overruns that are going 
to cost the taxpayers billions of dollars. That's the bottom 
line.
    The flawed management structure of the program--I believe 
it is a flawed management structure--has allowed private 
contractors, specifically Lockheed Martin and Northrop Grumman, 
to make management decisions that increased their bottom lines 
at the expense of taxpayers and national security.
    For instance, Lockheed-Northrop, which was supposed to open 
up subcontracts to competition, instead relied on its own 
subsidiaries for much of the work, and made questionable 
purchases, including buying the wrong-sized computer consoles 
on the new National Security Cutters.
    It also changed the design of the cutter. I know there will 
be arguments about 9/11, et cetera, but the bottom line is 
that, those changes will not allow it to operate for as long as 
the Coast Guard needs, and will require retro-fitting totaling 
as much as $500 million.
    When the current Deepwater contract expires in June, it is 
my judgment--I know there will be some difference of opinion on 
the Committee--but it's my judgment that the Coast Guard ought 
to drop Lockheed Martin and Northrop Grumman, and hold an open, 
competitive bidding process, in which they could of course, 
take part in under appropriate new standards with a competitive 
bidding for the remaining aspects of the program, while 
simultaneously ensuring that the management decisions are made 
solely by the Coast Guard.
    The Coast Guard should also explore every legal avenue to 
recoup funding from Lockheed-Northrop that it spent on poorly 
designed ships.
    Now, if I might say, I heard Senator Lott talk about The 
New York Times, and what is accurate or not accurate here. I'm 
not relying on The New York Times, though it raises serious 
questions. But, the Inspector General--and we have the pleasure 
of having him here--has said in his report, that as of November 
16, 2006, ``the combined cost of NSCs 1 and 2 has increased 
from $517 million, to approximately $775 million,'' 
representing a 50 percent increase in cost over the original 
contract prices. Primarily, from the NSC design changes, but 
other government-requested items not included in the original 
contract price also add to that.
    It also appears now, according to the Inspector General, 
that the cost of NSCs 1 and 2 will increase beyond the current 
$775 million, because that figure does not include the $302 
million request for equitable adjustments submitted to the 
Coast Guard by ICGS in 2005.
    So, there are very serious questions. Also, the current 
$775 million estimate does not include the cost of structural 
modifications to correct design deficiencies, in either NCS 1--
which has already been constructed--or NSC 2--which is being 
constructed--and it doesn't include any costs related to 
structural modifications to be made to NSCs 3 through 8 to 
correct these design deficiencies.
    So, in my judgment, you know, what we're really looking at, 
Madam Chairman, is the--you know, there is a definite 
connection here between cost increases and contractor 
decisions, that weren't overseen properly because of the 
management structure that exists.
    I think that has got to be changed, that it's our 
responsibility to change it, to protect the taxpayers, and 
also, frankly, to leverage the Coast Guard's ability to be able 
to make the management decisions that it ought to be making 
with respect to these cutters. It's just an insidious 
situation, where you have this current construct where 
management, without oversight, without the Coast Guard 
decision, can fundamentally augment its bottom line at the 
expense of the taxpayer, without providing increased defense 
security or increased capacity to the Coast Guard. That's just 
insulting, to all of us.
    Frankly, the Department of Homeland Security has dropped 
the ball on behalf of the American taxpayer with respect to 
this, whether it's buying seaport radiation monitors that can't 
tell the difference between a bomb or a banana, or issuing 
inflated, no-bid Katrina clean-up contracts, a lot of 
contractors have been feeding at the public trough, while 
failing to adequately defend our interests.
    So, I think we need to put an end to that lax oversight, 
and to the business-as-usual approach, and make common sense 
choices that provide accountability where it ought to be, 
create management power where it ought to be, and protect our 
ability to go forward here with a contract that is 
appropriately managed--not by those who are sort of writing the 
rules as they go along--but managed by a structure that we all 
sign off on.
    Thank you.
    Senator Cantwell. Thank you, Senator Kerry.
    Senator Klobuchar?

             STATEMENT OF THE HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you, Chairwoman Cantwell, for 
bringing us here together to do our job, to ask the tough 
questions, and to push for smart, effective solutions.
    As Senator Kerry noted, I am the Senator on this 
Subcommittee without an ocean. Senator Lautenberg suggested 
that I come to the Senate and ask for an ocean for Minnesota, 
but since we already have 10,000 lakes, we don't need one.
    But we do have one very large lake, which, I think that 
Admiral Allen, you're familiar with.
    Senator Cantwell. Can you wait until we fix this problem, 
and then you can----
    [Laughter.]
    Senator Klobuchar. That would be Lake Superior, and Duluth, 
Minnesota is the home port of a Coast Guard cutter that's 
charged with ice-breaking, law enforcement, search and rescue, 
and aids to navigation. Duluth is also home to a Marine Safety 
Unit, that coordinates maritime safety, security, and 
protection of natural resources from the North all along the 
Canadian border.
    And, as a former prosecutor, I know there's nothing more 
important than protecting the security of our country and our 
people, and the Coast Guard has an important role in that with 
our state.
    I'd also note that the Coast Guard also aids the navigation 
of our cargo ships carrying ore, coal and grain, and is very 
helpful in breaking the ice in the wintertime.
    And, I will say, as proud as we are of the work of the 
Coast Guard, Senator Kerry has raised some good points, as have 
other Senators, about recent reports that have raised serious 
questions about the specific acquisitions under the program, as 
well as the more fundamental problems going on with 
contracting, and the like. And I believe it's important to 
explore those questions, and while I'm not going to be able to 
stay for the entire hearing here, I want you to know that we 
will continue to ask those tough questions, and also know that 
we in Minnesota are proud of the work that the Coast Guard 
does.
    Thank you.
    Senator Cantwell. Thank you, Senator Klobuchar.
    We'll go to our first panel, and I'm going to ask Admiral 
Allen for you to start, and again, thank you, and Mr. Skinner, 
and Mr. Caldwell, for being here today.
    Admiral Allen?

        STATEMENT OF ADMIRAL THAD W. ALLEN, COMMANDANT, 
       U.S. COAST GUARD, DEPARTMENT OF HOMELAND SECURITY

    Admiral Allen. Thank you, Madam Chair, Ranking Member 
Snowe, and the members of the Committee. I'm happy to be here 
today.
    I'm glad that we all agree on one thing, Madam Chair, and 
that the number one goal--at least as far as I'm concerned--is 
to convey the critical importance of re-capitalizing aging 
Coast Guard cutters, aircraft, and sensors.
    And, I agree also, Deepwater is essential to the future of 
America's Coast Guard. We do not have the luxury to restart 
this program. Last week we decommissioned the Cutter STORIS, 
after 64 years of service, only to have her replaced by the 
ACUSHNET, the next oldest cutter, at only 63 years.
    Our aging platforms cannot sustain the level of operations 
required in the current threat environment. Each year the new 
cutters and aircraft are delayed, we lose more mission hours, 
and our capability is eroded by failing, or unsustainable 
equipment. We have to get this right, and we have to do it 
quickly.
    Getting it right means several things. First, internally 
the Coast Guard must create the right organization and culture, 
that focuses on effective management and contract oversight. We 
are doing that.
    When I was interviewed to be Commandant by Secretary 
Chertoff, over a year ago, I understood what needed to be done 
with this program. I proposed a single acquisition organization 
to improve program management, and then to align that 
organization with a new service-wide mission support structure.
    Yesterday, in my annual State of the Coast Guard address, I 
outlined my plan to restructure our command and control, and 
mission support systems. Deepwater will benefit from this, 
included is a Blueprint for Acquisition Reform, and we've 
already begun to implement it.
    I have clearly defined the role of the Assistant Commandant 
for Engineering Logistics, my chief engineer, as the Coast 
Guard's technical authority for acquisitions and a directive to 
all Coast Guard personnel.
    I've assigned Admiral Ron Rabago to lead the Deepwater 
Program office. Admiral Rabago is a distinguished Naval 
Engineer with 29 years of service, a former cutter commanding 
officer, and former commanding officer of the Coast Guard Yard.
    We have sought an external, independent assessment of our 
acquisition process from the Defense Acquisition University--we 
requested it--and have received a number of recommendations 
that we are reviewing. This assessment endorses our Blueprint 
for Acquisition Reform.
    I also personally asked Comptroller General David Walker, 
to review our acquisition reform, and will commend this action 
for Committee sponsorship, as well.
    Second, we must collaborate effectively with our industry 
partners, and when appropriate, provide the direction that 
preserves the government's interest, and ensures the 
performance of our cutters and aircraft. We are doing that.
    Since assuming my duties as Commandant, I've met frequently 
with the Chief Executive Officers of Lockheed Martin, and 
Northrop Grumman. They are both committed, as am I, to getting 
this done right. We will adjust the terms of the contract going 
forward to ensure proper emphasis on cost control, competition, 
and program management. Our Coast Guard technical authority 
will lead our efforts in systems integration, both in an 
oversight role, and as the integrator, when required.
    I've also met with the Secretary of the Navy, the Deputy 
Secretary of Defense, and the Chief of Naval Operations. Each 
has offered their support. To the extent that we can leverage 
their capabilities and expertise to do this smarter, and more 
effectively, we will.
    Third, we must maintain cordial, productive relationships 
with oversight bodies that have legitimate roles in this 
endeavor. We are doing that. To the extent that we can improve, 
or provide better guidance to our people, we will do that as 
well.
    I have sent a personal message to every person in the Coast 
Guard that includes the following statement: ``External 
scrutiny from the Inspector General and other overseers will 
raise questions on the Deepwater acquisitions throughout its 
life. As public servants, we are not only subject to their 
oversight, but it is a central feature of the appropriations 
process. I welcome external review, as it enables us to improve 
our processes, be more effective stewards of taxpayer dollars, 
and better serve the American public. I have met regularly with 
the Inspector General. To the extent that there is any 
ambiguity regarding our position on the NSC audit, let me 
clearly state that we concur, and have implemented, five of the 
six recommendations made. Regarding the sixth and final 
recommendation, we are deferring to the Department of Homeland 
Security to establish department-wide policy where 
appropriate.''
    In the past 10 years, the Coast Guard has acquired a number 
of assets--on schedule, and below estimated cost. Examples 
include our coastal patrol boat, our large buoy tenders, and 
the Great Lakes Icebreaker. However, in each case, the 
acquisition was a single-platform, and systems integration was 
not a challenge.
    Our challenge now is to transform our demonstrated 
competency as a mid-sized Federal agency to one capable of 
effectively managing a large, complex, systems integration 
contract, like Deepwater. And while there's a current focus on 
two specific cutters, it should be recognized that Deepwater 
continues to provide new and valuable capability in the form of 
new fixed-wing aircraft, vastly capable helicopters, and 
significant upgrades to our legacy cutters.
    I have flown in our helicopters, I have ridden our cutters 
on patrol in the Caribbean. Our people appreciate these tools--
that remains the promise of Deepwater. We acknowledge there are 
issues related to the fatigue-life of the National Security 
Cutter. We should also acknowledge that this is the most 
capable cutter we have ever provided to our people.
    This program must move forward, and it is my 
responsibility, not only to get it right, but to demonstrate to 
the Committee that the Coast Guard has the capability, capacity 
and competency to manage the re-capitalization of our fleet. 
The changes that have been occurring in the Coast Guard on my 
watch, and those to come, are opening focused on mission 
execution. This is not what Admiral Allen wants, it's what the 
country needs from its Coast Guard.
    I'd be happy to answer any questions.
    [The prepared statement of Admiral Allen follows:]

       Prepared Statement of Admiral Thad W. Allen, Commandant, 
           U.S. Coast Guard, Department of Homeland Security
Introduction
    Good afternoon, Madam Chair, and distinguished members of the 
Subcommittee. 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 a look at the way ahead.
    Our ability to save lives, interdict drug and alien smugglers, and 
protect ports, waterways and natural resources depends on our having 
the best-trained people operating a modern, state-of-the-art fleet. The 
Deepwater Program has and will continue to provide America with more 
capable, interoperable assets that will close today's operational gaps 
and enable the Coast Guard to perform its demanding missions more 
effectively, efficiently and safely. Deepwater remains my capital 
priority and I greatly appreciate all that this Subcommittee has done 
to move the program forward.
    I am also grateful for the opportunity to discuss in detail 
Deepwater issues recently covered in the national media. Some of the 
stories spoke factually to program challenges that genuinely merit 
further attention. It is my goal this morning to provide you the facts 
and reassure you of my absolute commitment to sound stewardship, robust 
oversight and the corrective actions I've taken to outfit our fleet to 
meet 21st century threats and requirements. We have to get this right: 
the Coast Guard's future readiness depends on it. America depends on 
it.
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 block fleet obsolescence, it wasn't sensible to attempt 
piecemeal, one-for-one replacement of each class of assets. We also 
didn't have the capacity 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 over three decades, drove our decision to 
engage the services of a system 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 10 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 strategy. We 
understood there would be challenges, but 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-9/11 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-9/11 environment, the program's 
timeline expanded and its overall projected cost grew from $17 to $24 
billion.
Where We Are Today in Deepwater
    It is important to remember that we are in the early stages of a 
25-year acquisition. As is typical, much of the early years of contract 
execution was focused on design and development work, and we have 
obligated only about 15 percent of what we project to be the total 
program cost. However, our Fiscal Year 2007 appropriation of $1.06 
billion supports the program's ongoing progress, and I thank you for 
your continued investment in these critically needed assets that are 
beginning to make a difference today.



    Despite the challenges that Deepwater has experienced, the Coast 
Guard has been the beneficiary of significant program accomplishments, 
including:

   command, control and sensor (C\4\ISR) upgrades to all 39 
        medium and high endurance cutters and at Communications Area 
        Master Station Atlantic (CAMSLANT);

   the December 2006 arrival of our first new HC-144A Maritime 
        Patrol Aircraft, currently undergoing installation of mission 
        pallets in Elizabeth City, NC, to be followed shortly by 
        delivery and missionization of the second and third airframes;

   commencement of our HC-130J missionization program, with 
        scheduled first delivery in 2007;

   upcoming ribbon cutting ceremonies for new Deepwater shore 
        facilities, including a surface ship training center in 
        Petaluma, California, and a hangar to house HC-144As in Mobile, 
        Alabama; and

   continuation of the Mission Effectiveness Programs for 110, 
        patrol boats and for 270, and 210, medium endurance cutters, 
        projects funded by Deepwater and managed by the Coast Guard 
        Acquisition Directorate.

        
        
    Additional milestones include the launch and christening last fall 
of the first of eight planned National Security Cutters, along with the 
keel authentication ceremony for the second, which fittingly took place 
on September 11, 2006. These particular achievements in shipbuilding 
are especially noteworthy in light of the impacts of the 2005 hurricane 
season when Hurricanes Katrina and Rita came ashore along the Gulf 
Coast, upending lives, severely damaging shipbuilding facilities, and 
further challenging the program. Construction of the NSCs continues and 
we appreciate the efforts of shipyard workers and Coast Guard men and 
women in keeping production of these important vessels moving forward. 
I firmly believe the NSC will provide a great contribution to the Coast 
Guard and the Nation.



    Eighty-four of 95 HH-65 helicopters will have been re-engined and 
converted to Charlie models by June 2007, enabling operators to 
routinely perform missions they could not have attempted before, 
including remaining aloft for longer periods and having the ability to 
carry greater loads as was demonstrated during Hurricane Katrina 
rescues.
    The Coast Guard and ICGS, Deepwater's systems integrator, are 
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.
    Beginning in 2002, the Program Executive Officer of Deepwater 
formalized a collaborative partnership with his Navy and Marine Corps 
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 and Offshore Patrol 
Cutter 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 57-mm 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 AIP 
system. Navy and Coast Guard personnel even train side-by-side at the 
Coast Guard's training facility in Petaluma, California.
    We work closely with the Navy's Operational Test and Evaluation 
Force (COMOPTEVFOR). Currently, the Naval Air Systems Command staff is 
assisting us in evaluating the way ahead for Deepwater's VUAV project. 
We routinely rely on the expertise of Naval Sea Systems Command for a 
variety of assessments. Personnel from the Navy Supervisor of 
Shipbuilding Office (SUPSHIP) are assigned to our Program Management 
Resident Office (PMRO) in Pascagoula, MS, where they are supporting 
construction of the NSC at Northrop Grumman Ship Systems.
    Looking to the future, there are many other opportunities for the 
Coast Guard and Navy to build on today's rich partnership in the design 
and delivery of the National Fleet in support of the National Strategy 
for Maritime Security. Potential areas for future cooperation include 
the design of the Offshore Patrol Cutter, unmanned aerial vehicles, and 
common systems for weapons, sensors, and propulsion. Evaluations of 
sub-systems should include both the equipment and crewing support 
(e.g., crew composition aligned with capabilities required for a 
deployment). The collaborative development of LCS mission modules for 
coastal surveillance and port security missions also offers the 
potential for greater partnership in an operational mission area shared 
by both services.
Challenges in Program Execution
    The innovative Deepwater program is large and complex and we have 
faced some challenges. Our performance-based acquisition strategy has 
created unique contracting and management challenges for the Coast 
Guard and our industry partners. In my view, some of these come from 
the need for an integrated Coast Guard, that unifies our technical 
authority, requirements owner, and our acquirers in a way that allows 
early and efficient adjudication of problems and ensures transparency 
so that Coast Guard would be capable of working successfully with ICGS 
on a simultaneous and complex acquisition of this size. We knew early 
on that this acquisition would be transformational for our Service, but 
we have to actively manage that transformation and not allow this 
acquisition to manage us. We are aggressively tackling and correcting 
these problems.
    And clearly, we have experienced some failures in the Deepwater 
Program. The planned conversion of 110-foot patrol boats to 123 feet as 
a bridging strategy until new assets came online to fill the patrol gap 
has failed. Early on, we experienced hull problems with the first eight 
patrol boats that had been converted and halted the project in May 
2005. Technical problems continued in spite of multiple attempts at 
repair.



    Last November, new problems were discovered, and I made the 
decision to suspend operation of our 123-foot patrol boats until we 
determine whether a technical fix is possible and economically prudent. 
Removing these boats from service was a difficult decision and has 
added to our critical gap in patrol boat hours. I know that this is of 
great concern to each of you. I assure you that I, too, am concerned--
my highest priority is to mitigate and fill this gap as quickly as 
possible with the most capable assets.



    To that end, I have directed my senior staff to aggressively 
examine and recommend ways we can use current resources to mitigate the 
loss of the 123-foot patrol boats. In response and as partial 
mitigation of the impact, we:

   began multi-crewing eight of our existing 110-foot patrol 
        boats;

   increased their operational tempo;

   redeployed and surged assets to areas of greatest need, 
        based upon risk;

   secured continued use of three PC-179s from the Navy;

   are aggressively examining the purchase of additional 87-
        foot patrol boats; and

   are compressing the 110, WPB Mission Effectiveness Project 
        (MEP) schedule to reduce operational impacts.

    The Coast Guard will do whatever is necessary to ensure that our 
maritime borders are secure and we can respond to existing and emergent 
requirements.
    The failure of the 123-foot patrol boat project is unacceptable. I 
have established a group of legal, contracting, and engineering experts 
to examine the process at all stages, from beginning design work until 
we tied up the boats. I have directed this group to establish 
responsibility and propose measures to prevent similar problems in the 
future. We will work aggressively with ICGS to reach resolution and put 
this behind us.
    When problems arose with the 123-foot patrol boats, the Coast Guard 
realized a need for additional patrol boats sooner than the original 
plan called for. After examining a series of options, we decided to 
move construction of the FRC forward on the overall Deepwater timeline. 
However, early tank testing showed technical risks with the initial FRC 
composite hull design; prudence required suspending the design and 
development while we considered the way ahead.
    Ultimately, we decided to implement a ``dual path'' approach to 
acquire a fully capable patrol boat while expediting delivery. First, 
we took a step back from the initial FRC design to more thoroughly 
examine both its design and the composite hull technology that the 
design incorporated. We are completing a bottom-up business case 
analysis on what we have termed the ``FRC-A Class'' to provide an 
``apples to apples'' look at composite versus steel hulls. Results from 
this analysis should be available later this month. Additionally, we 
had a technology readiness assessment performed to review critical 
technology elements associated with a composite-hulled design. Initial 
findings from this assessment indicate that necessary critical 
technology elements do not yet support immediate production of a 
composite-hulled patrol boat.
    Clearly with this design review, the FRC-A Class path doesn't get 
boats into the fleet as quickly as needed. As an interim solution, the 
Coast Guard is simultaneously working to acquire a ``parent craft'' 
design based on a vessel already in operation; one that will require 
minimal modifications to meet our basic mission requirements. We call 
this our Replacement Patrol Boat or ``FRC-B Class.'' After a good, hard 
look at the market to determine whether adequate boats exist to support 
a parent craft approach, we issued a Request for Proposal for such a 
vessel to ICGS. We expect a design proposal no later than March 31st of 
this year that will support delivery of the first FRC-B Class in the 
first half of FY 2010.



    Turning to the National Security Cutter (NSC), I would like to 
clarify reports of structural problems. The DHS OIG recently concluded 
an audit of the NSC which highlighted concerns with our approach to 
potential structural integrity issues with the NSC hull. The issue 
here, which we have communicated to 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. There has never 
been a question of 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. They also encompass 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 #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 #1 and 2 and 
design the fix into future hulls' production.




    To minimize future delays and disruption resulting from these kinds 
of design and technical concerns, I:

   reaffirmed in writing the role of the Coast Guard's chief 
        engineer as the technical authority for all acquisition 
        projects;

   directed independent, third-party design reviews as new 
        assets are developed or major modifications to assets are 
        contemplated; and

   am working to expand our relationship with the Naval Sea and 
        Air Systems Commands to leverage outside technical expertise.

    We've learned from this experience. Adjudication of technical 
concerns within the Coast Guard could have been accomplished more 
efficiently. Existing organizational barriers made it harder for us to 
jointly address concerns and develop mutually acceptable solutions. We 
also could have been more proactive in informing Congress--and this 
Subcommittee--about fatigue concerns. One of my axioms is that 
``transparency of information breeds self-correcting behavior;'' I 
assure you that as we move forward that transparency will be my 
watchword.
The Way Ahead
    The Deepwater Program Executive Officer, Rear Admiral Gary Blore, 
has already undertaken a number of independent reviews, including the 
comprehensive business case analysis and technology readiness 
assessment for the FRC-A Class just mentioned. Of particular note, we 
contracted with the Defense Acquisition University (DAU) in 2006 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 government/industry 
``partnership'' contract. The USCG Research and Development Center is 
conducting a study and will provide recommendations for the way ahead 
on the planned Deepwater Vertical-Launch Unmanned Aerial Vehicle 
(VUAV), and we've initiated an independent review of workload and 
workforce management issues. Based on these findings and 
recommendations, we will make ``course corrections'' where needed in 
order to lead an efficient organization and guarantee successful 
execution of the Deepwater Program.
    As I mentioned earlier, many of the challenges within the Deepwater 
Program stem from the lack of an integrated Coast Guard acquisition 
program to manage this system-of-systems acquisition, as well as to 
conduct effective oversight of Integrated Coast Guard Systems. We have 
developed an initial Blueprint for Acquisition Reform, and in the 
coming months, you will see significant changes inside the Coast 
Guard's acquisition directorate to bring all acquisition efforts--
traditional as well as system-of-systems--under one organization. Rear 
Admiral Blore will become the Coast Guard's Chief Acquisition Officer, 
with responsibility over all procurement projects. The Program 
Executive Officer for Deepwater will work within the new organization. 
I have directed Rear Admiral Ron Rabago, a naval engineer, former 
Commanding Officer of the Coast Guard Yard, and a technical expert on 
naval engineering issues to take Deepwater's ``helm.'' Consolidating 
our acquisition efforts will provide immediate benefits, including 
better allocation of contracting officers and acquisition 
professionals, and an integrated product line approach to our 
management of acquisitions, thereby allowing projects to be handled by 
the same people, with the same expertise and the same linkages to the 
technical authorities.
    Additional efforts are underway within Deepwater and the Coast 
Guard to develop more appropriate staffing in order to efficiently 
obligate program funding and ensure successful delivery of needed 
assets to the fleet. We're reinvigorating our acquisition training and 
certification process to ensure that Deepwater staff, program managers 
and contracting officers have the requisite skills and education needed 
to manage this complex program. 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 
activities.
    DAU's recent Quick Look Study of the Deepwater program concluded 
that our initial Blueprint for Acquisition Reform ``is comprehensive 
and responsive to the human capital, organization, process and 
governance-related findings and recommendations'' in its report.
Cost Change and Contractor Oversight
    In discussing these challenges and my actions to address them, I 
need to mention two concerns raised in recent media coverage of the 
Deepwater program: the first is cost growth; the second is contract 
oversight. Much of what has been reported in the press as ``cost 
overruns'' simply does not tell the full story. There is obvious truth 
to claims of programmatic cost increases. As noted, the original 
Deepwater plan was estimated to cost $17 billion and now we're 
projecting a $24 billion cost over 25 years. However, it is imperative 
to understand that the main driver of these cost increases was the 
complete revision of the original plan to meet post-9/11 mission 
requirements. New missions meant that we needed more capable assets 
which cost more to acquire and build.



    In addition to improved mission capabilities, Hurricanes Katrina 
and Rita hit the Gulf Coast shipyard industry hard during production of 
the first National Security Cutter, flooding the hull and causing 
extensive damage to the facility. The impacts to industry--even just in 
terms of rebuilding a skilled, sufficient workforce--should not be 
underestimated. The tragedy was real (I can personally attest to this) 
and contributed to cost increases and some schedule slippage for the 
cutter. That these impacts were not greater speaks volumes about the 
dedication of the shipbuilding industry and its employees along the 
Gulf Coast.
    Of course, we must remain vigilant regarding cost growth. However, 
I am committed to working with industry to develop and promote cost 
reduction measures and am personally engaged with the CEO's of Lockheed 
Martin and Northrop Grumman regarding my concerns.
    I've also read that the Coast Guard is not in control of the 
Deepwater Program; that we've somehow abrogated our oversight 
responsibilities and handed industry the ``keys to the vault.'' That is 
not true. The Coast Guard has been and remains fully involved in the 
management of this program and has made all final and critical 
decisions. When appropriate, the issues are briefed all the way up the 
chain of command to me, and I make the decision myself. And following 
recommendations from DHS auditors, we have taken steps to ensure that 
we accurately and thoroughly document such decisions for future 
reference.
    We've redefined our award term and award fee criteria, making them 
more objective in order to improve contractor performance. As resources 
allow, the Coast Guard will assume greater responsibility as the system 
integrator, a role we now feel better positioned to take on.
    It is critical that the senior leadership in each of our 
organizations meet regularly to be informed of the progress of this 
program so we can provide executive level oversight at all times, and 
specific direction when warranted. As a result, I am personally 
committed to doing all that I can to make this a successful starting 
point for further improvement in both the performance and relationships 
that exist within the Deepwater program, which is so vital to Coast 
Guard readiness.
We're on the Path to Change
    In conclusion, we have learned some hard lessons and are 
implementing recommendations from the GAO and OIG to keep Deepwater 
moving forward. We are making significant progress and outfitting our 
fleet to meet 21st century threats and requirements.
    I am confident the NSC is on the correct course, I'm convinced our 
FRC ``dual path'' approach is the best and fastest way to address the 
patrol boat gap, and I'm pleased that our Deepwater aviation assets are 
already making real contributions within the fleet. I look forward to 
the delivery of additional assets and the operational capacity they 
will bring. They will close the existing aircraft and patrol boat gaps 
so that we can best protect our maritime borders and tend to the 
Nation's business at sea.
    I know you're anxious for results; I am too, and I assure you 
nobody is as anxious as the men and women of the Coast Guard. We are on 
the path to change, and we will not stop until Coast Guard has the 
tools it needs to protect America.
    I am the Commandant of the Coast Guard, I am responsible, I will do 
this right.
    Thank you for the opportunity to testify before you today and for 
all you do for Coast Guard men and women. I'm happy to answer any 
questions you may have.

    Senator Cantwell. Thank you, Admiral Allen.
    Mr. Skinner?

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

    Mr. Skinner. Good afternoon, Madam Chair, members of the 
Committee. I'm pleased to be here today. I am particularly 
pleased to be able to testify side-by-side with Admiral Allen, 
the Commandant of the Coast Guard. Together, I'm confident that 
we can paint a clearer picture of the challenges facing the 
Deepwater Program, and the efforts underway to improve the 
management and oversight of this very important and complex 
acquisition initiative.
    Over the past two and a half years, my office has completed 
four audits involving the Deepwater Program. They involved the 
123-foot cutter, the National Security Cutter, the command and 
control information technology systems, and the re-engineering 
of the HH-65 helicopters.
    Four common themes and risks have emerged from each of 
these audits. First, the dominant influence of expediency. That 
is, schedule concerns trump performance concerns. This is best 
illustrated by the National Security Cutter procurement. The 
Coast Guard proceeded with the construction of the NSC, knowing 
well in advance that its technical experts had engineering 
design, and future performance concerns. The Coast Guard 
repeatedly told us the decisions regarding the NSC reflected 
more than simply the Naval engineering perspective. Rather, 
they also encompassed considerations of cost, schedule and 
performance. However, the Coast Guard was unable to provide any 
documentation to support this. The design and performance 
concerns still remain outstanding today. And the cost to 
mitigate those concerns has yet to be determined. Without 
authoritative documentation to support the Coast Guard's 
decision, it appears the NSC's construction schedule trumped 
its performance capabilities.
    Second, the terms and conditions of the contracts are, in 
our opinion, 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 audit reports that we issued over the past two and 
a half years.
    Third, our reviews have raised concerns with the definition 
and clarity of operational and performance requirements. This 
has compromised the Coast Guard's ability to hold the 
contractor accountable for its performance. For example, 
performance specifications associated with upgrading the 
information systems on the Coast Guard 123-foot cutter, did not 
have a clearly defined expected level of performance, causing 
the Coast Guard to accept delivery of assets that did not meet 
its anticipated requirements.
    Also, in our review of the HITRON lease, we determined that 
a similar lack of clarity in the assets contractual performance 
requirements challenged the Coast Guard's ability to 
effectively assess contractor performance. In the NSC 
acquisition, the cutter's performance specifications were so 
poorly worded, that there were major differences within the 
Coast Guard itself for more than 3 years, as to what the NSC's 
performance capabilities should actually be.
    And finally, and simply put, the Coast Guard does not have 
a sufficient number of staff, and 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.
    These issues are not new to the Deepwater Program. As early 
as February 2003, only 8 months after the award of the 
Deepwater contract to Integrated Coast Guard Systems, the U.S. 
Department of Transportation Office of Inspector General 
reported that; one, the Coast Guard lacked sufficient 
management controls and capability and capacity to oversee the 
Program. The Program was initiated without the people needed to 
manage the effort, even with the out-sourcing of program 
management to a systems integrator; and, two, it did not have 
the business processes in place to project complete, current, 
and authoritative life-cycle costs. Consequently, the Coast 
Guard is unable to assert, with any degree of certainty, what 
the true ownership costs of the Deepwater program will be.
    This lack of proper foundation for the Deepwater program 
remains a challenge to this day. And, as a result, the Coast 
Guard has encountered a number of implementation problems which 
have resulted in cost increases, schedule delays, and reduced 
operational performance.
    As you heard today from Admiral Allen, the Coast Guard 
recognizes these challenges, and has taken corrective action to 
strengthen program management and oversight, such as granting 
its Chief Engineer with technical authority, thereby taking 
back the reins of the management of the contract; using 
independent third-party assessments of performance; 
consolidating acquisition activities under one Directorate; and 
redefining the contract terms and conditions, including the 
award fee criteria and provisions to ensure government 
involvement in subcontract management in make-or-buy decisions. 
The systems integrator need not, necessarily, be the source of 
supply. Furthermore, and most importantly, as Admiral Allen has 
pointed 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.
    The Coast Guard also advised that it is taking steps to 
improve documentation of key Deepwater-related decisions. This 
is particularly important to ensure transparency and 
accountability as the program moves forward.
    These steps should significantly increase the level of 
management and oversight exercised over the assets that are 
acquired or modernized under the Deepwater Program. However, 
many of these corrective measures will take time, such as 
building a 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.
    Madam Chair, that concludes my statement, I'd be pleased to 
answer any questions.
    [The prepared statement of Mr. Skinner follows:]

     Prepared Statement of Richard L. Skinner, Inspector General, 
                    Department of Homeland Security
    Good afternoon, Chairman Cantwell and members of the Subcommittee. 
I am Richard L. Skinner, Inspector General for the Department of 
Homeland Security (DHS). Thank you for the opportunity to discuss the 
status of the U.S. Coast Guard's Deepwater Program.
    My testimony today will address the broader contract and program 
management challenges associated with the Deepwater Program. We will 
also address how these challenges have impacted specific Deepwater 
assets, including the modernization of the 110/123-foot Island Class 
cutters; the National Security Cutter, the upgrades to the Coast 
Guard's Command, Control, Communication, Computers, Intelligence, 
Surveillance and Reconnaissance system; the re-engining of the HH-65 
helicopter; and the acquisition of the Fast Response Cutter.
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, providing a deepwater-capable fleet for 40 years. The 
Deepwater acquisition strategy is a non-traditional approach by which 
private industry was asked to not only develop and propose an optimal 
system-of-systems mix of assets, infrastructure, information systems, 
and people solution 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 separately contracted for each major activity or asset involved, 
such as cutters, aircraft, their logistics support, communications 
equipment, systems integration, and program management support.
    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 possible 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 completed audits of the 110-foot/123-foot Modernization 
Project; the National Security Cutter, the information technology 
systems; and the re-engining of the HH-65 helicopters. Common themes 
and risks emerged from these audits, primarily the dominant influence 
of expediency, flawed 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 failed to meet minimum Deepwater 
performance requirements.
Lead Systems Integrator Approach
    The route the Coast Guard took to outsource program management to 
the systems integrator has presented challenges in implementation. The 
Deepwater contract essentially empowered the contractor with authority 
for decision-making. Therefore, the Coast Guard was reluctant to 
exercise a sufficient degree of authority to influence the design and 
production of its own assets. Specifically, under the contract ICGS was 
the Systems Integrator and assigned 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 is 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 decides 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) in 
resolving the Coast Guard's technical concerns has been called into 
question by both the 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 report 
of the NSC, we reported the Coast Guard and the American Bureau of 
Shipping (ABS) 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 percent 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 gives 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
    A lack of clarity in the Deepwater contract's terms and conditions 
have also compromised the Coast Guard's ability to hold the contractor 
accountable by creating situations where competing interpretations of 
key provisions exist. 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 HITRON lease, we 
determined that a similar lack of clarity in the asset's contractual 
performance requirements challenged the Coast Guard's ability to 
effectively assess contractor performance. On the NSC acquisition, the 
cutter's performance specifications were so poorly worded that there 
were major disagreements within the Coast Guard as to what the NSC's 
performance capabilities should actually be.
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 the 
current REA, although 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.
    The current $775 million estimate also does not include the cost of 
structural modifications to be made to the NSC as a result of its known 
design deficiencies. In addition, future REAs and the cost of 
modifications to correct or mitigate the cutter's existing design 
deficiencies could add hundreds of millions of dollars to the total NSC 
acquisition cost. We remain concerned that these and other cost 
increases could result in the Coast Guard acquiring fewer NSCs or other 
air and surface assets under the Deepwater contract.
Impact on Coast Guard Operational Capabilities--Short- and Long-Term
    The Deepwater record of accomplishment has been disappointing to 
date. For example, while the re-engining of the HH-65 Bravo helicopters 
has resulted in an aircraft with significantly improved capabilities, 
the program has experienced schedule delays and cost increases. For 
example, the delivery schedule calls for the HH-65 re-engining project 
to be completed by November 2007 or 16 months beyond the Commandant's 
original July 2006 deadline. Extending the delivery schedule has 
exposed HH-65B aircrews to additional risk due to the tendency of the 
aircraft to experience loss of power mishaps. It also delays the 
replacement of the eight Airborne Use of Force-equipped MH-68 
helicopters that are being leased to perform the Helicopter 
Interdiction (HITRON) mission at a cost in excess of $20 million per 
year.
    There are also problems with Coast Guard's acquisition of the 
Vertical take-off and landing unmanned aerial vehicle (VUAV). VUAVs 
have the potential to provide the Coast Guard flight-deck-equipped 
cutters with air surveillance, detection, classification, and 
identification capabilities. Currently, the VUAV acquisition is over 
budget and more than 10 months behind schedule. The Commandant of the 
Coast Guard recently testified that the VUAV acquisition was under 
review. The Commandant indicated that the Coast Guard Research and 
Development Center is conducting a study and will provide 
recommendations for the way ahead with the VUAV. A decision by the 
Coast Guard to stop work on the VUAV project would significantly impact 
the operational capability of the NSC and OPC by limiting their ability 
to provide long-range surveillance away from the parent cutter. The 
Coast Guard's Revised Deepwater Implementation Plan, 2005 calls for the 
acquisition of 45 VUAVs at a total cost of approximately $503.3 
million. As of December 31, 2006, Coast Guard had obligated $108.4 
million (73 percent) of the $147.7 million funded for the project.
    The increased cost, schedule delays, and structural design problems 
associated with the 123-foot patrol boat and the FRC have further 
exacerbated the Coast Guard's patrol boat operational hour and 
capability gap. The Coast Guard is attempting to mitigate the problem 
by re-negotiating an agreement with the U.S. Navy to continue the 
operation of the 179-foot ``Cyclone'' class patrol boats, and to extend 
the operational capability of the 110-foot Island Class fleet through 
the use of multiple crews. While the increased operations tempo this 
will help in the short-term, it will also increase the wear and tear on 
these aging patrol boats in the long-term.
    The structural design issues associated with the NSC could have the 
greatest impact on Coast Guard operational capabilities in both the 
near- and long-term. This is due to cost increases that far exceed the 
cost of inflation even when the post-9/11 engineering change proposals 
and the costs increases associated with Hurricane Katrina are left out 
of the equation. These cost increases are largely due to: (1) existing 
and future Requests for Equitable Adjustment that the Coast Guard 
expects to receive from ICGS; (2) the cost of NSC ``structural 
enhancements,'' the number, type, scope, and cost of which have yet to 
be determined; and (3) the schedule delays and lost operational 
capability, that are expected during the modification to NSCs 1-8.
Summary of Concerns Raised in Recent OIG Reports
110/123, Maritime Patrol Boat Modernization Project
    We recently completed an inquiry into allegations of a Hotline 
Complaint alleging that the Coast Guard's 123-foot Island Class Patrol 
Boats (123, cutter) and short-range prosecutor (prosecutor) contained 
safety and security vulnerabilities. The 123, cutter is a modification 
of the 110, Island Class patrol boat and was phased into service as 
part of the Deepwater project. The original Deepwater plan projected 
the conversion of forty-nine 110, patrol boats into 123, patrol boats 
as a bridging strategy to meet patrol boat needs until the new Fast 
Response Cutter was introduced. The prosecutor is a 24, 6" small boat 
that can be deployed from the National Security Cutter, Fast Response 
Cutter, and Offshore Patrol Cutter. The revised Deepwater 
Implementation Plan calls for the acquisition of 91 prosecutors. The 
complaint said that these vulnerabilities were the result of the 
contractor's failure to comply with Command, Control, Communications, 
Computer, Intelligence, Surveillance, and Reconnaissance (C\4\ISR) 
design requirements as defined in the Deepwater contract. Specifically, 
the complainant alleged that:

   The safety of the 123, cutter's crew was compromised by the 
        contractor's failure to utilize low smoke cabling;

   The contractor knowingly installed aboard the 123, cutter 
        and prosecutor external C\4\ISR equipment that did not meet 
        specific environmental requirements outlined in the Deepwater 
        contract;

   The cable installed during the upgrade to the cutter's 
        C\4\ISR system represented a security vulnerability; and,

   The video surveillance system installed aboard the 123, 
        cutter does not meet the cutter's physical security 
        requirements.

    Aspects of the C\4\ISR equipment installed aboard the 123, cutters 
do not meet the design standards set forth in the Deepwater contract. 
Specifically, two of the four areas of concern identified by the 
complainant were substantiated and are the result of the contractor not 
complying with the design standards identified in the Deepwater 
contract. For example, the contractor did not install low smoke cabling 
aboard the 123, cutter, despite a Deepwater contract requirement that 
stated, ``all shipboard cable added as a result of the modification to 
the vessel shall be low smoke.'' The intent of this requirement was to 
eliminate the polyvinyl chloride jacket encasing the cables, which for 
years produced toxic fumes and dense smoke during shipboard fire. 
Additionally, the contractor installed C\4\ISR topside equipment aboard 
both the 123, cutters and prosecutors, which either did not comply or 
was not tested to ensure compliance with specific environmental 
performance requirements outlined in the Deepwater contract.
    The remaining two areas of concern identified by the complainant 
were in technical compliance with the Deepwater contract and deemed 
acceptable by the Coast Guard. Specifically, while the type of cabling 
installed during the C\4\ISR system upgrade to the 123, cutter was not 
high-grade braided cable; the type of cable used met the Coast Guard's 
minimum-security standards as required by the Deepwater contract. 
Concerning the installation of the video surveillance system, while the 
system did not provide 360 degrees of coverage, it met minimum contract 
requirements.
    Our review raises many concerns about 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. We are concerned that 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 Coast 
Guard reviewed the contractor's self-certification documentation, it 
would have determined that the contractor had not complied with the 
stated 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 identified in the hotline complaint and take steps to 
prevent similar technical oversight issues from affecting the remaining 
air, surface, and C\4\ISR assets to be modernized, upgraded, or 
acquired through the Deepwater Program. The Coast Guard concurred with 
the principle findings of our report and its recommendations and said 
it is in the process of implementing corrective measures.
    For reasons unrelated to the issues identified during our inquiry, 
operations of the 123, cutter fleet have been suspended. On November 
30, 2006, the Coast Guard announced that it was suspending operations 
of all eight 123, cutters due to the continuing deformation of the 
hulls that in some instances resulted in hull breaches. These problems 
had previously resulted in the implementation of operating restrictions 
that severely undermined the mission effectiveness of 123, cutter 
fleet. However, these operating restrictions did not resolve the hull 
deformation problem but rather mitigated their impact on crew safety. 
Consequently, the Coast Guard had to consider whether to implement 
additional operational restrictions in order to meet minimum crew 
safety requirements or to suspend 123, cutter operations until a 
solution to these problems could be identified and implemented. The 
Coast Guard determined that additional operating limitations would have 
further undermined the operational effectiveness of the 123, cutter. 
For these reasons, 123, cutter fleet was withdrawn from service. 
Although the cutter operations have been suspended, the Coast Guard has 
not yet determined the final disposition of the 123, cutter fleet.
National Security Cutter (NSC)
    We recently issued a report on the Coast Guard's acquisition of the 
National Security Cutter (NSC). The objective of our audit was to 
determine the extent to which the NSC will meet the cost, schedule, and 
performance requirements contained in the Deepwater contract.
    The NSC, as designed and constructed, will not meet performance 
specifications described in the original Deepwater contract. 
Specifically, 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. To mitigate the effects of these deficiencies, the Coast 
Guard intends to modify the NSC's design to ensure that the cutters 
will meet the service and fatigue-life requirements specified in its 
contract with the systems integrator. However, this decision was made 
after the Coast Guard authorized production of 2 of the 8 cutters being 
procured.
    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 May 2006 decision to award the systems integrator a contract 
extension. Due to a lack of adequate documentation, we were unable to 
ascertain the basis for the decision to proceed with the production of 
the first two cutters, knowing that there were design flaws.
    Since the Deepwater contract was signed in June 2002, the combined 
cost of NSCs 1 and 2 have increased from $517 million to approximately 
$775 million. These cost increases are largely due to design changes 
necessary to meet post-9/11 mission requirements and other government 
costs not included in the original contract price. The $775 million 
estimate does not include costs to correct or mitigate the NSC's 
structural design deficiencies, additional labor and material costs 
resulting from the effects of Hurricane Katrina, and the final cost of 
the $302 million Request for Equitable Adjustment (REA) that the Coast 
Guard is currently negotiating with the systems integrator (ICGS).
    NSC 1 was christened on November 11, 2006, and final delivery to 
the Coast guard is scheduled for August 2007. NSC 2 is currently under 
construction and is scheduled for delivery during the Summer of 2008. 
As of December 31, 2006, Coast Guard had obligated $751.6 million (49 
percent) of the $1,518 million funded for the project.
    We made five recommendations to the Coast Guard. Our 
recommendations are intended to ensure the NSC is capable of fulfilling 
all performance requirements outlined in the Deepwater contract: and to 
improve the level of Coast Guard technical oversight and 
accountability.
Information Technology Systems
    We also audited the Coast Guard's efforts to design and implement 
command, control, communications, computers, intelligence, 
surveillance, and reconnaissance (C\4\ISR) systems to support the 
Deepwater Program. We determined that the Coast Guard's efforts to 
develop its Deepwater C\4\ISR system could be improved. Although Coast 
Guard officials are involved in high-level Deepwater information 
technology requirements definition process, they had limited influence 
over contractor decisions toward meeting these requirements. A lack of 
discipline in requirements 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 achieve, 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.
    Additionally, the Coast Guard faced several challenges to 
implementing effectively its Deepwater C\4\ISR systems. Due to limited 
oversight as well as unclear contract requirements, the agency did not 
ensure that the contractor was making the best decisions toward 
accomplishing Deepwater IT goals. Insufficient C\4\ISR funding 
restricted accomplishing the ``system-of-systems'' objectives that are 
considered fundamental to Deepwater asset interoperability. Inadequate 
training and guidance also hindered users from realizing the full 
potential of the C\4\ISR upgrades. Instituting effective mechanisms for 
maintaining C\4\ISR equipment have been equally challenging.
    We made 9 recommendations to the Coast Guard. Our recommendations 
are intended to increase agency input and oversight into the 
requirements definition and to clearly define the management processes 
used to evaluate and apply changes to the Deepwater C\4\ISR 
requirements. We also recommended that the Coast Guard increase 
staffing levels and evaluate its C\4\ISR spending priorities to improve 
technical and financial oversight over the C\4\ISR acquisition. 
Finally, we recommended that the Coast Guard takes steps to improve the 
training and technical support provided to C\4\ISR system users. Coast 
Guard concurred with all nine recommendations contained in our audit 
report and is in the process of implementing corrective measures.
    Recently, the Coast Guard provided an update regarding the progress 
being made to implement the recommendations contained in our August 
2006 report. In their response, the Coast Guard stated that the 
language contained in the Deepwater contract, including the contract's 
``award term'' criteria, had been revised to further clarify contractor 
responsibilities for developing Deepwater C\4\ISR systems.
    However, the Coast Guard is struggling to provide the funding 
needed to accomplish system of system objectives and maintain an 
adequate level of oversight over the Deepwater contractor. For example, 
during FY 2005, C\4\ISR program managers requested 28 additional staff 
positions to help with contractor oversight. However, only 5 positions 
were authorized due to a lack of funding. As a result, the Coast Guard 
has had to divert management's attention from systems development tasks 
to the re-planning and re-phasing the work to match the funding 
constraints and economize in carrying out its program oversight and 
support activities.
HH-65 Helicopter
    We also 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 in-flight loss of power mishaps that jeopardized 
the safety of HH-65 flight crews. Between October 1, 2003, and August 
31, 2004, HH-65 aircrews reported 150 in-flight loss of power mishaps. 
This was in sharp contrast to the 64 in-flight loss of power mishaps 
that were reported between FY 2000 and FY 2003. Concerns were also 
raised about: (1) the capabilities of the Honeywell LTS-101-850 engine; 
(2) the potential cost, delivery, and operational risks associated with 
the Coast Guard's decision to enter into a contract with Integrated 
Coast Guard Systems (ICGS) to re-engine the HH-65 fleet with Arriel 2C2 
engines; and (3) the ICGS proposal not meeting the Coast Guard's desire 
to have 84 HH-65s re-engined within a 24-month period, by July 2006, as 
mandated by the Commandant. In our view, extending the delivery dates 
unnecessarily exposed HH-65 aircrews to additional risk due to the 
unprecedented rate in which in-flight loss of power mishaps were 
occurring.
    Our review of the HH-65 re-engining project determined the 
replacement of the Honeywell LTS-101-750 engines originally installed 
aboard the HH-65 helicopter with the Arriel 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) than it would 
if the Coast Guard placed the responsibility for the re-engining under 
the auspices of ICGS. The Coast Guard's Assistant Commandant for 
Operations made a similar recommendation in May 2004.
    ICGS' cost proposal for re-engining the HH-65 fleet was $294 
million, or $40 million more than the Coast Guard estimated for re-
engining the aircraft in-house at ARSC. This was a significant cost 
differential given ICGS' intention to have 83 (87 percent) of the 95 
HH-65s re-engined at ARSC, the effect these additional expenditures 
could have on the Coast Guard's ability to sustain and upgrade its 
legacy aviation assets, and the stated inability of ICGS to re-engine 
the aircraft within the Commandant's 24 month timeline. To date, 69 re-
engined HH-65s have been delivered to the Coast Guard. The remaining 
HH-65 helicopters are to be delivered to the Coast Guard by the end of 
FY 2007. As of December 31, 2006, Coast Guard had obligated $307 
million (89 percent) of the $343 million funded for the project.
    We made five recommendations to the Coast Guard. Specifically, we 
recommended the Coast Guard implement the Assistant Commandant for 
Operations May 2004 recommendation that the HH-65 re-engining project 
be taken from ICGS and performed as a government-performed contract. We 
also recommended that the Coast Guard: (1) refurbish additional HH-65 
helicopters; (2) expedite the replacement of the MH-68 helicopters 
operated by it Helicopter Interdiction squadron in Jacksonville; and 
(3) take the savings from the termination of the HITRON lease to 
mitigate the costs associated with the maintenance of its legacy 
aviation assets.
    The Coast Guard did not concur with any of the report's 
recommendations. Their primary rationale being that ICGS minimized the 
operational, legal, and contract performance risks associated with the 
re-engining. The Coast Guard also stated it believed that it received 
significant benefits from the current ICGS contract that far outweighed 
the costs of having the Coast Guard manage the project. We did not and 
do not believe these benefits have been demonstrated in this instance.
    The Coast Guard, however, did state in its response that it 
supported our contention that additional refurbished HH-65s were needed 
and that the MH-68 helicopters needed to be replaced with AUF-equipped 
HH-65s as soon as possible. However, in both instances, the Coast Guard 
cited a lack of funding as the primary reason for not implementing 
these recommendations.
Fast Response Cutter
    The Fast Response Cutter is intended to be the Coast Guard's 
maritime security workhorse, patrolling in both coastal and high seas 
areas. According to the Coast Guard, the FRC can safely and effectively 
operate in higher sea conditions than its legacy counterpart and can 
remain at sea for up to 7 days, 2 days longer than the Coast Guard's 
legacy 110-foot cutter. The original 2002 Deepwater implementation plan 
called for the Coast Guard to take delivery of the first FRCs in 2018. 
However, because of the suspension of the 123-foot conversion project 
and deterioration of the remaining 110-foot patrol boats, the FRC 
project was accelerated to achieve delivery of the first FRCs in 2007, 
more than 10 years ahead schedule. However, in February 2006, the Coast 
Guard announced that it was suspending design work on the FRC due to 
technical issues identified with the hull design. The Coast Guard is 
currently assessing the suitability of designs in operational service 
in order to procure a proven patrol boat as an interim solution to 
address its urgent operational needs until the technical issues 
associated with the current FRC design are alleviated. We have not yet 
evaluated the cost, schedule, and performance issues associated with 
the FRC acquisition. We do know that as of December 31, 2006, Coast 
Guard had obligated $49.4 million (24 percent) of the $208 million 
funded for the project to date.
Conclusion
    The Coast Guard recognizes these challenges and is taking 
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, and most importantly, the 
Coast Guard is increasing its staffing for the Deepwater program, and 
reinvigorating its acquisition training and certification processes to 
ensure that staff have the requisite skills and education needed to 
manage the program. The Coast Guard is also taking steps to improve the 
documentation of key Deepwater-related decisions. If fully-implemented, 
these steps should significantly increase the level of management 
oversight exercised 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.
    I will conclude by restating that we continue to be highly 
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 in order to assess the most 
appropriate cycle for reporting the program's progress.
    Chairman Cantwell, this concludes my prepared remarks. I would be 
happy to answer any questions that you or the Subcommittee members may 
have.

    Senator Cantwell. Thank you, Mr. Skinner.
    Mr. Caldwell?

       STATEMENT OF STEPHEN L. CALDWELL, ACTING DIRECTOR,

             HOMELAND SECURITY AND JUSTICE ISSUES,

             U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Caldwell. Senator Cantwell, Senator Snowe, Senators 
Kerry, Lautenberg and Vitter, I'm very pleased to be here again 
before your Committee to talk about GAO's Deepwater work.
    While we've been providing Congress with oversight 
information on Deepwater since 1998, I think we're at a 
transition point in terms of oversight, all of us collectively. 
To make an analogy--we're shifting from looking at the forest, 
to looking at the trees. And in terms of what that means for 
Deepwater, it's a shift from looking at the overall structure 
and management of the contract, which is something we are still 
looking at, to looking at some of these individual assets as 
they are designed or delivered.
    What we're finding is, unfortunately while that shift in 
focus has occurred, the view has not improved. So, while there 
are some assets that have been successful, and Admiral Allen 
has talked about those, we've got some major problems with some 
of the vessels that have recently been delivered.
    As mentioned in my statement, since 2001 we have identified 
risks with the Coast Guard's overall approach to Deepwater, in 
terms of relying on a lead integrator, developing a system of 
systems, and using a performance-based contract. All three of 
these aspects, if not done with appropriate oversight, could 
increase the risk of the Coast Guard to be able to adequately 
manage an acquisition of this scope and magnitude.
    My statement also refers to our 2004 report, where we made 
11 recommendations to the Coast Guard, in the areas of program 
management, contractor accountability, and cost control. And 
more recently, the Coast Guard has reported to Congress on the 
status of those recommendations.
    When I last testified before this Committee last Spring, we 
had recently issued a report, which noted some Coast Guard 
progress toward closing out those recommendations. And we are 
currently in the process of reviewing the Coast Guard's 
continuing work to close those recommendations. This ongoing 
GAO review is being done for the Senate and House 
Appropriations Committees as part of a legislative mandate. I 
assure you that we will provide this committee with an update, 
as soon as new information is available on that.
    But now, moving from that forest to the trees, I think some 
of our more recent work, focusing on the individual assets, has 
identified additional problems. Last Spring, our report on the 
Fast Response Cutter noted problems that ultimately led the 
Coast Guard to stop all design work on that particular vessel. 
Similarly, recent reports as just noted here, by the Inspector 
General, have noted the problems with the National Security 
Cutter, as well as the 123-foot patrol boat.
    These asset-specific reports expand the focus of the 
problem from that of acquisition management to operational 
effectiveness which, as many of us know, is considered one of 
the Coast Guard's core competencies. So, this is where the 
rubber is supposed to meet the road, but it is not doing so.
    The suspension of the FRC design work, and most especially, 
the suspension of the 123-foot patrol boat operations, 
highlights just how important acquisition management is. And it 
really shows the effect now on the Coast Guard's key missions, 
such as maritime security, fisheries protection, search and 
rescue and even national defense.
    Admiral Allen, as well as Admiral Blore, in their testimony 
today--and before other committees--clearly have made it a 
priority to give their sailors and airmen vessels and aircraft 
as soon as possible. Admiral Allen just referred to that as the 
promise of Deepwater, and they've outlined several steps to 
improve the management of Deepwater toward that promise.
    Here at GAO, we stand ready to assist Congress, working 
again with the Coast Guard, toward that same promise. However, 
as auditors, we must observe our traditional caution, and due 
diligence, in evaluating whether the efforts that have been 
laid out here, will actually achieve their desired outcomes.
    Thank you, and I'd be pleased to answer any questions.
    [The prepared statement of Mr. Caldwell follows:]

 Prepared Statement of Stephen L. Caldwell, Acting Director, Homeland 
   Security and Justice Issues, U.S. Government Accountability Office
    Madam Chair and members of the Subcommittee:
    Thank you for inviting me here today to discuss our reviews of the 
U.S. Coast Guard's $24 billion Deepwater program. While there is 
widespread acknowledgment that many of the Coast Guard's aging assets 
need replacement or renovation, concerns also exist about the 
acquisition approach the Coast Guard adopted in launching the Deepwater 
program. From the outset, we have expressed concern about the risks 
involved with the Coast Guard's acquisition strategy. \1\ The 
subsequent changes in the Deepwater asset mix and delivery schedules 
only increased these concerns. In 2004, we reported that well into the 
contract's second year, key components needed to manage the program and 
oversee the system integrator's performance had not been effectively 
implemented. \2\ Accordingly, we made 11 recommendations to address 
three broad areas of concern: improving program management, 
strengthening contractor accountability, and promoting cost control 
through greater competition among potential subcontractors.
---------------------------------------------------------------------------
    \1\ GAO, Coast Guard: Progress Being Made on Deepwater Project, but 
Risks Remain, GAO-01-564 (Washington, D.C.: May 2, 2001).
    \2\ GAO, Contract Management: Coast Guard's Deepwater Program Needs 
Increased Attention to Management and Contractor Oversight, GAO-04-380 
(Washington, D.C.: Mar. 9, 2004).
---------------------------------------------------------------------------
    My statement today will discuss our prior work on the Coast Guard's 
Deepwater program. Specifically, I will discuss:

   the Coast Guard's acquisition approach for the Deepwater 
        program;

   previous GAO recommendations to the Coast Guard on 
        Deepwater, highlighting the importance of Integrated Product 
        Teams; and

   operational challenges the Coast Guard is facing because of 
        performance and design problems with Deepwater patrol boats.

    This testimony is based on our prior work on the Deepwater program. 
That work was conducted in accordance with generally accepted 
government auditing standards. We have ongoing work across all of the 
issues discussed in this statement.
Summary
    In 2001, we described the Deepwater program as ``risky'' due to the 
unique, untried acquisition strategy for a project of this magnitude 
within the Coast Guard. The Coast Guard used a system-of-systems 
approach to replace deteriorating assets with a single, integrated 
package of aircraft, vessels, and unmanned aerial vehicles, to be 
linked through systems that provide command, control, communications, 
computer, intelligence, surveillance, and reconnaissance (C\4\ISR), and 
supporting logistics. In a system-of-systems, the delivery of Deepwater 
assets are interdependent, thus schedule slippages and uncertainties 
associated with potential changes in the design and capabilities of any 
one asset could increase the overall risks that the Coast Guard might 
not meet its expanded homeland security performance requirements within 
given budget parameters and milestone dates. The Coast Guard also used 
a system integrator--which can give the contractor extensive 
involvement in requirements development, design, and source selection 
of major system and subsystem subcontractors. The Deepwater program is 
also a performance-based acquisition, meaning that it is structured 
around the results to be achieved rather than the manner in which the 
work is performed. If performance-based acquisitions are not 
appropriately planned and structured, there is an increased risk that 
the government may receive products or services that are over cost 
estimates, delivered late, and of unacceptable quality.
    Our reported concerns and related recommendations in 2004 and in 
subsequent assessments in 2005 and 2006 have centered on three main 
areas: program management, contractor accountability, and cost control 
through competition. In the area of program management, among other 
things, our prior work has found that Integrated Product Teams (IPTs)--
the Coast Guard's primary tool for managing the program and overseeing 
the contractor--have struggled to effectively carry out their missions. 
We recommended that, among other things, Coast Guard improve the IPTs 
by initiating actions to establish timely charters and training. In 
terms of contractor accountability, in 2004 we found that the Coast 
Guard had not developed quantifiable metrics to hold the system 
integrator accountable for its ongoing performance, the process by 
which the Coast Guard assessed performance after the first year of the 
contract lacked rigor, and the Coast Guard had not begun to measure the 
system integrator's performance on the three overarching goals of the 
Deepwater program--maximizing operational effectiveness, minimizing 
total ownership costs, and satisfying the customer. Thus, one 
recommendation we made for improving contractor accountability was to 
devise a timeframe for measuring the contractor's progress toward 
improving operational effectiveness. We also reported in 2004 that, 
although competition among subcontractors was a key vehicle for 
controlling costs, the Coast Guard had neither measured the extent of 
competition among the suppliers of Deepwater assets nor held the system 
integrator accountable for taking steps to achieve competition. 
Consequently, we recommended that Coast Guard develop a plan to hold 
the contractor accountable for ensuring adequate competition among 
suppliers. While we recognize that the Coast Guard has taken steps to 
address our findings and recommendations, aspects of the Deepwater 
program will require continued attention.
    In addition to the Deepwater program management issues discussed 
above, the Coast Guard is facing operational challenges because of 
performance and design problems with Deepwater patrol boats. 
Specifically, the conversion of legacy 110-foot patrol boats to 
upgraded 123-foot patrol boats was stopped at eight hulls (rather than 
the entire fleet of 49) due to deck cracking, hull buckling, and shaft 
alignment problems. These patrol boat conversion problems ultimately 
led the Coast Guard to suspend all normal operations of the eight 
converted 123-foot patrol boats on November 30, 2006. The Coast Guard 
is now exploring options to address the resulting short-term 
operational gaps. There have also been design problems with the new 
Fast Response Cutter (FRC), intended to replace all 110-foot and 123-
foot patrol boats. In February 2006, the Coast Guard suspended design 
work on the FRC due to design risks such as excessive weight and 
horsepower requirements. \3\ In moving forward with the FRC acquisition 
as planned, the Coast Guard will end up having to operate two classes 
of FRCs--which has resulted in a slippage of the anticipated FRC 
delivery date. One class will be based on an adapted design from a 
patrol boat already on the market and another class that would be 
redesigned to address the problems in the original FRC design plans. 
Thus, the Coast Guard is also facing longer-term operational gaps 
related to its patrol boats. As with the 123-foot patrol boats, the 
Coast Guard is looking at options to address these long-term 
operational gaps.
---------------------------------------------------------------------------
    \3\ GAO, Coast Guard: Status of Deepwater Fast Response Cutter 
Design Efforts, GAO-06-764 (Washington, D.C.: June 23, 2006).
---------------------------------------------------------------------------
Background
    For about a decade, the Coast Guard has been developing an 
Integrated Deepwater System (or Deepwater) acquisition program, a long-
term plan to replace or modernize its fleet of vessels and aircraft. 
Many of these legacy assets are at or approaching the end of their 
estimated service lives. Deepwater is the largest and most complex 
acquisition project in the Coast Guard's history. The acquisition is 
scheduled to include the modernization and replacement of an aging 
fleet of over 90 cutters and 200 aircraft used for missions that 
generally occur beyond 50 miles from the shore. As originally 
conceived, Deepwater was designed around producing aircraft and vessels 
that would function in the Coast Guard's traditional at-sea roles, such 
as interdicting illicit drug shipments or rescuing mariners from 
difficulty at sea.
    After the terrorist attacks on September 11, 2001, however, these 
aircraft and vessels began taking on additional missions related to 
protection of ports, waterways, and coastal areas. As a result, the 
Coast Guard began revising the Deepwater implementation plan to provide 
replacement assets that could better address these added 
responsibilities. In August 2005, the Coast Guard issued the revised 
Deepwater implementation plan detailing the assets it planned to modify 
or acquire, along with the proposed costs and schedules for doing so. 
Then, in February 2006, the Coast Guard again updated its Deepwater 
plan to align with its Fiscal Year 2007 budget submissions. The revised 
plan increased overall program costs from the original estimate of $17 
billion to $24 billion. Overall, the acquisition schedule was 
lengthened by 5 years, with the final assets now scheduled for delivery 
in 2027. \4\
---------------------------------------------------------------------------
    \4\ GAO, Coast Guard: Changes to Deepwater Plan Appear Sound, and 
Program Management Has Improved, but Continued Monitoring is Warranted, 
GAO-06-546 (Washington, D.C.: April 28, 2006).
---------------------------------------------------------------------------
Coast Guard's Acquisition Approach to Deepwater Program
    In 2001, we described the Deepwater program as ``risky'' due to the 
unique, untried acquisition strategy for a project of this magnitude 
within the Coast Guard. The approach included the development of a 
system-of-systems, a single system integrator, and a performance-based 
contract.
System-of-Systems
    Rather than using the traditional approach of replacing classes of 
ships or aircraft through a series of individual acquisitions, the 
Coast Guard chose to use a system-of-systems acquisition strategy that 
would replace its deteriorating assets with a single, integrated 
package of aircraft, vessels, and unmanned aerial vehicles, to be 
linked through systems that provide C\4\ISR, \5\ and supporting 
logistics. Through this approach, the Coast Guard hoped to avoid 
``stovepiping'' the acquisition of vessels and aircraft, which might 
lead to a situation where they could not operate optimally together.
---------------------------------------------------------------------------
    \5\ C\4\ISR refers to command, control, communications, computer, 
intelligence, surveillance, and reconnaissance.
---------------------------------------------------------------------------
    Our past work on Deepwater noted that decisions on air assets were 
made by one subcontractor, while decisions regarding surface assets 
were made by another subcontractor. This approach can lessen the 
likelihood that a system-of-systems outcome will be achieved if 
decisions affecting the entire program are made without the full 
consultation of all parties involved. Our more recent work on the Fast 
Response Cutter (FRC)--which is discussed in more detail later--
indicated that changes in the design and delivery date for the FRC 
could affect the operations of the overall system-of-systems approach. 
Because the delivery of Deepwater assets are interdependent within the 
system-of-systems acquisition approach, schedule slippages and 
uncertainties associated with potential changes in the design and 
capabilities of the new assets have increased the risks that the Coast 
Guard may not meet its expanded homeland security performance 
requirements within given budget parameters and milestone dates.
System Integrator
    In June 2002, the Coast Guard awarded the Deepwater contract to 
Integrated Coast Guard Systems (ICGS). ICGS--a business entity jointly 
owned by Northrop Grumman and Lockheed Martin--is a system integrator, 
responsible for designing, constructing, deploying, supporting, and 
integrating the Deepwater assets to meet Coast Guard requirements. This 
type of business arrangement can give the contractor extensive 
involvement in requirements development, design, and source selection 
of major system and subsystem subcontractors. This management approach 
of using a system integrator has been used on other government programs 
that require system-of-systems integration, such as the Army's Future 
Combat System, a networked family of weapons and other systems.
    Government agencies have turned to the system integrator approach 
when they believe they do not have the in-house capability to design, 
develop, and manage complex acquisitions. Giving contractors more 
control and influence over the government's acquisitions in a system 
integrator role creates a potential risk that program decisions and 
products could be influenced by the financial interest of the 
contractor--which is accountable to its shareholders--which may not 
match the primary interest of the government, maximizing its return on 
taxpayer dollars. The system integrator arrangement creates an inherent 
risk, as the contractor is given more discretion to make certain 
program decisions. Along with this greater discretion comes the need 
for more government oversight and an even greater need to develop well-
defined outcomes at the outset.
Performance-Based Acquisition
    The Deepwater program has been designated as a performance-based 
acquisition. When buying services, Federal agencies are currently 
required to employ--to the maximum extent feasible--this concept, 
wherein acquisitions are structured around the results to be achieved 
as opposed to the manner in which the work is to be performed. That is, 
the government specifies the outcome it requires while leaving the 
contractor to propose decisions about how it will achieve that outcome. 
Performance-based contracts for services are required to include a 
performance work statement; measurable performance standards (i.e., in 
terms of quality, timeliness, quantity, etc.) as well as the method of 
assessing contractor performance against these standards; and 
performance incentives, where appropriate. If performance-based 
acquisitions are not appropriately planned and structured, there is an 
increased risk that the government may receive products or services 
that are over cost estimates, delivered late, and of unacceptable 
quality.
Deepwater Indicative of Broader, Systemic Acquisition Challenges
    Some of the problems the Coast Guard is experiencing with the 
Deepwater program (as discussed later in this statement), in principle, 
are indicative of broader and systemic challenges we have identified 
for complex, developmental systems. These challenges, based mostly on 
our reviews of Department of Defense programs, include:

   Program requirements that are set at unrealistic levels, 
        then changed frequently as recognition sets in that they cannot 
        be achieved. As a result, too much time passes; threats may 
        change; and/or members of the user and acquisition communities 
        may simply change their minds. The resulting program 
        instability causes cost escalation, schedule delays, fewer 
        quantities, and reduced contractor accountability.

   Program decisions to move into design and production are 
        made without adequate standards or knowledge.

   Contracts, especially service contracts, often do not have 
        measures in place at the outset in order to control costs and 
        facilitate accountability.

   Contracts typically do not accurately reflect the complexity 
        of projects or appropriately allocate risk between the 
        contractors and the taxpayers.

   The acquisition workforce faces serious challenges (e.g., 
        size, skills, knowledge, and succession planning).

   Incentive and award fees are often paid based on contractor 
        attitudes and efforts versus positive results, such as cost, 
        quality, and schedule.

   Inadequate government oversight results in little to no 
        accountability for recurring and systemic problems.

Previous GAO Recommendations Have Focused on Three Areas
    Our assessment of the Deepwater program in 2004 found that the 
Coast Guard had not effectively managed the program or overseen the 
system integrator. \6\ We specifically made 11 recommendations to the 
Coast Guard, which can found at Table 1 on page 12. Our reported 
concerns in 2004 and in subsequent assessments in 2005 and 2006 have 
centered on three main areas: program management, contractor 
accountability, and cost control through competition. Each of these 
three areas is discussed in more detail below.
---------------------------------------------------------------------------
    \6\ GAO-04-380.
---------------------------------------------------------------------------
    While we recognize that the Coast Guard has taken steps to address 
our findings and recommendations, aspects of the Deepwater program will 
require continued attention. A project of this magnitude will likely 
continue to experience other problems as more becomes known. We have 
ongoing work to monitor and evaluate the Coast Guard's efforts.
Program Management and the Importance of Integrated Product Teams
    Our previous work and recommendations were based on concerns about 
the Coast Guard's program management. For example, we reported in 2004 
that the Coast Guard had not adequately communicated to its operational 
personnel decisions on how new and old assets would be integrated and 
how maintenance responsibilities would be divided between government 
and contractor personnel. We also found that the Coast Guard had not 
adequately staffed its program management function. Despite some 
actions taken to more fully staff the Deepwater program, we reported 
that in January 2005 shortfalls remained. While 244 positions were 
assigned to the program, only 206 were filled, resulting in a 16 
percent vacancy rate.
    One of the key program management concerns we had, and one that is 
worth highlighting, is the effectiveness of IPTs. IPTs are the Coast 
Guard's primary tool for managing the Deepwater program and overseeing 
the system integrator. Our past work has found that IPTs can improve 
both the speed and quality of the decision-making process. \7\ They can 
make decisions involving significant trade-offs without relying unduly 
on other organizations for information or approval. In our prior work, 
we studied successful IPTs in commercial firms and found that effective 
teams have: (1) expertise to master different facets of product 
development, (2) responsibility for day-to-day decisions and product 
delivery, (3) key members who are either physically colocated or 
connected through virtual means to facilitate team cohesion and the 
ability to share information, and (4) control over their membership, 
with membership changes driven by each team's need for different 
knowledge.
---------------------------------------------------------------------------
    \7\ GAO, Best Practices: DOD Teaming Practices Not Achieving 
Potential Results, GAO-01-510 (Washington, D.C.: April 10, 2001).
---------------------------------------------------------------------------
    We identified two elements as essential to determining whether a 
team is in fact an IPT: the knowledge and authority needed to recognize 
problems and make cross-cutting decisions expeditiously. Knowledge is 
sufficient when the team has the right mix of expertise to master the 
different facets of product development. Authority is present when the 
team is responsible for making both day-to-day decisions and delivering 
the product. If the programs are experiencing problems, the teams 
either did not have the authority or the right mix of expertise to be 
considered IPTs. If a team lacks expertise, it will miss opportunities 
to recognize potential problems early; without authority, it can do 
little about them.
    The Deepwater IPTs--comprised of Coast Guard, ICGS, and 
subcontractor employees from Lockheed Martin and Northrop Grumman--are 
responsible for overall program planning and management, asset 
integration, and overseeing the delivery of specific Deepwater assets. 
We reported in 2004 that the teams had struggled to effectively carry 
out their missions. We identified four major issues that had impeded 
the effective performance of the IPTs:

   First, the teams lacked timely charters to vest them with 
        authority for decisionmaking. More than merely a paperwork 
        exercise, sound IPT charters are critical because they detail 
        each team's purpose, membership, performance goals, authority, 
        responsibility, accountability, and relationships with other 
        groups, resources, and schedules.

   Second, the system integrator had difficulty training IPT 
        members in time to ensure that they could effectively carry out 
        their duties, and program officials referred to IPT training as 
        deficient. IPT training is to address, among other issues, 
        developing team goals and objectives, key processes, use of a 
        web-based system intended to facilitate communication, and team 
        rules of behavior. According to a Coast Guard evaluation report 
        from December 2002, IPT training had been implemented late, 
        which contributed to a lack of effective collaboration among 
        team members.

   Third, very few of the operating IPTs were entirely 
        colocated, (that is, all members were not in the same building) 
        even though the Coast Guard's Deepwater program management plan 
        identified colocation of IPT members as a key program success 
        factor, along with effective communications within and among 
        teams. ICGS developed a web-based system for government and 
        contractor employees to regularly access and update technical 
        delivery task order \8\ information, training materials, and 
        other program information, in part to mitigate the challenges 
        of having team members in multiple locations. However, the 
        Deepwater program executive officer reported that, while the 
        system had great potential, it was a long way from becoming the 
        virtual enterprise and collaborative environment required by 
        the contractor's statement of work.
---------------------------------------------------------------------------
    \8\ In the context of the Deepwater contract, the Coast Guard 
considers delivery task orders as orders for supplies or services 
placed against the contract.

   Fourth, we reported that most of the Deepwater IPTs had 
        experienced membership turnover and staffing difficulties, 
        resulting in a loss of team knowledge, overbooked schedules, 
        and crisis management. In a few instances, such as the National 
        Security Cutter and maritime patrol aircraft, even the IPT 
---------------------------------------------------------------------------
        leadership had changed.

    In 2005, we found that the Coast Guard had taken some positive 
steps in that: (1) the IPTs had been restructured, (2) 20 IPTs had 
charters setting forth their purpose, authority, and performance goals, 
and (3) entry-level training had been implemented for team members. 
However, some of the problems continued. A Coast Guard assessment of 
the system integrator's performance found that roles and 
responsibilities in some teams continued to be unclear. Decisionmaking 
was to a large extent stove-piped, and some teams lacked adequate 
authority to make decisions within their realm of responsibility. One 
source of difficulty for some team members was that each of the two 
major subcontractors has used its own management systems and processes 
to manage different segments of the program.
    In 2005, we also noted that decisions on air assets were made by 
Lockheed Martin, while decisions regarding surface assets were made by 
Northrop Grumman. We reported that this approach can lessen the 
likelihood that a system-of-systems outcome will be achieved if 
decisions affecting the entire program are made without the full 
consultation of all parties involved. In 2006, we reported that Coast 
Guard officials believed collaboration among the subcontractors to be 
problematic and that ICGS wielded little influence to compel decisions 
among them. For example, when dealing with proposed design changes to 
assets under construction, ICGS submitted the changes as two separate 
proposals from both subcontractors rather than coordinating the 
separate proposals into one coherent plan. According to Coast Guard 
performance monitors, this approach complicates the government review 
of design changes because the two proposals often carried overlapping 
work items, thereby forcing the Coast Guard to act as the system 
integrator in those situations.
Contractor Accountability
    In 2004, we also made recommendations related to contractor 
accountability. We found that the Coast Guard had not developed 
quantifiable metrics to hold the system integrator accountable for its 
ongoing performance and that the process by which the Coast Guard 
assessed performance after the first year of the contract lacked rigor. 
For example, the first annual award fee determination was based largely 
on unsupported calculations. Despite documented problems in schedule, 
performance, cost control, and contract administration throughout the 
first year, the program executive officer awarded the contractor an 
overall rating of 87 percent, which fell in the ``very good'' range. 
This rating resulted in an award fee of $4.0 million of the maximum of 
$4.6 million.
    We also reported in 2004 that the Coast Guard had not begun to 
measure the system integrator's performance on the three overarching 
goals of the Deepwater program--maximizing operational effectiveness, 
minimizing total ownership costs, and satisfying the customers. Coast 
Guard officials told us that metrics for measuring these objectives had 
not been finalized; therefore the officials could not accurately assess 
the contractor's performance against the goals. However, at the time, 
the Coast Guard had no timeframe in which to accomplish this 
measurement.
Cost Control Through Competition
    Further, our 2004 report had recommendations related to cost 
control. We reported that, although competition among subcontractors 
was a key vehicle for controlling costs, the Coast Guard had neither 
measured the extent of competition among the suppliers of Deepwater 
assets nor held the system integrator accountable for taking steps to 
achieve competition. \9\ As the two major subcontractors to ICGS, 
Lockheed Martin and Northrop Grumman have sole responsibility for 
determining whether to provide the Deepwater assets themselves or to 
hold competitions--decisions commonly referred to as ``make-or-buy.'' 
We noted that the Coast Guard's hands-off approach to make-or-buy 
decisions and its failure to assess the extent of competition raised 
questions about whether the government would be able to control 
Deepwater program costs.
---------------------------------------------------------------------------
    \9\ GAO-04-380.
---------------------------------------------------------------------------
Coast Guard Efforts Related to GAO Recommendations
    We made 11 recommendations in 2004 in the areas of management and 
oversight, contractor accountability, and cost control through 
competition. Table 1 provides details on these recommendations.

Table 1. Status of GAO Recommendations to the U.S. Coast Guard Regarding
        Management of the Deepwater Program, as of April 28, 2006
------------------------------------------------------------------------
                          Recommendations to the       Recommendation
   Areas of concern          U.S. Coast Guard              status
------------------------------------------------------------------------
Key components of       Put in place a human        Implemented
 management and          capital plan to ensure
 oversight are not       adequate staffing of the
 effectively             Deepwater program.
 implemented
                        Improve integrated product  Partially
                         teams (IPTs) responsible    implemented
                         for managing the program
                         by providing better
                         training, approving
                         charters for sub-IPTs,
                         and improving systems for
                         sharing information
                         between teams.
                        Provide field operators     Partially
                         and maintenance personnel   implemented
                         with timely information
                         and training on how the
                         transition to Deepwater
                         assets will occur and how
                         maintenance
                         responsibilities are to
                         be divided between the
                         system integrator and
                         Coast Guard personnel.
------------------------------------------------------------------------
Procedures for          Develop measurable award    Implemented
 ensuring contractor     fee criteria consistent
 accountability are      with guidance from the
 inadequate              Office of Federal
                         Procurement Policy.
                        Provide for better input    Implemented
                         from U.S. Coast Guard
                         performance monitors.
                        Hold the system integrator  Implemented
                         accountable in future
                         award fee determinations
                         for improving
                         effectiveness of the IPTs.
                        Establish a baseline for    Will not be
                         determining whether the     implemented
                         acquisition approach is
                         costing the government
                         more than the traditional
                         asset replacement
                         approach.
                        Establish a timeframe for   Partially
                         when the models and         implemented
                         metrics will be in place
                         with the appropriate
                         degree of fidelity to be
                         able to measure
                         contractor's progress
                         toward improving
                         operational effectiveness.
                        Establish criteria to       Partially
                         determine when to adjust    implemented
                         the project baseline and
                         document the reasons for
                         change.
------------------------------------------------------------------------
Control of future       For subcontracts over $5    Implemented
 costs through           million awarded by the
 competition remains     system integrator to the
 at risk because of      two major subcontractors,
 weak oversight          require notification to
                         the Coast Guard about
                         decision to perform the
                         work in-house rather than
                         contracting it out.
                        Develop a comprehensive     Partially
                         plan for holding the        implemented
                         system integrator
                         accountable for ensuring
                         adequate competition
                         among suppliers.
------------------------------------------------------------------------
Source: GAO-04-380 and GAO-06-546.

    In April 2006, we reported that the Coast Guard had implemented 
five of the recommendations. Actions had been taken to:

   revise the Deepwater human capital plan;

   develop measurable award fee criteria;

   implement a more rigorous method of obtaining input from 
        Coast Guard monitors on the contractor's performance;

   include in the contractor's performance measures actions 
        taken to improve the integrated product teams' effectiveness; 
        and require the contractor to notify the Coast Guard of 
        subcontracts over $10 million that were awarded to the two 
        major subcontractors. \10\
---------------------------------------------------------------------------
    \10\ Our 2004 recommendation was to use a $5 million threshold 
because Lockheed Martin, one of the major subcontractors, uses that 
amount as the threshold for considering its suppliers major. The Coast 
Guard decided to use the $10 million threshold based on the criteria in 
the make-or-buy program provisions of the Federal Acquisition 
Regulation.

---------------------------------------------------------------------------
    The Coast Guard had begun to address five other recommendations by:

   initiating actions to establish charters and training for 
        integrated product teams;

   improving communications with field personnel regarding the 
        transition to Deepwater assets;

   devising a timeframe for measuring the contractor's progress 
        toward improving operational effectiveness;

   establishing criteria to determine when to adjust the 
        project baseline; and

   developing a plan to hold the contractor accountable for 
        ensuring adequate competition among suppliers.

    In our April 2006 report, we determined that, based on our work, 
these recommendations had not been fully implemented.
    The Coast Guard disagreed with and declined to implement one of our 
11 recommendations: to establish a baseline to determine whether the 
system-of-systems acquisition approach is costing the government more 
than the traditional asset replacement approach.
    We will continue to review Deepwater implementation and contract 
oversight. We are currently reviewing aspects of the Deepwater program 
for the House and Senate Appropriations Committees' Subcommittees on 
Homeland Security. \11\ As part of that effort, we will review the 
status of the Coast Guard's implementation of our 2004 recommendations 
on Deepwater contract management for improving Deepwater program 
management, holding the prime contractor accountable for meeting key 
program goals and facilitating cost control through competition. We 
will share our results with those committees in April of this year.
---------------------------------------------------------------------------
    \11\ This work is based on Conference Committee Report language 
(H.R. Conf. Rep. No. 109-699, at 113 (2006)) incorporating GAO 
reporting provisions contained in a House Appropriations Committee 
Report (H.R. Rep. No. 109-476, at 64 (2006)).
---------------------------------------------------------------------------
Performance and Design Problems Creating Operational Challenges for 
        Coast Guard
    In addition to overall management issues discussed above, there 
have been problems with the performance and design of Deepwater patrol 
boats that pose significant operational challenges to the Coast Guard.
Performance Problems With the Converted 123-Foot Patrol Boats
    The Deepwater program's conversion of the legacy 110-foot patrol 
boats to 123-foot patrol boats has encountered performance problems. 
The Coast Guard had originally intended to convert all 49 of its 110-
foot patrol boats into 123-foot patrol boats in order to increase the 
patrol boats' annual operational hours. This conversion program was 
also intended to add additional capability to the patrol boats, such as 
enhanced and improved C\4\ISR capabilities, as well as stern launch and 
recovery capability for a small boat. However, the converted 123-foot 
patrol boats began to display deck cracking and hull buckling and 
developed shaft alignment problems, and the Coast Guard elected to stop 
the conversion process at eight hulls upon determining that the 
converted patrol boats would not meet their expanded post-9/11 
operational requirements.
    The performance problems illustrated above have clear operational 
consequences for the Coast Guard. The hull performance problems with 
the 123-foot patrol boats led the Coast Guard to remove all of the 
eight converted normal 123-foot patrol boats from service effective 
November 30, 2006. The Commandant of the Coast Guard has stated that 
having reliable, safe cutters is ``paramount'' to executing the Coast 
Guard's missions. \12\ Thus, removing these patrol boats from service 
impacts Coast Guard's operations in its missions, such as search and 
rescue and migrant interdiction. The Coast Guard is exploring options 
to address operational gaps resulting from the suspension of the 123-
foot patrol boat operations.
---------------------------------------------------------------------------
    \12\ U.S. Coast Guard, Office of Public Affairs, Coast Guard 
Suspends Converted Patrol Boat Operations, November 30, 2006.
---------------------------------------------------------------------------
Design Problems With the Fast Response Cutter
    The FRC--which was intended as a long-term replacement for the 
legacy 110-foot patrol boats--has experienced design problems that have 
operational implications. As we recently reported, the Coast Guard 
suspended design work on the FRC due to design risks such as excessive 
weight and horsepower requirements. \13\ Coast Guard engineers raised 
concerns about the viability of the FRC design (which involved building 
the FRC's hull, decks, and bulkheads out of composite materials rather 
than steel) beginning in January 2005. In February 2006, the Coast 
Guard suspended FRC design work after an independent design review by 
third-party consultants demonstrated, among other things, that the FRC 
would be far heavier and less efficient than a typical patrol boat of 
similar length, in part, because it would need four engines to meet 
Coast Guard speed requirements.
---------------------------------------------------------------------------
    \13\ GAO-06-764.
---------------------------------------------------------------------------
    One operational challenge related to the FRC, is that the Coast 
Guard will end up with two classes of FRCs. The first class of FRCs to 
be built would be based on an adapted design from a patrol boat already 
on the market to expedite delivery. The Coast Guard would then pursue 
development of a follow-on class that would be completely redesigned to 
address the problems in the original FRC design plans. Coast Guard 
officials now estimate that the first FRC delivery will slip to Fiscal 
Year 2009, at the earliest, rather than 2007 as outlined in the 2005 
Revised Deepwater Implementation Plan. Thus, the Coast Guard is also 
facing longer-term operational gaps related to its patrol boats. In 
regard to the suspension of FRC design work, as of our June 2006 
report, Coast Guard officials had not yet determined how changes in the 
design and delivery date for the FRC would affect the operations of the 
overall system-of-systems approach.
    We will continue to review Coast Guard operational challenges 
related to Deepwater patrol boats. Our ongoing work for the House and 
Senate Appropriations Committees' Subcommittees on Homeland Security 
includes a review of the history of the contract, design, fielding, and 
grounding of the converted 123-foot patrol boats and operational 
adjustments the Coast Guard is making to account for the removal from 
service of the 123-foot patrol boats.
    Madam Chair, that concludes my statement. I would be happy to 
respond to any questions you or other members of the Subcommittee may 
have at this time.

    Senator Cantwell. Thank you, Mr. Caldwell, and thank you to 
all of the panelists. We're going to do 5-minute rounds, here. 
And we do have a second panel, and I think we're going to have 
some votes later this afternoon, so I want to make sure we all 
have enough time. So we'll make a judgment after the first 
round, whether we do two rounds of questions with this panel, 
or go to the second panel.
    So, I want to start--Mr. Skinner and Mr. Caldwell--you both 
have been students of this Deepwater Program and the system 
integrator approach.
    First of all, I just want to clarify, Mr. Skinner, have you 
gotten access to all of the e-mails and documentation that you 
need from the Coast Guard?
    Mr. Skinner. Yes, we have.
    Senator Cantwell. You have, at this point in time, all the 
doc----
    Mr. Skinner. At this point in time, we have, yes.
    Senator Cantwell. And, Admiral Allen, if the Committee 
would like to see additional e-mails or correspondence, I'm 
assuming you would comply with that, thank you.
    To this recommendation by the Defense University, they have 
basically said that this issue of lead-system integrator is 
problematic. I think that Mr. Caldwell and Mr. Skinner, you 
were saying the same things.
    But, could you elaborate on whether you think that you can 
just make small changes to the current contract moving forward 
with that system integrator? Or whether we need to make more 
substantive changes to get this approach right?
    Mr. Skinner. I believe there are going to have to be some 
substantive changes made to the contract to make it an 
effective initiative. First of all, we're going to have----
    Senator Cantwell. I don't mean with, I mean, not 
necessarily with the current contractee, but with any 
individual, any organization. Obviously, the debate here is on 
the normal procurement process that the Coast Guard had 
followed prior to this recommendation, this novel idea of using 
a system of taking the SAM and throwing it out, and using the 
system integration to get the expertise to the Coast Guard.
    Mr. Skinner. Yes, for one thing, I think the system of 
systems concept is a good one. I think using any performance-
based contract mechanism is a good one. I think it's very 
important that the government partner with the private sector, 
they bring energy, they bring innovation, they bring a lot to 
the table that we in the government cannot provide. So I think, 
conceptually, it's an excellent idea. Any time you do something 
like this, there's going to be risk associated with it, it 
needs to be managed closely. The contract terms have to be 
well-defined, the government needs to be able to be in a 
position to dictate to the contractor, or have at least some 
involvement or insight to sub-contract management and make-or-
buy decisions, things of that nature.
    Senator Cantwell. The system integrator giving a contract 
to themselves? Obviously, we saw in the Fast Response Cutter, 
you know $25 million later we had to stop work on that 
particular design. That was an area where they didn't 
necessarily have the expertise, but contracted with themselves, 
is that correct?
    Mr. Skinner. That is correct. In this regard, I think that 
the Coast Guard or the government needs to play a larger role 
in managing these particular type of contracts. We need to have 
the technical expertise to review designs, to make decisions, 
and not rely on a contractor to tell us what we want, and what 
we're going to receive.
    It's our responsibility to define what we want, and what we 
want to receive. If they propose something that doesn't meet 
our standards, then we should not accept it, we should not move 
forward.
    We need third-party assessments. I understand, under the 
FRC--we did not do any work there yet, GAO has been doing some 
work there--it's my understanding that we knew early on that 
there may be some problems with the FRC. We need independent 
assessments to guide us, as to whether we should proceed, and 
invest, considerable resources early on in the process, and not 
wait 2 years down the road before we realize that, that the end 
product is not going to work.
    Senator Cantwell. Mr. Caldwell?
    Mr. Caldwell. I would agree with Mr. Skinner, GAO is doing 
some broader work on both defense and other DHS programs to 
look at the concept of this lead-system integrator. We're not 
ready to report on that work yet.
    But the concept itself can be sound, it's the 
implementation of it that has been problematic. Getting some 
independent input, whether through the Coast Guard's own 
technical authority, or through third-party assessments, is one 
way to reduce risks.
    One of the key things that the Coast Guard lost along the 
way was the voice of their own technical authority, and Admiral 
Allen has worked to reassert that technical authority. I think 
it will be very interesting to hear Captain Jarvis' statement 
later today about the erosion of the Coast Guard's internal 
technical authority and the impact he said that had to give 
free reign to the lead integrator.
    Senator Cantwell. Isn't that a little bit of an 
understatement, Mr. Caldwell? Given the millions of dollars 
that we are now seeing in three different vessels that aren't 
performing, either because of design, or because of now, 
structural questions for the future?
    Mr. Caldwell. Perhaps it is an understatement, but we have 
noted these types of flaws in the program. For example, we 
noted that one of the key things that have been missing has 
been cost control. We have a situation now where the Coast 
Guard is not in a position to adequately measure or ensure cost 
control through subcontracting--that should be a part of the 
structure that is being put in place right now. There are also 
weaknesses in terms of contractor accountability. As Mr. 
Skinner said, you can bring that problem back to the 
requirements, and how well those are defined, or how poorly 
they're defined, in this case.
    Senator Cantwell. Your area of expertise is in homeland 
security as well?
    Mr. Caldwell. Correct.
    Senator Cantwell. And, have we seen anything similar to 
this in other areas of homeland security, or at least this 
scale? To me, we've moved outside of what had been--you know, 
if you look at the history of the Coast Guard and their 
procurements over the--the buoy system, the HEALY--you know, 
we're talking about a lot smaller acquisitions. And, all of a 
sudden, this large-scale acquisition comes along, and I'll get 
more into that theory of why I think that it, perhaps, got to 
that point, and you're right, abandoned the technical expertise 
internally. And now, in looking at solutions, you have to go 
back and ask whether that technical expertise for this large-
scale of a program--$24 billion across many assets.
    Mr. Caldwell. There are two other homeland security 
programs the GAO is doing work on that we have started to raise 
similar concerns, one is the SBI Net Program, and the other one 
is the Secure Flight Program.
    Senator Cantwell. So, are you seeing similar issues?
    Mr. Caldwell. We are seeing similar issues.
    Senator Cantwell. Thank you.
    Senator Snowe?
    Senator Snowe. Admiral Allen, in reading through the 
Inspector General's report, and looking through the time-line 
first it was in March 2004, that the Coast Guard Chief Engineer 
raised significant concerns with the structural design of the 
NSC, and the analysis was supported by two renowned Naval 
engineers.
    And then in January 2005, another internal Coast Guard memo 
states that several of the issues remain which degrade the 
operational capability, reduce the NCS service life to less 
than 30 years, I know that's an issue in dispute, whether or 
not that was the ultimate goal was 20 years, 30 years and 
that's something we have to talk about, and also in the 
operational days, as opposed to 230 to 175 to 180--but 
nevertheless, that was the original goal of the NCS.
    Finally, at a briefing delivered to the Coast Guard 
Commandant in May 2006, it might have been--is that before you 
came on? It must have been, just shortly before you came on. 
More than 2 years after the issues regarding the NSC were first 
raised, the Deepwater program manager concludes the NCS would 
not be compliant with the performance requirements.
    Through this whole period, work continued on the NSC. The 
Coast Guard's response, and the IG report is widely continued, 
where pre-production activities were already underway, any 
disruption in the normal production effort would have been very 
costly. The independent analysis has provided conclusive 
evidence of deficiencies that the systems integrator would be 
responsible to correct them--not at their cost, I gather.
    Given the uncertainty of the structural concerns, and the 
urgency of delivering the NSC, the Program Office decided to 
proceed with production.
    Knowing that there was an ongoing, serious debate about the 
National Security Cutter--and we knew that within--we're going 
to hear testimony from the subsequent panel, regarding that 
back as far as 2004, Mr. Caldwell said 2003--why is it? What is 
your understanding as to why the Coast Guard continued?
    I mean, this is a major problem. You know, when you're 
talking about rising costs from $500 to $700 to $900 million, 
in the final analysis it is still undetermined who is going to 
pay for this. I understand we're talking about a cost-plus in 
this instance, so for the first two cutters we had to do these 
modifications. Obviously that was understood, certainly nothing 
was brought before this committee. That's what's so disturbing.
    Not brought before this committee. About all of these 
modifications, they said, ``Well, we'll do it after we 
construct the NSC.'' And not even to meet the 30-year life, or 
the operational days, the original goal of 230 days. And we've 
just got undetermined costs now.
    So what is it that happened within the Coast Guard that 
would have allowed this to continue, unabated for such a long 
period of time?
    Admiral Allen. I think there are two things, Senator. One 
is the decision itself, and then the documentation of the 
decision. The Inspector General has pointed out that there is 
no auditable and traceable record, and one of the things that's 
very frustrating in this is--and I think it was generally well-
known in the Coast Guard, and I'm going to characterize the 
decision because it was documented, and it is not auditable. 
But to the best of my knowledge, my assessment at the time 
would have been the impact on schedule, and the implications 
for cost were considered to be unrecoverable, and any issues 
associated with fatigue-life could be retro-fitted back into 
the first and second hulls, added to the design of the third 
hull.
    Lacking a business case analysis, a decision memo, anything 
that could be audited by the IG has been problematic. I can 
tell you this--just because I was in staff meetings and was 
privy to the discussions, it was known that the decision was to 
proceed, and retro-fitting the design changes that might be 
required in the first or second hull, that was not documented, 
and therefore is not traceable or auditable.
    Two other issues that you raised, the first one--days away 
from home port--the Inspector General and I both agree there 
was ambiguity in the contract. The contract established that 
the cutter would be away from home port for 230 days, the 
remaining days would be allocated for maintenance. If you take 
out transit times, port calls during patrols and so forth, that 
yields you about 185 days on mission, if you will, in the sea 
state by which the models were subjecting the hulls to for 
developing the fatigue-life standards.
    This has been a subject of some misconceptions, ambiguity, 
and so forth. We have clarified that in the contract, and 
reported that to the IG. But, by the contract, it is 230 days 
away from home port, 185 days on station, conducting mission, 
and those are the parameters by which the models are applied 
for, how long the sea stay would act on the hull for the 
purpose of determining the fatigue-life. If you use 230 days, 
it requires a much longer fatigue-life than it would for 185 
days, to achieve 30 years.
    Senator Snowe. Mr. Skinner, what is your response to that? 
On the fatigue-life?
    Mr. Skinner. The contract was very clear in saying that the 
specifications we were going to construct--we, the government--
were going to construct a cutter that would have an underway 
capability of 230 days. That, if you use the rules of 
navigation, when you say 230 days underway, you're saying ``on 
mission,'' ``on assignment,'' ``anchors up.''
    The Contracting Officer, the Program Manager, and the 
Assistant Commandant for Systems all were operating under the 
assumption that this vessel was being built to be underway for 
230 days. It was not brought to light, at least in formal 
documentation, that there was confusion that no, we were 
talking about 230 days away from home port, 185 days at sea. We 
brought this to the Coast Guard's attention, saying that there 
is confusion within the Coast Guard, confusion with those that 
are assessing the capability of the vessel, Carderock and 
others, and unless you clarified--and if you, if your intention 
was to make it 185 days and then 230 days away from home port, 
then it needs--you need to, sort of, state that in the 
contract, and you need to do that now. In which, I understand 
that adjustment has been made to the contract.
    Admiral Allen. Senator, if I could just make one clarifying 
comment, and I'd be glad to provide a more extensive answer for 
the record. We issued a task order to Carderock, an air-to-
surface warfare center, to conduct a finite element analysis 
and do an analysis of the fatigue-life of the ship. We did not 
prescribe to them the number of underway days in the work order 
that was issued to them. They assumed 230 days underway in the 
operating environment, because of ambiguities in the contract.
    [The information referred to follows:]

    The premise for this is:

        230 DAFHP--new Days Away From Home Port (DAFHP) target.
        185 DAFHP--is the current fleet target.

    In terms of on station time:

        230 DAFHP translates into approximately 170-180 days on station 
        annually.
        185 DAFHP translates into approximately 100-120 days on station 
        annually.

    170-180 days on station in the North Pacific will involve 
significantly more stress cycles at a higher stress level than 100-120 
days on station in an unspecified location.

    When that was returned to the Coast Guard, our technical 
authority, our Chief Engineer, corrected the model to reflect 
185 days, that's when we found out there were differing 
assumptions, and had to correct them in the contract.
    Senator Snowe. Thank you.
    Senator Cantwell. Thank you.
    Senator Lautenberg?
    Senator Lautenberg. It's hard--it's mystifying here, I must 
tell you, to figure out what went wrong, to the degree that 
things have been wrong. Not only have we thrown lots of money 
at it, but we don't have a satisfactory product to look at, and 
if I've ever seen an example of the fox in the chicken coop, 
this is it. I mean, the systems integrator looking at how the 
job is going and making those decisions: it's outrageous. And 
that kind of an example, I can't imagine being used in the 
corporate world, but I guess anything is possible.
    Admiral, has this system of contracting outlived its 
usefulness, given this experience? Turning key procurement 
decisions over to a contractor that has a vested interest in 
the manufacturer/developer of a product?
    Admiral Allen. Well, I would agree with the Inspector 
General and the General Accountability Office that it's not so 
much a matter of the strategy or the acquisition vehicle, it is 
a matter of execution, how the contract is structured, and how 
it's overseen.
    I would tell you this--that there are large, complex 
acquisitions that need to take place in the Federal Government, 
and there will be more in the Department of Homeland Security 
and I think it is a matter of understanding how you do a 
performance-based systems integration contract, and get it 
right, because it's a competency we're going to have to have, 
not only the Coast Guard, but the Department of Homeland 
Security moving forward.
    So, in my view, it's not a matter of the strategy or the 
approach, it's getting it right with the right oversight and 
doing our jobs on the side of the Federal Government, Senator.
    Senator Lautenberg. OK, but the oversight has to be 
realistically done. Were you aware of any demands or requests 
by the Coast Guard for help and oversight or auditing what was 
taking place? Was that request ever put to the Administration 
leaders through OMB or anyone?
    Admiral Allen. We have sequentially increased the staffing 
of the program, and I can give you a multi-year staffing 
ladder, if you will, for the record. And we've increased it to 
the point now, where we have about 300 people in our AC&I 
budget that are budgeted toward this project. About two-thirds 
of the interaction on the project staff, the other 100 are out 
in operating programs where, in our engineering or operations 
department to help this. We have significantly increased the 
staffing, actually, I think we're on the threshold where, if 
properly organized, we can have a significant impact on how 
this project is managed. But we're going to have to change our 
business rules and practices.
    [The information referred to follows:]

    The Deepwater Program is managed using a combination of Coast Guard 
Active Duty (military), Coast Guard government civilians, and support 
contractors. The estimated staffing levels by fiscal year are presented 
below in the table.

                       Deepwater Program Staffing
------------------------------------------------------------------------
               Fiscal    Fiscal    Fiscal    Fiscal    Fiscal    Fiscal
                Year      Year      Year      Year      Year      Year
                2002      2003      2004      2005      2006      2007
------------------------------------------------------------------------
Military           94       123       123       133       147       151
             -----------------------------------------------------------
Civilian           71        85        94       117       124       140
             -----------------------------------------------------------
Contractor         80       110       130       150       160       160
             ===========================================================
    Total         245       318       347       400       431       451
------------------------------------------------------------------------


    Senator Lautenberg. But, I don't know whether--300 sounds 
like a lot, but who knows from a distance whether it is----
    Admiral Allen. It's more than the 160 we started with, sir.
    Senator Lautenberg. Well, when I hear the confusion about 
how many days of service the cutter is designed for, it's kind 
of surprising. I didn't realize the ratio of maintenance to 
service days for the cutter was quite that high. It comes down 
almost one for one in a year. Is 185 days some kind of 
compromise here?
    Admiral Allen. The breakdown, Senator, is 135 maintenance 
days, and then 230 days away from home port. The difference in 
the middle is you don't leave home port and get beamed out to 
where you're going to do the mission. You have, sometimes to 
get to the Bering Sea it may take 2 or 3 weeks to get up there, 
you may have to make a mid-patrol break to take on fuel and for 
other logistics. But what we're saying is the 230 days away 
from home port will yield you about 185 days at a remote 
location, doing the mission. In the meantime, the transit cost, 
the transit time is accrued.
    Senator Lautenberg. I don't know whether, as a universal 
rule, that can be applied to a fairly complicated piece of 
equipment like these ships, but it seems like a lot of time for 
not very effective use of the vessel. Are your standards for 
maintenance and refurbishing similar to that used in the Navy?
    Admiral Allen. Sir, I might compare it to our current 
practice, let's take a 378-foot cutter, home port in Alameda. 
Our standard is to program 185 days away from home port a year. 
That is constrained by what we call ``personnel tempo.'' By 
policy, we don't keep our people away from home any more than 
185 days a year. That, constructively, yields us about 135 
mission days, if you put in the transit time that I talked 
about before.
    How are you going to get 230 days away from home port, and 
increase mission time? The National Security Cutters will be 
the multi-crew.
    Senator Lautenberg. Admiral, the question I'm going to ask 
you is before your term as Commandant, but there was a memo 
from Admiral Brown that was issued in 2004, concerning design 
deficiencies for the National Security Cutter, are you 
familiar?
    Admiral Allen. I am familiar with that.
    Senator Lautenberg. Now, there was a whistle-blower that 
was involved with this. Is there whistle-blower protection for 
people who come forward to point out wrongdoings that are 
happening? Or, could personnel be afraid of the consequences of 
their statements or their information being let out?
    Admiral Allen. Well, there certainly is in my Coast Guard, 
Senator. I'm not sure if there was a whistle-blower status 
attached to this, I can tell you this--the issues that related 
to the National Security Cutter design, in my view, were raised 
by the engineering community, there was not an effective way to 
reconcile those inside the Coast Guard, you're going to hear 
Captain Jarvis talk about that at the next panel.
    Senator Lautenberg. Right.
    Admiral Allen. I thought--now, this is my own opinion, 
now--that we actually created a cultural cleavage in the Coast 
Guard by the way this thing was organized, where we 
disenfranchised the technical authority, didn't bring them in 
to be inclusive in the solution, and therefore, they had no 
recourse but to keep raising the level of complaint about this 
to the point where the Chief Engineer actually wrote a memo on 
it, and then there was no business case analysis, or memo to 
establish why we would not do that. That is a central point in 
this whole audit, and the whole decision on the NSC, sir.
    Senator Lautenberg. Thanks, Admiral.
    Thanks, Madam Chair.
    Senator Cantwell. Thank you.
    Senator Vitter?
    Senator Vitter. Thank you, Madam Chair.
    Admiral, I want to go back to the two central themes I 
mentioned earlier in my opening comments, which both relate to 
the 110, to 123, conversion. When this was happening, were you 
personally aware of this proposal coming out of the shipyard 
actually doing the work, that around the fourth ship, they 
realized, ``You know, these old hulls are just too worn and 
brittle, we need a new solution.'' And they actually had a 
specific proposal to provide new hulls for an extra million 
dollars, $5 million instead of $4 million.
    Were you aware of that, and what was the analysis of that, 
that led to it being rejected?
    Admiral Allen. Senator, I'm going to give you a two-part 
answer, if I can. I was, informally aware that Bollinger had 
created an alternative by which they would renew the hulls, the 
extended 123,.
    I'd like to answer, for the record, whether or not that got 
to the Coast Guard, and how we acted upon it, because it was 
interrupted in my deployment down South for the response to 
Katrina. So, if I could answer for the record--I was aware that 
Bollinger had an alternative proposal to renew the hulls.
    [The information referred to follows:]

    The Coast Guard was aware of one informal presentation by Bollinger 
Shipyard, Inc. (BSI) to Vice Admiral Peterman (then RADM Peterman) in 
August 2004. Additionally, ICGS made an informal presentation to the 
Commandant (Admiral Collins) in September 2004. Both of these informal 
verbal presentations involved completely replacing the metal hull of 
the 123, instead of only replacing a portion of the hull. The Coast 
Guard did a preliminary review based on the very limited information 
presented.
    Based on that situation, the Coast Guard verbally responded that 
the risk of so many unknowns did not allow the Coast Guard to make any 
decision on the value of this approach. BSI and ICGS were advised that 
if this approach truly had merit, then an ``Unsolicited Proposal'' in 
accordance with the Federal Acquisition Regulations should be sent to 
the Coast Guard. Neither firm submitted an ``Unsolicited Proposal.''

    Senator Vitter. OK, that was rejected. What was the 
analysis that led to rejecting that? What is being done instead 
of that? How would you compare, at least in hindsight, the two 
in terms of cost-benefit?
    Admiral Allen. Again, if I could go back and provide them 
for the record, the only reason I can't tell you right now, is 
I wasn't involved in that final decision. I know that there was 
a proposal floating around, I don't know how it was officially 
presented to the Coast Guard, what analysis was done, but I'm 
more than happy to provide that for the record, Senator.
    Senator Vitter. OK, now moving forward in terms of the 
FRCs, why are we as focused as we seem to be on composite 
technology, which isn't fully developed, and isn't that focus 
inconsistent with some of the premises of the Deepwater 
Program, pull things, develop, off the shelf in a pretty 
efficient way?
    Admiral Allen. Well, I think there was always a premium 
placed on innovation when the contract was awarded, and we're 
certainly expecting that out of the integrators.
    I think, as the Inspector General and the Government 
Accountability Office have said, the business case up-front and 
the feasibility and the risk-assessment on the construction of 
the composite hull probably should have been done sooner than 
it has been. We have done that now.
    The points have been raised by the Inspector General which 
are well-taken, regarding the third-party analysis, business 
case analysis, are all part of our business practices at this 
time.
    In regards to the FRC composite hull design, we did that 
after we had a design presented to us, at that point, our 
engineers raised concerns, we were going to do a risk 
mitigation strategy, and that's where we're at now. We actually 
did the right thing, late. But we are doing that now, and we 
want to move forward until we're sure that we've reduced the 
risk, that it's feasible for us to continue. In the meantime, 
we will continue to pursue a parent-craft design, and fill our 
patrol boat gap with that, sir.
    Senator Vitter. What's the timetable for that analysis, the 
risk-mitigation analysis that you're talking about?
    Admiral Allen. We're receiving all of the information right 
now, I would say it's a matter of weeks, not months.
    Senator Vitter. OK. As I understand it, when you compare 
the traditional steel hull to a composite hull, the argument 
for the composite is much longer life duration.
    Admiral Allen. Yes, sir.
    Senator Vitter. One of the big arguments for the steel is, 
much lower cost. When you compare the two, the composite costs 
many times more, even factoring in longer life. Is that 
accurate, and is that part of the analysis you're doing?
    Admiral Allen. Yes, sir. Not being a Naval engineer, that's 
my understanding, too. And that's--the business case analysis, 
and the feasibility of the construction, that's what we have to 
look at right now, and we have to come to a conclusion on the 
proper way to go with the composite hull, sir.
    Senator Vitter. OK.
    Mr. Skinner, were you aware as it was happening, or later, 
with this proposed solution that came out of Bollinger 
shipyards in terms of the 110, to 123, conversion?
    Mr. Skinner. With--I'm not sure I understand your question, 
Senator. Like I say, we were not reviewing the conversion 
project in itself.
    Senator Vitter. OK.
    Mr. Skinner. We did react to, we did receive allegations 
that during that conversion, certain equipment was being 
installed on the cutters, as well as the small boats, the 
precursors, that did not meet contract specs. In reaction to 
those allegations--there were four of them actually--we did a 
review to determine whether the contractor was, in fact, 
meeting his obligations.
    Senator Vitter. OK. Your work on that project, as I 
understand it, then, didn't have to do with the hulls or the 
structures.
    Mr. Skinner. That's correct.
    Senator Vitter. It had to do with other parts of the 
project.
    Mr. Skinner. That's correct.
    Senator Vitter. OK, fair enough.
    Final question, very quickly, for Mr. Caldwell--what role 
did the lack of appropriations play in the performance of the 
program, in your opinion?
    Mr. Caldwell. I don't think we've seen problems due to a 
lack of appropriations. There were a couple of cases, such as 
the VUAV, where there has been a combination of funding and 
technology issues. In the case of the VUAV, some officials in 
the Coast Guard told us that funding issues had prevented them 
from going forward. However, there were mitigating issues such 
as concern that the technology was not mature enough, so I'm 
not sure they would have wanted to go forward, even if the 
funding was available.
    Senator Vitter. OK.
    Thank you, Madam Chair.
    Senator Cantwell. Thank you.
    Senator Kerry?
    Senator Kerry. Thank you, Madam Chair.
    Admiral, referring back to the memorandum which Senator 
Lautenberg mentioned from Admiral Brown to Admiral Stillman. 
The date on that is March 29, 2004. The title of it is 
``National Security Cutter Structural Design Deficiencies.'' 
Paragraph 1A refers to reduction gear structure, major 
structural design problems, improper rocking, deflection of 
thrust-bearing, foundation, and stiffness. Paragraph B was 
superstructure buckling, inadequate primary, secondary and 
tertiary structural stress analysis. Also, superstructure 
reentry and design issues, discontinuity in the superstructure 
amid ships leading to early fatigue failure, and superstructure 
cracking. Paragraph C, sheer strake deck penetrations. There 
were strength deck stringer plates, oval openings in the 
strength deck, which are prohibited by another specific 
reference there in the reduction gear structure, and two, hole 
control. Inappropriate placement of openings in the 
longitudinal structural bulkheads.
    These are all pretty significant, or certainly not 
insignificant structural design flaws. They resulted in some 
$500 million, I believe, of fix. That's March 29, 2004.
    And here, in paragraph two, a very important sentence. 
``Admiral Brown, my concern is that I--over the past 18 months, 
my subject matter experts have attempted to work, 
collaboratively, within the IPT structure to resolve these 
problems, through review, comment and follow-on discussion of 
the structural design. My concern is that ICGS has unilaterally 
closed the structural comments and concerns and ended any 
collaborative effort at the NSC, IPT and sub-IPT level, without 
reaching resolution.'' So, they just shut it down.
    Now, here's what I don't understand. In 2004, there are 
these major structural issues. Yet, in May 2006, the Coast 
Guard decided to extend the contract with Lockheed/Northrop for 
43 months, starting in June 2007, without resolution, and given 
what it knew had happened.
    In your written testimony, you state, ``The Coast Guard has 
been, and remains, fully involved in the management of this 
program, and has made all final and critical decisions.'' I 
contrast that to what Mr. Skinner says, which is, ``The 
Deepwater contract essentially empowered the contractor with 
authority for decisionmaking. Therefore, the Coast Guard was 
reluctant to exercise a sufficient degree of authority, to 
influence the design production of its own assets.''
    Now, I don't think we can have it both ways. We need to 
understand, which is what, number one, and number two, why 
would the Coast Guard--given that unbelievable, unilateral 
obstinence to working with you--why would you renew the 
contract?
    Admiral Allen. Yes sir, if I could separate it into two 
issues.
    Senator Kerry. It is two issues, right.
    Admiral Allen. The NCS fatigue issue, and then the award 
term.
    I've got a diagram here of the major areas of the ship that 
were impacted that were raised in Admiral Brown's memo. These 
were also confirmed by Carderock, in fatigue finite element 
analysis, and these are the bases for our discussions at ICGS 
right now.
    I will tell you, and I'm happy to answer, for the record, 
to give you a complete status on every one of the issues that 
was listed in Admiral Brown's memo. A couple of those were 
taken care of with ICGS, including the most important one, in 
my view, which were the issues related to the reduction gear, 
how the engines would sit, and how much room there would be to 
adjust those for shaft alignment.
    [The information referred to follows:]

Issues From G-S Memo to G-D, dated 29 Mar 2004
(a) Reduction Gear Structure
    (1) Structural Design of Ship Bottom: Improper rocking deflection 
or thrust bearing foundation stiffness.
    Response: NGSS deepened the girders below the reduction gears. 
NSWC-Carderock performed an analysis which showed the rocking 
deflection to be within Renk tolerances.
(b) Superstructure Buckling
    (1) Superstructure Buckling: Inadequate primary, secondary, and 
tertiary structural stress analysis.
    Response: NGSS increased the superstructure plating between the 01 
level and the 02 level.

    (2) Superstructure Re-Entrant Design: Abrupt discontinuity in the 
superstructure amidships leading to early fatigue failure and 
superstructure cracking.
    Response: NSWC-Carderock and D&P Fatigue Analyses identified areas 
of high stress concentrations. The Tiger Team structural modifications 
will address these concerns on NSC 3-8. Fixes for NSC 1 and 2 are under 
development and will be planned for installation during the cutters' 
first Dry Dock Availability.
(c) Sheer Strake Deck Penetrations
    (1) Strength Deck Stringer Plates: Large elongated oval openings in 
the strength deck stringer plates which are prohibited by reference 
(a).
    Response: Tiger Team structural modifications will fix large holes 
in strength deck stringer plate on NSC 3-8. Fixes for NSC 1 and 2 are 
under development and will be planned for installation during the 
cutters' first Dry Dock Availability.

    (2) Hole Control: Inappropriate placement of openings in the 
longitudinal structural bulkheads prohibited by reference (a).
    Response: Some progress has been made in hole control for 
longitudinal bulkheads. NSWC-Carderock and D&P fatigue analyses 
identified remaining stress concentrations and Tiger Team structural 
modifications will fix them on NSC 3-8. Fixes for NSC 1 and 2 are under 
development and will be planned for installation during the cutters' 
first Dry Dock Availability.
Issues From G-SDW Memo to G-DPM-4, dated 04 Jan 2005
    (a) Strength Deck Stringer Plates: The vent penetration openings in 
the 01 level stringer strake remain the most serious concern with the 
WMSL (NSC) design. The inadequate fatigue strength will result in 
cracks which could propagate and cause the hull girder to fail. This 
problem is worsened with the penetrations required for the helicopter 
ASIST system which will be located slightly inboard the vent 
penetrations.
    Response: Tiger Team structural modifications will fix large holes 
in strength deck stringer plates on NSC 3-8. Fixes for NSC 1 and 2 are 
under development and will be planned for installation during the 
cutters' first Dry Dock Availability.

    (b) Superstructure Re-Entrant Design: ICGS has not provided a valid 
fatigue analysis of the superstructure re-entrant design. There is a 
significant risk of cracks developing in the superstructure that could 
propagate into the strength deck. In a worst case scenario, these 
cracks could lead to hull girder failure similar to that described 
above.
    Response: The Tiger Team structural modifications will address this 
issue on NSC 3-8. Fixes for NSC 1 and 2 are under development and will 
be planned for installation during the cutters' first Dry Dock 
Availability.

    (c) Shell Fashion Plates: The ICGS fatigue analysis demonstrates 
that the fatigue characteristics of the shell fashion plates are 
marginal even with the incorrect assumptions described in paragraph 2. 
Also, the fatigue analysis did not consider secondary loads or that 
fact that the fashion plates above the deck are not stiffened. It is 
our assessment that the fatigue characteristics of the current fashion 
plates are inadequate and that any cracks that arise could propagate 
and lead to hull girder failure.
    Response: Tiger Team modifications will address this issue on NSC 
3-8. Fixes for NSC 1 and 2 are under development and will be planned 
for installation during the cutters' first Dry Dock Availability.

    (d) Hangar Racking Strength: In analyzing the hangar racking 
strength, ICGS incorrectly assumed zero rotation at the frame ends, 
which resulted in selecting a smaller frame size than what is actually 
required. Also, there is large opening in the aft hangar sloping 
bulkhead for helo control station which was not reflected in the 
analysis. Additionally, dead loads were not considered in the analysis, 
which is standard practice. By not properly addressing these 
deficiencies, cracks in the hangar structure will develop and require 
continual repair and eventual replacement of structural members.
    Response: NSWC-Carderock analysis of the helicopter hangar 
indicates that the existing structural arrangement is adequate to 
withstand the expected loads.

    (e) Hole Control: Progress has been made by relocating some holes 
in the longitudinal bulkheads, however several access openings remain 
in key areas where the shear and bending stresses will be greatest. 
ICGS has not provided a shear flow analysis to demonstrate that the 
loads in the longitudinal bulkheads generated from hull bending or dry-
docking can be safely transferred into transverse bulkheads 44, 64, and 
70. There is a significant possibility that the longitudinal bulkheads 
will fail where they intersect the transverse bulkheads because of a 
significant reduction in shear area in the longitudinal bulkheads due 
to the inappropriate location of many doors.
    Response: NSWC-Carderock and D&P fatigue analysis validated the 
remainder of this concern. Tiger Team modifications will address this 
issue on NSC 3-8. Fixes for NSC 1 and 2 are under development and will 
be planned for installation during the cutters' first Dry Dock 
Availability.

    (f) 01 Knuckle: Concern remains that the 01 level structure near 
the knuckle at Frame 27 has not been properly designed for the 
resultant eccentric loading and fatigue. A U.S. Navy DDG 51 class ship 
with a similar knuckle in the 01 level experienced deck buckling, which 
required a very expensive back fit.
    Response: NSWC-Carderock and D&P fatigue analysis validated this 
concern. Tiger Team modifications will address this issue on NSC 3-8. 
Fixes for NSC 1 and 2 are under development and will be planned for 
installation during the cutters' first Dry Dock Availability.

    (g) Reduction Gear Structure: In their analysis of the structure 
supporting the reduction gears, ICGS improperly modeled the stanchions 
as infinitely rigid, and the vibration results from this analysis are 
very close to the tolerances for the reduction gear. If the deflection 
of the inner-bottom is greater than what is allowed by the reduction 
gear manufacturer, this will clearly be a warranty issue.
    Response: NSWC-Carderock performed an analysis which showed the 
rocking deflection to be within Renk tolerances.

    What I'd like to do is provide you with a line-item list of 
which ones have been carried over for negotiations for hulls 1 
and 2, which ones were reconciled at the time. This, basically, 
is a pictorial of the major issues. The issues down below in 
the hull where the reduction gear were at, and then openings in 
the hull that would facilitate cracking, should the vibrations 
cause that----
    Senator Kerry. I understand that. I understand the issues, 
and I understand that some of them have been partially 
resolved, to the tune of very significant amounts of money. The 
issue here is a procedural one.
    Admiral Allen. Yes, sir.
    Senator Kerry. Why would the Coast Guard renew the contract 
given such an explicit statement of discontent with the 
process?
    Admiral Allen. Yes, sir.
    When the contract was awarded in June 2002, the criteria 
for the next award term was established. You know, in my view, 
there wasn't enough specificity and clarity in the contract 
that would allow you to differentiate when this problem 
occurred, because it was focused on operational effectiveness 
of the system, total ownership cost, and customer satisfaction, 
and the evaluation for the next award term was contractually 
bound by those parameters.
    Senator Kerry. But, you didn't have to renew the contract.
    Admiral Allen. This, we haven't renewed the contract----
    Senator Kerry. Let me go--I mean, paragraph three here, I 
didn't even read the whole memo, but paragraph three talks 
about the two experts that he saw fit to bring to the table, 
and he says, I mean, this is Admiral Brown asking for Admiral 
Stillman to help resolve the issue. He says, ``I'm seeking your 
immediate support in finding a mutually agreeable method for 
resolving these engineering differences.'' He brings two 
experts to the table, a Mr. Silksy, and a Mr. Robert Scott, 
both very experienced ship designers, et cetera.
    And provides the enclosures of their analyses. And those 
enclosures, quote--I'm quoting from the memo, ``These 
enclosures corroborate the findings of my technical experts, 
and confirm through independent analyses that significant flaws 
exist in the structural design of the NSC.'' Now, if 
significant flaws exist in the design, and they have shut you 
out in any collaborative effort without reaching a resolution, 
why would you renew a contract?
    Admiral Allen. First of all, sir, the contract has not been 
renewed. What the award term decision was, it created the 
opportunity in June of this year, to award a contract for 43 
months, in terms of that contract, currently under discussion 
with the contractors. So, we have not renewed the contracts.
    Senator Kerry. So, if that is true, that you haven't 
renewed it--in The New York Times, one of your engineers, an 
Anthony D'Armiento was quoted as saying, ``This is the fleecing 
of America. It is the worst contract arrangement I've seen in 
my 20-plus years of Naval engineering.''
    Why would you not, sort of heeding the sequence of analysis 
of both GAO and the Inspector General put this out to bid? And 
that's without prejudice, if Northrop and Lockheed want to come 
back and say, ``We can do this better, and here's how we'll do 
it,'' they have a right to do it.
    But wouldn't we, the taxpayer, wouldn't the folks we 
represent, and the interests of national security in getting 
this done, you know, the right way at the right cost, 
competitively bid, at this point--wouldn't we all be better 
off?
    Admiral Allen. Well, sir, that's the work that is around us 
right now. When I came into the job, one of the tasks we had 
was to negotiate the terms of the new contract, should it be 
awarded in June for 43 months? I have both, I have had meetings 
with both the CEOs of Lockheed Martin, and Northrop Grumman, we 
have a work group working right now on the potential structure 
of that contract, should it be awarded, we are at that decision 
point, and we are working the problem as we speak right now. 
And I'm happy to come back and discuss it with the Committee 
when we, our work group is done.
    Senator Kerry. Well, fair enough. But, I think it's awfully 
important--I see my time has gone over, I apologize--awfully 
important to really stay in touch with us on this, and see if 
we can't work on it. I'm not trying to, you know, I just think 
the accountability issue is really pretty critical.
    Madam Chairwoman, I don't have time now because of the time 
thing, but I wanted to ask some questions of both Mr. Skinner 
and Mr. Caldwell with respect to whether the structure, the 
contract structure itself, isn't fundamentally flawed. And, it 
seems to me if you read fairly explicitly, and I don't think 
you have to read between the lines, to see that there's a power 
allocation here that's just out of whack, in terms of who gets 
the accountability and how.
    And so, I think we ought to explore that.
    Senator Cantwell. Well, I thank the Senator for that line 
of questioning, and to point out that we will keep the record 
open, we are going to move to the next panel because we are 
going to have a vote later this afternoon.
    So, I appreciate each of you and your testimony. We will 
leave the record open for questions, if you could comply in 
getting those answers to us in the next 2 weeks, we would 
appreciate it.
    But again, Mr. Caldwell, Mr. Skinner, Admiral Allen, thank 
you for being here.
    And, I'd like to call up the second panel. Dr. Leo Mackay, 
Vice President and General Manager, Coast Guard Systems, 
Lockheed Martin, Maritime Systems and Sensors; Mr. Philip A. 
Teel, President of Northrop Grumman Ship Systems, and Captain 
Kevin Jarvis, U.S. Coast Guard, retired. If you gentlemen could 
come up to the table, I would appreciate that.
    And if those who would like to leave the hearing would do 
so quickly, so that we can start this second panel.
    And, Captain Jarvis, I think we'll start with you.
    Go ahead, Captain Jarvis. Thank you for being here, I know 
you've traveled a long way to be here at this hearing, so I 
appreciate it.

             STATEMENT OF CAPTAIN KEVIN P. JARVIS, 
                   U.S. COAST GUARD, RETIRED

    Captain Jarvis. Good afternoon. Chairperson Cantwell, 
Ranking Member Snowe, and other distinguished members of the 
Subcommittee, thank you for holding this important hearing 
concerning the subject that has consumed a good portion of my 
life for the last 7 years.
    I am Kevin Jarvis, a retired--a recent retiree--from the 
United States Coast Guard, the military organization that I 
have loved for over 29 years of commissioned service, and 
proudly wear my retirement pin for all to see.
    Because of my continued, unmatched loyalty and love for 
this magnificent organization, this specific topic, and the 
unique familiarity I have with many of the Deepwater tactical 
and strategic decisions, policies and results and outcomes, 
I've elected to come to testify today after a long train ride 
from Florida.
    In providing this testimony, it is my solitary hope that I 
can assist you, and the Coast Guard, to make this very 
important and critically needed asset acquisition program more 
effective, cost-efficient and transparent, and most 
importantly--as the good stewards we're supposed to be--more 
accountable to the American public.
    I spent a predominance of my service in Naval engineering 
and logistics-related assignments. From the deck plates and 
bilges in three different cutters, selection as the DOT/U.S. 
Coast Guard 1993 Federal Engineer of the Year, an assignment as 
the Commanding Officer of the Coast Guard's Engineering 
Logistics Center, I've seen and/or done virtually everything in 
naval engineering the Coast Guard could do.
    I've acquired four Master's Degrees--two from the 
University of Michigan in Naval Engineering and Marine 
Architecture, and also Mechanical Engineering. I was introduced 
as the G-S Representative to the Deepwater program in November 
2000.
    The following are my overviews of both my direct 
observations and experiences while engaging on G-S behalf for 
2\1/2\ years, at both the strategic heights, and the tactical 
trenches with the Deepwater program.
    G-S supported the Deepwater program, and embodied virtually 
all of the Coast Guard's engineering and logistics expertise. I 
was there as the G-S organization, a proven Coast Guard major 
acquisition, engineering and logistic enabler, was shut out of 
its traditional acquisition-specified technical roles. I was 
there when the Deepwater culture was cemented with thick walls 
of change agent, ``Our ends will justify the means, we have the 
world's best Navy engineers for advice, only contractor insight 
is needed, not oversight. And the contractor's engineer's work 
is good enough.''
    Consequently, 1,000 years of Coast Guard naval engineering 
technical capabilities were wasted by the poor strategic 
judgment of the program's original crafters, and the 
unwillingness of the subsequent program leaders to make the 
needed deviations.
    As a result, the tactical trenches of the program--the 
integrated process teams--became cauldrons of mistrust for 
communication, G-D-managed, unilateral decisions against G-S 
technical warnings, and the ruthless execution of the published 
schedule at virtually all costs.
    I was there watching an impending train wreck, as the 110, 
to 123, conversion progressed at full-speed in the face of 
numerous G-S-vocal and written, formal engineering objections.
    The too-close linkage, and over-reliance by the G-D staff, 
on the industry partner's ``good enough'' engineering work and 
assessment supported a multitude of poor, time-based decisions. 
The prima facie results speak volumes--8 non-operational 
cutters.
    The NSC followed the same path. By continually dismissing 
GS's engineering concerns, which were documented well before 
the 2004 Admiral Brown memo, we missed the perfect opportunity 
to make the needed structural changes prior to any issuance of 
the NSC, while the NSC was supposedly still on the electronic 
drawing board.
    Instead, we wasted years sending memos back and forth with 
no real resolution progress in sight. We now have NSC 1 
floating, and NSC 2 well along in the construction, with 
potentially thousands, if not millions, of dollars needed for 
future corrective actions. This didn't need to happen.
    At least the FRC has proven to be a partial success, and 
not because of any production issue. Because the FRC concept 
matured after the 123, and NSC engineering problems, the G-S 
voice became too important to ignore, when they identified 
serious design concerns with yet, another, ICGS poorly 
integrated effort.
    Thankfully, the FRC was halted before, what would have 
been, a third surface mistake being constructed. We just don't 
have enough money to make these types of design errors.
    This oral testimony is primarily focused on the extremely 
unhealthy relationship within the program, and the resultant 
engineering issues that spawned from them. But, what's just as 
troubling is the absence of a viable, or producible asset, or 
systems of systems logistics plan, after nearly 5 years of 
critical program and tax dollars being applied.
    Similar to the engineering problems, the Deepwater Program 
has failed to hold the contractor accountable, and the systems 
integrator has failed to take the needed assertive and 
corrective role to produce this significant contract 
deliverable. Although the Coast Guard has a good deal of blame 
to accept in this regard, the integrator is also very 
complicit. They just didn't act in the expected capacity as 
required by the Deepwater contract.
    I have a great deal of respect for Admiral Allen's overt 
leadership and direction to clean up this mess, but I must 
raise the caution flag--this program, this was a program that 
believes a deviation to every situation is possible. The very 
old G-S/G-D roles and responsibilities memo was signed, 
forwarded, reviewed and approved by four Flag Officers with the 
combined weight of 10 stars. Yet, it was completely ignored by 
the Deepwater Program.
    I've had extremely limited knowledge of what has happened 
with the Deepwater Program since I left the service last 
spring. I'd like to use this fact as a qualifier that some of 
my following improvement recommendations for your consideration 
might already have taken place.
    I have read the DHS IG report, and Admiral Allen's 
testimony on the subject, and I wholeheartedly agree with the 
IG's finding and the Admiral's initial corrective steps to fix 
this, the multitude of Deepwater problems.
    Of the Admiral's actions, the formal delineation of 
technical authority to G-S will have the most immediate, 
positive returns. Although an excellent start to organization 
correction, there are other things that I think need to be 
instituted.
    Oversight of the contractor must happen. We're fooling 
ourselves if we actually believe insight is enough. Greater 
accountability is needed of how the program decisions were 
made, and what was the basis for those decisions. Real risk-
based decisions with an active and managed database needs to be 
part of the program's normal assessments of both short- and 
long-term risk exposures.
    Accurate, verifiable, and repeatable metrics need to be 
developed and utilized. The continuation of the systems 
integrator should cease. The current contract should be 
modified or restructured to enable the Coast Guard to work 
directly with asset manufacturers for construction. Asset 
support and logistics and supply chain management should be 
managed by Coast Guard organic resources. Incorporate the 
existing G-S-Cutter Certification Matrix on all future surface 
asset procurements. IPT leadership and shares should not be 
held by the same entities we're trying to govern and manage. It 
just can't work.
    In closing, I greatly appreciate the opportunity this 
committee has offered me today to testify before you. 
Concurrent with this oral testimony, I've provided a very 
lengthy, and detailed, written testimony for inclusion in the 
record. It further amplifies many of my oral comments 
concerning the variety of Deepwater subjects that have brought 
me here today.
    I'm more than happy, and very willing, to answer any and 
all of your questions to the best of my ability.
    [The prepared statement of Captain Jarvis follows:]

   Prepared Statement of Captain Kevin P. Jarvis, U.S. Coast Guard, 
                                Retired
Introduction
    Good afternoon. Senator Cantwell, as the Chair of this 
subcommittee, I'd like to thank you and the remainder of the Committee 
members for holding this important hearing concerning a subject that 
has consumed a good portion of my life for the last 7 years. I'd also 
like to start off by thanking Senator Snowe whose name I recognize as 
both the Ranking Member of this subcommittee but also as a supporter of 
the Coast Guard and a desired Deepwater acceleration.
    I am Kevin Jarvis a recent retiree from the United States Coast 
Guard, the military organization I have loved for over 29 years of 
commissioned service. I proudly wear my retirement pin for all to see. 
Because of my continued unmatched loyalty and love for this magnificent 
organization and the service it provides the United States, this 
specific topic (Deepwater) and the unfortunate negative publicity it 
has cast undeservedly on many of the men and women of Coast Guard, and 
my unique familiarity with many of the Deepwater tactical and strategic 
decisions, policies and resultant outcomes, I elected to come and 
testify today after a long train ride from Florida. In providing this 
testimony, it is my solitary hope that it can assist you and the Coast 
Guard to make this very important and critically-needed asset 
acquisition program more effective, cost efficient and transparent, and 
most importantly, as the good stewards we're supposed to be, more 
accountable to the American public.
    A short synopsis of my background is as follows: I am a career 
Coast Guard commissioned officer who has spent a predominance of my 
service in Naval Engineering and logistic related assignments. From the 
deck plates and bilges in three different cutters, my selection as the 
DOT-U.S. Coast Guard 1993 Federal Engineer of the Year, to my final 
assignment as the Commanding Officer of the Coast Guard's Engineering 
Logistic Center (ELC), I've seen, and/or done virtually everything a 
Naval Engineer could do. In addition to my Coast Guard Academy 
education (BSE in Electrical Engineering), I've been fortunate enough 
acquire two Master Degrees from the University of Michigan in the areas 
of Naval Architecture and Marine Engineering, and Mechanical 
Engineering. Moreover, I acquired a Master of Arts degree in National 
Security and Strategic Studies from the Naval War College; as a Naval 
Engineer, attending the Naval War College is a relative rarity. Last, I 
completed, in concurrence with my last Commanding Officer assignment, a 
Master of Science degree in Quality Systems Management with an emphasis 
in Six Sigma from the National Graduate School. It was a result of many 
of these engineering experiences, educational qualifications, proven 
leadership attributes and lucky timing that was I introduced as a G-S 
representative to the Deepwater program.
    Prior to any detailed discussion I have on the Deepwater program, 
let me state that I have read the recent DHS IG report dated January 
2007 and agree with their findings and recommendations. Additionally, 
I've been provided a copy of the Commandant's recent Congressional 
testimony on this subject and I fully believe Admiral Allen's 
legitimate emphasis and desire for program transparency, greater 
accountability and formally shifting technical authority from the 
contractor or elements of the acquisition directorate to the more 
rightful owner, the engineers within the CG-4 directorate are excellent 
steps in the right direction.
The Deepwater Contract Strategy and Its Flaws
    The contract strategy was in reality pretty simple and elegant to 
describe, but due to its uniqueness, getting any type of details beyond 
the ``concept'' was virtually impossible to acquire. This System-of-
Systems, performance-based contract was to have as its major hallmarks; 
a ``Systems'' integrator to ensure all the working parts of the 
delivered assets worked together; a performance-based contract that, 
with the exception of the National Security Cutter (NSC) which was 
relatively detailed in the Systems Performance Specification (SPS) 
Section 3.8, was all about the final performance of the ``built out 
system''; a heavy reliance on Commercial Off-The-Shelf (COTS) and 
Commercial and Non-Developmental Items (CANDI); and an assortment of 
virtually every Contract Line Item (CLIN) billing strategy imaginable. 
The Contractor's performance would supposedly be monitored and assessed 
through the System's increased Operational Effectiveness (OpEff), lower 
Total Ownership Costs (TOC), and Customer Satisfaction. The strategy 
was indeed unique. Building the contract details, simultaneously moving 
down a very aggressive Request for Proposal (RFP) timeline concurrent 
with three separate industry teams desiring contract related guidance, 
and building the program and directorate support staffs all at the same 
time would prove to be an almost imaginable task. This constant dance 
between pre-set time-driven requirements and necessary performance 
specifics would only get worse as the contract matured.
    Moreover, it was readily apparent to many prior to award with the 
three industry teams and immediately after award to ICGS that the 
implementation of this simple and elegant strategy would be extremely 
complex to manage properly and virtually impossible to hold the 
contractor's feet to many of the performance measures since it was all 
built on the ``end-state'' system-of-systems performance; ergo we'd 
have to really wait until 2020 or so to really see if we ultimately got 
what we paid for. The contractor could easily state that a missed mark 
in articulated performance with an early delivery asset would be 
accounted for in a later version of another asset, or some other part 
of the still undeveloped part of the system-of-systems planned concept. 
This became a constant moving target when trying to pin down any given 
system's performance at any given point in time. Making matters worse 
was the fact that the Coast Guard couldn't develop an accurate and 
repeatable OpEff model in time for the various industry teams to insert 
their System of Systems numbers and justify ``real'' OpEff increases 
from their contract proposal. Eventually, with the established RFP 
solicitation date fast approaching the Coast Guard and industry teams 
settled on a ``Presence Model'' that evaluated the industry team's 
proposal based on asset presence and coverage capabilities of locations 
and missions only; lost was the assessment of an integrated solution 
where the sum would exceed the individual parts!
    To make matter worse was the accepted realization that any induced 
Coast Guard changes in mission requirements, workforce management, 
maintenance needs, funding issues or virtually anything that could 
impact the ``System of Systems'' performance, could be the trigger for 
any of the contractors to ask for, and probably be awarded, a contract 
modification for either more money, more time, or readjustment of the 
already difficult to mandate operational effectiveness baseline. Here 
was another flaw in the contract strategy. To try and hold the 
contractor accountable for any Coast Guard induced change, adjustments 
to the OpEff model and measurements against an established and agreed 
upon baseline would be needed. This was a very transparent problem that 
was immediately highlighted after the needed Coast Guard mission 
changes from 9/11.
    As mentioned previously, only the NSC had any level of real defined 
and measurable asset performance requirements. The remainders of the 
system-of-systems deliverables were virtually non-defined and were left 
to the individual industry teams to be innovative and propose an 
integrated solution for a 20+ year performance period. This enabled 
each industry team to propose an assortment of near-term and out-year 
ideas with costs estimates which were difficult to defend but even more 
difficult for the Coast Guard to analyze as rational and reasonable. As 
a result, cost proposal, TOC numbers and the process for fitting them 
into the annual cost constraints imposed by the Coast Guard as an 
acceptable bid was a skill mastered by the winning industry team, yet 
appeared to be elusive for justification and repeatability.
    COTS and CANDI equipments are great catch words and were to be the 
basis of matching innovation's potential higher costs with already 
proven, mature designs and equipment with supportable and manageable 
supply chains. With a reliance on COTS/CANDI, the contract strategy 
often associated itself with the minimization of Acquisition, 
Construction and Improvement (AC&I) moneys being funneled toward 
research and developmental (R&D) concepts. Yet another contract 
enforcement flaw became apparent as the term ``innovativeness'' was 
often inserted by the contractors and accepted by the Deepwater program 
for what would otherwise be categorized as R&D initiatives. How else 
could the VUAV which only existed as a scaled model of a potential 
aircraft option, shipboard radars with never before achieved 
acquisition and detection capabilities, stern ramp designs on ships the 
size of the NSC, or the original CASA proposal which was at best, an 
unproven hybrid of other CASA platforms have survived the award 
process. Each of the above are representative examples of concepts 
which have since, crashed when sized up from the model, have been 
substituted by more conventional designs, or replaced in their 
entirety.
    As for the System's Integrator, this entity was advertised to be 
the glue that pulled all the individual asset pieces together into a 
collective product with measurable and increased performance returns. 
Individual assets were to mutually support and/or augment each other. 
New asset ``cradle to grave'' logistic supporting requirements, 
maintenance activities, workforce apportionments, funding streams, and 
legacy asset sustainment and replacement schedules were all 
intersecting challenges that were supposed to be more efficiently and 
effectively managed through the use of the System's Integrator. Much of 
these advertised Integrator outcomes have failed to materialize.
    New asset logistic improvements, both processes and supporting IT 
systems have been painfully absent. Throughout the shortened life of 
the first delivered asset, the 123,, logistic support and complete 
supply chain management for Deepwater introduced equipment was marginal 
at best. The story doesn't improve much for the other surface assets. 
Although there is more than enough positive rhetoric from the 
contractor and the Deepwater program, the fact that NSC 1 is now 
floating and getting closer to an operational status with many of the 
needed logistical support details and deliverables still ill defined, 
is indeed troubling. Although the ICGS position that a particular 
shipboard system will be supported by a performance-based contract is 
indeed refreshing and in alignment with many other government support 
strategies, a failure to produce any concrete examples of either the 
breadth and depth of these contracts, and more importantly where the 
gaps will exist between performance-based contract boundaries was the 
state of affairs when I left the Coast Guard last June; I am unaware if 
much has changed since. The fact that the Integrator failed to 
adequately respond to repeated calls for surface asset logistic 
details, failed to utilize or show any real purpose of the expensive 
Business Process Assessment and Redesign initiatives, benignly watched 
as replacement after replacement rotated through the top position of 
the Contractor's logistic organization begs the question; where is the 
return on the investment for this high priced Integrator? I submit that 
this was and still is one of the biggest contract flaws associated the 
Deepwater program. The Coast Guard relied on significant Integrator 
involvement, influence and accountability to enable the System of 
Systems acquisition strategy. The Integrator's seemingly absent 
influence in key areas expected by the contract and their very real 
complicity in why we're here today can not be overlooked when its 
painfully obvious that many of the initial contract strategies, 
requirements and deliverables which the Integrator was to be a 
significant enabler have either failed or are failing. Coast Guard 
management of the program is not without fault for these failures, but 
neither is what was billed by the elements of G-ADW and subsequently G-
D, our ``Strategic Partner'', the Integrator.
My Entry Into the Program and the G-ADW (G-D) culture
    I was already aware of the basic Deepwater contract strategy 
through a variety of the internal Coast Guard publications prior to my 
official entry on November 2000 into the Deepwater experience as G-SDW. 
Unfortunately, I was already aware of what was rumored to be troubling 
organizational differences between the elements of the G-ADW 
(predecessor of G-D) organization and many of the Coast Guard 
Headquarter Directorate personnel. In short order, I would find that 
these rumors were indeed very valid organizational problems which, in 
my opinion were critical and fundamental flaws in the execution of the 
planned acquisition strategy. Traditionally, and in accordance with the 
Systems Acquisition Manual (SAM), any major acquisition relies on the 
careful blending of the various Coast Guard Directorates' resources 
into what may be categorized as a purposefully designed set of 
acquisition checks and balances. In the simplest of terms and using 
only three of the many acquisition supporting Directorates as an 
example, the Operational Directorate would assist with the development 
of the Mission Needs Statement, Operations Requirement Document and 
other operational related criteria. The Engineering Directorate would 
assist with the necessary design standards, procedures, sustainment 
requirements and assessments to ensure that the Acquisition 
Directorate's intended procurement would fulfill the mission needs 
established by the Operations Directorate. Although the Acquisition 
Directorate was ultimately responsible for balancing cost, schedule and 
performance, the remaining support Directorates were fully aware of, 
and greatly appreciative of the sometimes uncompromising cost, schedule 
and performance decisions. The Operations Directorate focused on 
operational capabilities and performance. The Engineering Directorate 
would focus primarily on delivery performance and its long-term 
corresponding elements of logistics and maintenance sustainment. As 
proven with other recent and successful Coast Guard major acquisitions 
(WLB/WLM and Great Lakes Icebreaker), this very ``healthy'' balance and 
tension was expected to ensure the Coast Guard bought and built 
something it needed, could operate, and maintain for the expected life 
of the particular asset. With the Deepwater program, there would be 
nothing ``healthy'' about this balance. From the outset, this unhealthy 
situation, whose genesis lies imbedded in the overall procurement 
strategy, and the allowance granted to the Deepwater program to deviate 
from the SAM, would virtually compromise any chance for a successful 
execution of the Deepwater procurement plan.
    In my capacity as the Engineering Logistic Center's Platform 
Manager (tour length from Summer 1998 to November 2000), I had the 
opportunity to witness firsthand some of the new acquisition strategy 
concepts and how they would impact ``traditional'' acquisition 
processes. One such instance was during the ``review'' and 
``reclassification'' of hundreds of G-S previously provided engineering 
and ship design, construction and evaluation standards and principles. 
During this review process, I witnessed the elements of G-ADW, question 
every existing standard for its alignment with the ``System of 
Systems'' strategy and its reliance on the contractor to be held only 
to delivering an asset to a contractually-specified ``performance 
standard''. Many existing engineering standards, procedures, criteria 
and testing requirements were summarily classified as ``too 
prescriptive'' which if included in the certification matrix would 
unduly prevent the individual contract teams to be ``innovative''. The 
fact that this process took place at all was not as startling to me as 
was the context behind the Deepwater Program's perceived motive for its 
purpose; changing from traditional and proven asset construction 
procedures and standards to one where greater latitude was given to the 
contractor to do what was right when it came to designing and building 
the surface fleet. With full cognizance by the program's leadership, 
this was Deepwater's first overt act of dismantling and disrupting the 
proven support directorate's roles and responsibilities associated with 
a major acquisition. In my opinion, this was yet another critical 
program mis-step which placated the individual industry teams at the 
expense of time-tested and proven Coast Guard organic technical 
resources. This dangerous and repeated tactic of contractor appeasement 
and dismissing unbiased internal Coast Guard technical assessments and 
recommendations has culminated with the need for this hearing.
    In November 2000, I was reassigned as an off-season transfer, to 
fill the position as the Chief Systems' Deepwater Integration Office 
(G-SDW). I was responsible for the integration of all G-S' 
organizational responsibilities, capabilities and technical input into 
the Deepwater acquisition. I had a staff of 10 personnel who 
represented the disciplines of surface, aviation, logistic and C\4\ISR. 
As G-S' Headquarter staff for Deepwater support, we coordinated and 
integrated the acquisition support program responsibilities and 
responses to their cognizant parts of the remaining internal and 
external pieces of the G-S organization. As an example, for the surface 
element of my staff, this meant Deepwater program coordination with G-
SEN, ELC, the CG YARD, and both MLCs. I reported directly to G-S and 
had frequent, often daily meetings with my Admiral concerning the 
challenges and opportunities associated with Deepwater. From 2000 to 
2002 this was RADM Ronald Silva. From 2002-2003, this was RADM Albert 
Kinghorn. As their direct representative to the Deepwater program, I 
attended all Deepwater-related meetings which required 0-6 (Captain) 
presence and/or decisionmaking, and often represented or accompanied 
the Admiral at those meetings requiring Flag presence. Both Admirals 
trusted me implicitly and I had exceptionally wide latitude in not only 
speaking with G-S authority, but also establishing specific G-S 
positions on a variety of Deepwater-related subjects.
    Within days of reporting to G-SDW, getting briefs from my staff 
elements and visiting the corresponding players from the other 
Directorates, including meetings with G-ADW, his deputy and his various 
APMs (program managers for the various assets), it was immediately 
apparent that the rumors of organizational problems were very real. 
Since G-ADW was identified as a ``Re-invention Site'' it was provided 
deviation status from the existing Coast Guard acquisition manual and 
as a result, there were no established organizational Roles and 
Responsibilities with many of the other Directorates. Moreover, many of 
the normal acquisition program necessities were being developed and 
implemented while still in the draft or early developmental stages.
    On a timeline, the Coast Guard was still in the pre-award stage. 
With three competing industry teams, having enough resources to cover 
all of the program or directorate needs was a constant challenge for 
all the directorate staffs including G-ADW. It was during this hectic, 
and very fast paced time that more of the fundamental program aspects 
and the concept of a ``System of Systems'' strategy with a program and 
asset integrator became better defined. It was also during this pre-
award period that more organizational friction points were spawned. G-
ADW elements started using the phrase ``Change Agent'' more frequently 
and the Machiavellian justification of the program's ``ends will 
justify the means'' as some of their overarching guiding principles. To 
G-ADW, their mandate was to inculcate this acquisition philosophy 
change and its resultant organizational upheavals into the Coast Guard. 
In simple terms, this meant that for real acquisition change to occur, 
anything that mirrored the way something was currently done, or done in 
the past, could not be a part of the Deepwater acquisition tactical 
plan. As the G-S senior (with the exception of G-S himself) 
representative to the program, I immediately sensed that the locked 
doors of the Deepwater spaces and controlled access afforded the G-ADW 
staff much more than just procurement security during the contract 
development and pre-award period. It was a very convenient mechanism of 
keeping all but ``cleared'' Coast Guard elements from entering their 
spaces as G-ADW virtually isolated themselves purposefully from the 
remainder of the Coast Guard. Although all of the SDW and other 
Deepwater support directorate staffs were ``cleared'' and had access to 
the G-ADW staff, it became readily apparent from my in briefs and 
difficulty in getting details on many of the G-ADW current ``goings-
on'' that the SDW staff was missing many important contract development 
and contract process meetings. We were ``invited'' to only those 
meetings and strategy sessions when the G-ADW staff thought it was 
appropriate to do so. To a certain extent, G-ADW had a 2-year jump on 
me and many of what proved to be flawed execution strategies and 
tactics were already in place and firmly inculcated in the G-ADW staff 
elements. My first direct order to my staff was ``G-S will no longer be 
rolled by G-ADW'', followed in succession by ``Attend every meeting 
we're invited to, and barge into every one we weren't invited to but 
should have'', and finally, ``document everything and act with my 
authority as SDW''. The SDW staff immediately and with great zeal, 
increased our presence in the locked spaces of G-ADW and although 
unwanted by G-ADW, began asserting more of our traditional acquisition 
support roles and responsibilities.
    Concurrent with this, we increased liaison, communication and 
information flows with not only our G-S internal and external 
Headquarter staffs, but also the other acquisition support directorate 
staffs. Acknowledging what I call a ``mischief gap'' that G-ADW had 
with the SAM deviation approval, I worked to close this opening by 
establishing a formal set of agreed upon roles and responsibilities 
between G-S and G-ADW which would stabilize and hopefully mend broken 
organizational fences. Due to the existing anti-G-S culture within G-
ADW and the reluctance of the existing Deepwater program manager to 
even entertain such an initiative, it took over 8 months of concerted 
effort with my classmate in the G-ADW organization while waiting for G-
ADW to retire. Although only 6 relatively short paragraphs long, this 
roles and responsibilities agreement was powerful in that it formally 
established a more defined relationship between G-S and G-D (note that 
by this time, G-ADW had been reclassified as G-D) elements. In simple 
terms, G-S was to establish and provide the engineering and logistical 
expertise and advice to G-D. G-D was to use these G-S provided inputs 
in the development of the program as it procured new assets and 
services. This agreement also accounted for any unforeseen or non-
existent policies, and instructed both organizations to collaborate 
together in their development. Signed by both G-S, RADM Silva, and G-D, 
RADM Stillman, the memo was approved by the Coast Guard's Vice 
Commandant, VADM Collins on 27 July 2001. Although accepted and 
approved by the highest levels of both Directorates, it became quickly 
apparent that it would be just another piece of Coast Guard policy that 
G-D elements would decide not to honor. If there was ever doubt before 
hand, it was now crystal clear that the bedrock placed by G-ADW was 
being cemented in place by G-D; the G-S engineering and logistics 
expertise were not a priority. Through the contract, the Deepwater 
program was expected to be supported by a ``World Class'' ship builder 
and their cognizant engineering design staffs. Any interim G-D program 
engineering expertise could be purchased through a multitude of readily 
available engineering support contractors. Concurrent with this 
intended and carefully crafted effort to minimize the need for any G-S 
technical or logistic input was the steady build-up of a duplicative 
naval engineering technical capability within the G-D staff elements. 
Initially advertised as nothing more than additional engineering 
resources to ``manage'' the surface portions of the contract, these 
same naval engineering elements, both military and subcontractors, 
quickly became the mouth pieces of the contractor and virtually 
squashed any and all engineering design, maintenance and sustainment 
concerns from the G-S engineers. This ``World Class'' ship builder 
reference would be used time and time again by the G-D elements 
whenever a difference of technical or logistical positions between G-S 
and G-D occurred. With the ``World Class'' industry partners giving G-D 
all the input they needed, the G-S assessments, concerns and 
recommendations were often given nothing more than lip service and 
summarily dismissed. As will be discussed shortly, the Integrated 
Process Team (IPT) environment would be the cooking crucible for many 
heated discussions which primarily sided with the G-D, and the industry 
position.
The Integrated Process Teams (IPTs), a Missed Opportunity
    A key process management ingredient of the Deepwater strategy was 
the tactical execution of IPTs. These teams were comprised of 
representatives of G-D, the program supporting Directorates, and 
industry personnel. They existed at every aspect and every level of the 
program from the strategic Flag level, Overarching IPT (OIPT) and 0-6 
Integrating IPTs (IIPT), to the more tactical Long Range Interceptor 
IPT which often consisted of Lieutenants and below. Typically chaired 
by either ICGS or G-D elements, they were touted as the entities where 
the majority of problems and issues would be resolved. Enhanced 
communications, collaboration, consensus and sound program decisions 
were expected characteristics of each IPT. Although some IPTs were more 
successful than others, most did not function as planned for a variety 
of reasons; newness of the concept with poor training, trust issues, 
communication issues, resource issues, etc. Of all the IPTs, the 
surface IPTs in specific were the most volatile. It is safe to say that 
for the most part, the entire category of surface IPTs, (NSC, OPC, FRC, 
123, etc.) became cauldrons of discourse, resentment, mistrust, and 
even more caustic organizational fractures.
    The immediate disagreement of established roles and 
responsibilities (in spite of the signed G-D/G-S memo) was in my 
opinion the singular cause for these IPT failures. A careful 
investigation of all surface IPT problems will track back to this 
critically important disagreement. With the recently signed Flag memo 
which stipulated G-S and G-D roles and responsibilities, G-SDW thought 
it now had the backing of the Vice Commandant to ensure our voice, 
concerns and recommendations were ``honestly'' evaluated as part of the 
IPT format. The G-S recommendations not incorporated were expected to 
at least be explained and documented as part of the IPT's decision 
process. Rarely did this occur. Since I was leading the G-S charge for 
incorporating the organizational roles signed by both G-D, G-S and 
approved by the Vice Commandant, I highlighted the program's overt 
flaunting of these roles at every opportunity. As one might expect, the 
IIPT was on more than one occasion a very caustic environment.
    Since all G-S surface IPT members worked either directly or 
indirectly for me, as G-SDW, I ensured that each G-S representative 
knew their approved role and at every IPT level, I was continually 
aware of the program's flagrant failure to respect and comply with the 
Flag agreement. In that regard, they all acted by my direction. The G-S 
role was a critical program ``check, balance, and technical assessment 
and recommendation'' necessity. With my years of engineering experience 
and variety of assignments, I had sufficient personal knowledge of the 
qualifications, personal attributes, and technical capabilities of 
most, if not all of the internal and external G-S and MLC logisticians 
and engineers who supported the Deepwater program with their thousands 
of years of proven engineering and logistical expertise. With the Flag 
memo in hand, I was not about to let this invaluable and irreplaceable 
organic Coast Guard capability be silently dismissed. In doing so, I 
ensured that each G-S IPT representative complied with the IPT rules 
for discussing our inputs, concerns, recommendations and documenting 
the IPT outcomes. It should be no surprise that the level of 
documentation on these related issues probably differs significantly 
between what's retained by G-D and G-S elements. We knew that with each 
and every dismissed G-S technical and logistic assessment and 
recommendation, we were traveling down a path that many, even very 
early in the program saw as an impending ``train wreck''. The continual 
discussion within many G-S and MLC staffs was not if the wreck was 
going to happen, but how extensive it would be when it happened.
    Although the continual role disagreement was a significant causal 
factor in the surface IPTs struggles to become functional entities, it 
was not the lone culprit. Other progress inhibitors such as the actual 
IPTs membership, who decided who was to be a member, who the members 
worked for, how meetings were coordinated, managed, and documented, how 
problems were resolved, and how the IPTs would make decisions were 
noteworthy issues which were hallmarks of the early IPT troubles.
    IPT mechanics, intended characteristics and processes were 
described in the Deepwater program's Project Maintenance Plan (PMP). 
The PMP, would be the tactical execution of G-D's Deepwater contract 
strategy. To no surprise, many of the PMPs elements immediately became 
discussion hotspots. G-D wanted all IPT members to report to the IPT 
chair. Seeing this as a potential tactic to not only functionally, but 
also organizationally ``control'' and, or ``manage'' the IPT direction, 
this G-D desire was met with significant resistance with hard lines 
``drawn in the sand'' from both G-S and the G-O IIPT representatives; 
other non-G-D IIPT representatives followed suit. In our view, to 
ensure that the supporting organization's representatives could 
confidently and safely, for their careers or employment for those 
civilian personnel, provide unbiased input and report back factual 
developments or concerns, they needed to stay out from under the thumb 
of the G-D IPT leads.
    Early IPT problems also raised the concern over who actually would 
determine IPT membership representatives. On more than one occasion, 
the surface IPT lead tried exerting his authority and remove G-S 
surface IPT representatives as formal members. Ostensibly the reason 
and justification was the IPT members were disruptive to any positive 
and necessary IPT decisionmaking. Although, it was not uncommon for the 
G-S IPT representatives to have strong and vociferous mannerisms in 
fulfilling their IPT roles, in my opinion, it was the critical 
discussions and concerns that these G-S IPT members had on any 
particular engineering or logistic issue that was the real underlying 
reasoning for their desired removal from the IPT by G-D APMs. I 
thwarted this effort in both my SDW and later in my ELC Commanding 
Officer capacity.
    Early IPT functionality was compromised by poor IPT management. 
Meetings were often poorly advertised with sometimes only hours to 
respond, poorly documented or with the many resource challenges, poorly 
attended. Established IPT agendas, with intended discussion items and 
articulated desired outcomes were rare. With the plethora of possible 
issues, having knowledgeable, capable resources at the meetings was of 
a paramount importance to everyone. When these technical areas were 
covered with personal assets sometimes only one deep, it was critical 
to have the right person with the right talents and skills at the right 
meeting. Due to poor agenda management, on more than one occasion the 
G-S IPT member was not the best available choice. In these 
circumstances, the G-S IPT representative would implement a ``reach-
back'' effort to the more knowledgeable subject matter expert. This 
``reach back'' model was not readily accepted by G-D elements as an 
acceptable IPT representative strategy and was often ridiculed as not 
providing decisionmaking ``empowered'' resources. In spite of this 
false ``empowerment'' claim, the ``reach back'' model worked very well 
for G-S and enabled a much more effective and efficient use of the 
limited AC&I funded project resources. Rarely was the absence of a G-S 
IPT member the cause of not making a decision. To the contrary, it was 
because of our continued presence that planned IPT lead decisions were 
thoroughly discussed, evaluated and often questioned for supporting 
details and justification. Unfortunately, because of the induced time 
criticality of many program decision steps, the engineering decisions 
which would normally require and await much greater exploration and 
analysis, were made in the face of the G-S IPT representative's 
objection. The advertised IPT desire to achieve collaboration and 
consensus would quickly deviate to a model of unexplained or poorly 
justified IPT unilateral decisions by the IPT chair. This pervasive 
program tactic would come back to haunt the Coast Guard with the time 
driven pursuit of the 123, and NSC.
    The PMP did identify an agreed upon IPT problem resolution process. 
It was the expected responsibility of each IPT to make the maximum 
effort to resolve problems at the lowest level. When the circumstances 
prevented this, any particular non-consensus voting representative 
could raise the particular issue to the next higher IPT for discussion 
and possible resolution. It was expected that the higher level IPT 
would quickly decide the issue and give task direction to the lower IPT 
so as not to negatively impede the time criticality of the overall 
schedule. Due to the sometimes overwhelming number of IPT non-consensus 
decisions at all levels, this perfect decision resolution scenario 
rarely was the timely solution it was hoped to be. Moreover, an 
additional IPT, between the IIPT and the OPIT was inserted after 
contract award. It was co-chaired by the G-D and ICGS Program Managers 
and was titled the Program Management Team (PMT). The PMT's membership 
consisted of senior G-D, ICGS and other contractor personnel. With the 
exception of the G-O Deepwater 0-6 representative who was allowed to 
``call-in'', there was no non-G-D routine presence at the meeting. It 
was advertised, that if a G-S-related decision was to be discussed at 
the PMT, the G-D PM would make every effort to ensure a G-S 
representative would be notified in a timely manner to be part of the 
discussion. If for whatever reason our presence wasn't possible, or an 
``unexpected'' G-S related discussion topic just happened to surface at 
the PMT, the G-D PM felt comfortable he could represent any G-S 
concerns. The fact that the PMT was between the IIPT and the OMPT, by 
IPTs rules meant that any IIPT disagreement that would normally be 
brought up to the OIPT for resolution first needed to go thought the 
PMT. This became a very convenient joint G-D/ICGS mechanism to resolve 
program problems that escaped 0-6 solutions but didn't need Flag 
involvement. With no routine G-S presence we were often trying to 
reverse PMT ``agreed upon'' decisions after the fact. Even when I or my 
deputy was invited for the discussion, we were not voting members. As a 
result, it was unreasonable to expect our discussion points to convince 
enough of the 18 G-D or ICGS PMT members to reach a favorable G-S 
decision. Needless to say, G-S was advised of these IIPT disagreement 
areas for eventual Flag to Flag discussions with G-D directly or as 
part of an OIPT ``non-agenda'' discussion topic. Sadly, the G-S 
influence or objection, even at the Flag level rarely carried the day 
and those that did would not have occurred without the direct support 
of the G-O Flag.
    I suspect with the plethora of non-concensus and troubling IPT 
decisions, and the relatively slow progression of these concerns 
through each subsequent IPT level, the contract's time reality somewhat 
supported the G-D APM's pretext to unilaterally make their best 
decision and keep the program running forward, a concept I 
fundamentally agree with. Unfortunately, what became very disturbing 
was the unusually high frequency at which this unilateral decision 
oddly turned out to be more aligned with the Deepwater contractor's 
position than G-S'. As will be discussed later in the events 
surrounding the 123, WPB, the G-D position that the initial G-S 123, 
WPB technical concerns were unwarranted, was formally transmitted to G-
S as follows: the ICGS engineering analysis was ``good enough'' and the 
123, will move forward as planned. The fact that all eight 123, WPB's 
suffered major structural failures, and are non-functional Coast Guard 
assets is indicative of the dangers implicit with time driven 
decisions. With the constant reminder from the PEO himself, his deputy 
and PM for ``ruthless execution of the contract'', more and more time-
based decisions would take priority over the performance concerns 
raised by G-S. The ``Iron Triangle'' phrase of cost schedule and 
performance as coined by the G-D PM, was in more reality less a 
triangle and more of a rod with the only measurable dimensions of cost 
and schedule; performance in my opinion was becoming nothing more than 
a necessary word to be included with the other two. As long as the 
asset was delivered reasonably close to the planned delivery date, all 
was essentially well. Whatever performance we acquired with the asset 
would be computed into the OpEff model and if not sufficient or of the 
expected level, it would be accounted for by the contractor in later 
asset improvements or capabilities in the very fluid system-of-systems 
grand plan. For example, any failure of the NSC to achieve the SPS 
required speed of 28 knots (which was still very much in question when 
I departed the service) was not as important as was meeting the 
scheduled NSC delivery date. So how will the contractor be held 
accountable?
    During these early IPT ``storming'' evolutions, a new G-D initiated 
phrase and contract strategy was further defined. With the expected 
value-add of ``World Class'' ship builders, and the fact that the 
contract enabled them to be innovative in delivering ``performance'', 
the desired expectation of the supporting directorate IPT members was 
that they only need to acquire ``insight'' into the contractor's 
proposal and planned asset details. The traditional government 
requirement for contractor ``oversight'' was not part of the new 
acquisition strategy and ``change agent'' concepts. Regardless, 
``oversight'' of the contractor was not to be a G-S concern. Any 
discussion with G-D elements where the term ``oversight'' was used by 
G-S personnel was quickly corrected by senior program elements. 
Although it might not have been the G-S-specified responsibility for 
contract ``oversight'', this more benign G-D ``insight'' perspective 
and greater expectation that the contractor would do the right thing in 
providing us the contracted System of Systems performance was indeed 
very troubling. In spite of the G-D staff's continual corrections, many 
in G-S were very concerned with what appeared to be G-D's laissez faire 
``oversight'' position.
    For the most part, these IPT realities and program disagreements 
plagued and challenged program progress from years before release of 
the RFP and well past the award date. Most were still very active when 
I left SDW in the Spring of 2003 and were still raging even after I 
retired in 2006. As such, the inability to effectively function at the 
lowest level of the program significantly hampered virtually every 
expected and projected contract deliverable. This dysfunctional IPT 
problem was not news to anyone despite the carefully crafted Quad 
charts and reporting instruments by the program staff which typically 
minimized the reality. As I did with my Flag in G-S, I feel confident 
the other IIPT members kept their Flags advised of the IPT troubles. 
Although the articulated position from senior G-D personnel was always 
of support and talked up the need for collaborative IPT decisions, it 
was also common knowledge that these same G-D senior personnel were 
losing patience with G-S' continual requests for additional 
information, analysis or testing. G-S performance warnings conflicted 
with the advertised performance attributes stipulated by the ICGS 
elements and trying to resolve them failed to conveniently mesh with 
the delivery schedule expectations. G-S' ``conservatism'' was being 
cast by G-D senior personnel as obstructing timely contract progress. 
As time progressed, the terms of obstructionists and G-S were becoming 
linked by not only G-D elements but others as well. Those who knew of 
the future we foresaw also knew that tagging G-S as an 
``obstructionists'' was completely inappropriate. Again, the 123, WPB 
non-performance realities, the G-S-induced necessity to develop an 
alternative Fast Response Cutter (FRC) design and contract strategy, 
and the current NSC structural and performance issues seem to validate 
that time and money probably could have been better spent.
The 110, to 123, Patrol Boat Conversion
    Due to the rather significant funding constrains established by G-
ADW at the beginning of the program, all three industry teams would be 
indeed challenged to squeeze new asset replacements and the sustainment 
of the legacy deepwater fleet into a workable plan. The ICGS proposal 
devised what I always thought was, if achievable, an elegant concept 
and solution for the aging 110, Patrol Boat class. With the 110, hull 
deterioration issues articulated to all of the industry teams well in 
advance of the RFP issuance, each team had the opportunity to 
incorporate this ``known 110, WPB hull condition'' into their plans or 
contract bids. ICGS's pre-award plan always included a ``stretched'' 
110,, and the hull condition was accounted for with a ``bided'' amount 
of expected hull replacement. Collectively their proposal would 
lengthen the 110 feet to 123 feet with a stern extension and make other 
hull replacement efforts as needed so the life of the new 123, WPB 
would coincide with the FRC introduction where more funding flexibility 
seemed to exist. Although an elegant concept solution, the G-S 
engineers almost immediately started raising concerns of both the stern 
launch design and the overall engineering and model testing analysis of 
the entire platform, which included the Short Range Prosecutor (SRP). 
While in the pre-award phase, Coast Guard Technical Assistance Teams 
(TAT) were severely limited in the level of actual ``engineering 
evaluations'' and ability to transmit detected problems to any of the 
industry teams. All communication transmittals were really limited to 
asking how their proposal would address a particular problem. The level 
of communication and interchange was expected to change drastically 
after award in the IPT environment with collaboration and consensus the 
way of doing business.
    With the 123, WPB designated as the first delivered ICGS Deepwater 
asset, it was the first to get real intense G-S engineering and 
logistic reviews concerning the corresponding details unavailable 
during the pre-award period. Unfortunately, even in this new, less 
constrained contract environment, the engineering details surrounding 
the planned extension were less than desired by G-S engineers. During 
IPT meetings, at all levels, a consistent message was coming from the 
G-S representatives; we were concerned about the stern ramp, how the 
SRP and 123, would act as a unit in the same sea-way, and the overall 
structural integrity of the 110, hull girder. Repeated requests were 
made for the timely delivery of the contract required CDRLs which 
hopefully would include some of the needed engineering analysis to 
answer these questions. Concurrent with these requests were the arrival 
of scheduled contract ``review gates'' that supposedly were to be 
successfully negotiated prior to progressing forward with the release 
of a Delivery Task Order (DTO) authorizing additional ICGS work.
    These gates consisted of a Preliminary Design Review (PDR), a 
Contract Design Review (CDR), and a Production Readiness Review (PRR), 
all of which needed to be successfully completed prior to awarding the 
DTO to initiate the 1st 110, conversion. Documentation exists that 
clearly indicates G-S' engineering concerns with the lack of received 
CDRLs and the corresponding engineering analysis to enable a successful 
pass though each and every one of these contract gates. In spite of 
these documented concerns, the G-D surface APM concluded, from non-
unanimous IPT inputs (G-S and G-O objected), that the contractor had 
successfully completed first the PDR in October 2002, then the CDR in 
December 2002 and finally the PRR in January 2003. As a schedule-driven 
decision, this very quick completion of three major contract gates 
enabled the timely arrival of the CGC MATAGORDA in February 2003 and 
the start of what would be an ill-fated hull extension. It was during 
the accelerated contract completion of these gates where the ICGS 
provided engineering analysis for the 110, conversion was deemed as 
``good enough'' by the G-D surface APM. With the impending APM 
unilateral decision, I ensured the IIPT was advised and warned that the 
110, PDR, CDR and PRR were to be inappropriately declared successful. 
Even with the strongest objections at each and every contract review 
step, my voice and my IIPT vote was clearly insufficient as the G-D PM 
concurred with his APM's decision each and every time. Even when any 
chance of winning the IIPT seemed lost, a last plea for caution was 
proposed by G-SDW; build only one 123, WPB as a full scale prototype 
and test the hull structure and the SRP interface with the stern ramp. 
If the design appeared sound after a prescribed test and evaluation 
period, the subsequent DTO's could be released to restart the 110, 
modification line. This was also dismissed due to overriding schedule 
and cost priorities. With all options seemingly lost, in December 2002, 
G-S sent a memo to G-D indicating that because of our overall 
engineering concerns with the 123, WPB, no additional G-S controlled 
maintenance moneys would be directed to MATAGORDA after the cutter's 
departure. This memo, along with virtually every other engineering 
concern G-S could muster failed to slow down the schedule driven 123, 
WPB conversion process.
    Very similar G-S concerns with the ICGS 123, WPB logistic support 
plan were running concurrent with the above cutter extension part of 
the project. Observing what appeared to be a significant logistic 
capability gap in ICGS' proposal, G-S offered a ``bridging logistic 
strategy'' which would enable adequate logistic supply support until 
the ICGS logistic concept was ready for deployment. As with the 
engineering memo, this one was also disregarded by G-D acting under the 
advice of the ICGS logistic support staff. The conversion results, the 
current non-operational use of the 123, WPBs and the wholly inadequate 
123, WPB logistic support system experienced during their shortened 
life speak loudly of how the influence of the Deepwater contractor on 
the G-D APM's performance related decision points negatively influenced 
the final delivered performance of these assets.
The National Security Cutter (NSC) Design Issues
    With the unilateral G-D surface APM decisions still fresh from the 
123, project, in early 2003 many in G-S were openly referring to the 
NSC as a contract repeat of the 123,. That said, NSC designs issues 
followed a very similar path to that of the 110,/123, WPB extension 
project in that even before the RFP was issued and the contract awarded 
to ICGS, G-S IPT elements had a relatively long and critical list of 
NSC design concerns. In addition to the current and outstanding 
structural issues, G-S had concerns with the stern ramp interface and 
the fact that the original NSC design had no other small boat launch 
and retrieval system. So significant was this concern that G-S 
conducted a worldwide survey of existing stern ramp configurations and 
only after very conclusive findings did the first NSC design get 
modified for the inclusion of a side launch capability for the Long 
Range Interceptor (LRI); its unsure if this side launch capability will 
be incorporated on subsequent NSC designs.
    Although this particular design issue was a success, the structural 
issues raged with the NSC IPT members virtually at a standstill for any 
progress. With no risk mitigation strategy apparent and no perceived 
hope of resolution at the NSC IPT level, in accordance with the PMP, 
this concern was raised to the 0-5 level System Engineering IPT (SEIT) 
in the early Fall of 2002. As with the NSC IPT, no apparent progress 
was forthcoming with the SEIT and in the same 2002 timeframe, it was 
brought officially to the attention to the IIPT. Note however that all 
during this tumultuous duration at the lower IPTs, it was a brewing 
storm that the IIPT was watching and knew was coming. Likewise with the 
123, process, NSC DTOs were scheduled for release to ensure the 
advertised delivery of NSC 1. Concurrent with a planned IIPT discussion 
of the NSC structural issues, a meeting was held with G-S, G-O, the 
PEO, many of the G-D senior staff and even some ICGS senior members 
were present when elements of the ELC staff who supported the NSC IPT, 
formally presented in great detail the basis for their engineering 
concerns and forecast of future performance problems. Unfortunately 
this meeting failed to gain the desired outcome as even in the presence 
of three Flag officers, the level of distrust and friction that existed 
between the ELC, G-D and ICGS personnel related to the NSC, compromised 
any cogent and structured discussion. Subsequent discussions at the 
IIPT and OIPT also failed to get any resolution, and in spite of G-SDW 
objections, the DTO to initiate the NSC construction and procurement of 
NSC Long Lead Time material was awarded. From this period, a variety of 
correspondence moved back and forth through the G-S and G-D 
organizations concerning the NSC structural issues. At one point, the 
NSC ICGS representative developed singular one page rebuttals on how 
each of the structural issues had been resolved to the point they could 
be mitigated and removed from the G-D-maintained and controlled risk 
database. In spite of repeated G-D attempts to de-emphasize the 
seriousness of these concerns, they were never mitigated successfully 
and still exist today.
    My transfer from G-SDW to Commanding Officer at the ELC in May 2003 
and the arrival of a new SDW and G-S later that summer brought a new 
strategy in dealing with these apparent irresolvable issues. For all 
subsequent ELC or G-SDW engineering concerns, an independent analysis 
and confirmation would be needed. Current documentation and separate 
DHS IG findings have since provided the results of the many independent 
studies and validations of the G-S initial concerns. During the time, 
these independent studies occurred, precious and irretrievable time 
elapsed, DTOs were awarded and the NSC moved along its advertised 
schedule. One of the strongest warnings I provided to the IIPT prior to 
leaving the G-SDW assignment was that with the continued construction 
process of the NSC, and many of the structural concerns dealing with 
the hull girder itself, if upon NSC delivery we finally get some 
resolution to these structural problems, it will be too late for the 
Coast Guard to economically fix the problems. Unfortunately, this is 
exactly where we are today. Since all these design issues started 
before any DTO was released, the Coast Guard missed the best time to 
make the needed design changes to the NSC. In lieu of making the 
necessary changes while the NSC was still in the ``electron mode'' and 
absorb what would have been at best a relatively minor cost increase 
and possible schedule slippage, we wasted over 4 years of 
``opportunity'' passing memos back and forth avoiding what was 
addressed very early on as a critical design flaw. Another example 
where the Integrator, the actual NSC construction contractor and the G-
D staff seemed to align too quickly and conveniently to ensure the 
schedule was maintained at the expense of performance.
The Fast Response Cutter (FRC)
    The FRC became yet another performance problem but not because of 
any initial concept design in the proposal. Unlike the 123, and the 
NSC, this design failure came about after it was decided at the very 
highest levels of the Coast Guard that the hull was to be of a 
composite material construction. Almost immediately red flags rose from 
G-S elements due to the lack of existing hulls of this size with all 
composite hulls. Most of the subsequent IPT engagements and exchanges 
concerning the FRC occurred while I was the ELC Commanding Officer. The 
Deepwater organization I had at the ELC was led by a very seasoned GS-
15 who coordinated with another GS-15 whose staff of civilian naval 
architects and engineers completed the engineering analysis of the 
proposed composite platform. As a result, I only engaged when the FRC 
details needed Commanding Officer correspondence signature or 
influence. What I can testify to is that the analysis indicated serious 
and dramatic deviations from any parametric references to similar hull 
forms. In addition to the pure naval architecture red flags, there were 
sustainment and maintenance concerns for a composite hull. With the 
uniqueness of the hull material fabrication techniques, and the 
apparent absence of any known large or small shipyard, with the 
exception of the Gulf Coast, to do eventual hull repairs in areas where 
the FRC would normally operate, major maintenance or repair costs 
needed to be incorporated in the overall evaluation and eventually 
mitigated. Since the decision to pursue a completely different FRC 
procurement strategy occurred after I left the Coast Guard, I can't 
talk with any authority on what really brought about this decision. 
That said, I have to believe the repeated and final realization of 
previous G-S engineering concerns with the 123, and NSC may have 
finally tipped the balance that maybe it should be the G-S engineers 
and not the ``World Class'' shipbuilders that should have the majority 
vote when it comes to making engineering design decisions.
Funding and Personnel Resource Issues
    Any Deepwater related discussion can't be made without accounting 
for the funding and personnel resource constraints. Although both were 
significant, I still firmly believe that the overall goal of this 
contract; a complete integration of new surface and air assets with 
interoperable C\4\ISR capabilities and an integrated logistic support 
system spanning the entire spectrum of supply chain management, was 
possible without the need for a system integrator nor the extravagant 
and complex Deepwater procurement strategy. It should be no surprise 
that I believe compliance with the SAM and its established ``healthy'' 
directorate tensions could have worked!
Funding
    Concurrent with the award decision, it was already a known problem 
that funding, both AC&I and non-AC&I accounts, would be in severe 
jeopardy. The Operational and Support (O&S) CLINS would place great 
strains on the remainder of the Coast Guard's operational budget. G-S 
elements quickly instituted the practice to ``fence off'' annual 
funding supporting Deepwater assets from non-Deepwater assets. Based on 
significant annual increases in O&S costs, the amount of money shunted 
to ICGS to support the new Deepwater assets could easily and relatively 
quickly require augmentation from the non-Deepwater fleet.
    Projected AC&I program funds needed to reasonably manage the 
project were knowingly deficient even before the release of the RFP. 
Personal conversations I initiated with the most senior contract and 
management levels of the G-D organization before the release of the RFP 
identified no accounting for any cost growth, needed contract changes 
or award fees. When the G-S 10-20 percent repair maintenance cost 
metrics for growth and changes were used as examples during our 
discussions, it became quickly apparent to these G-D officials that 
there was insufficient reserve in the AC&I program's budget to account 
for this inescapable reality; there will be contract changes and there 
will be unexpected growth. A too simplistic answer of, we'll live 
within the budget and fund what we can fund, was linked to, this is a 
performance contract, and if the contractor doesn't deliver the 
specified performance, changes will be their cost to bear, or words to 
that effect. When the three industry teams were building proposals to 
utilize every spare AC&I dollar allowed, this over simplification of a 
very real funding problem crippled many of the needed asset 
modifications and resource needs early in the program. When comparing 
this reality funding, to the millions of dollars provided to the 
Integrator, one can't help but raise obvious questions if the limited 
AC&I funds are being expended most effectively.
Personnel Resources
    Personnel resources across all Directorates would be severely 
strained. For some reason the early G-ADW and subsequent G-D personnel 
resource metrics always referred to other acquisition programs and 
government organizations for a comparison of funds to bodies. This 
incorrect metric reference drove virtually all related resource 
decisions and distributions. At one point, the G-D mandate was that 
there would be no AC&I Full Time Equivalent (FTE) growth in FY04. As a 
result of these types of management and funding induced decisions, 
personnel shortages were felt across the board! It was hoped that the 
Integrator and the strength of the Contractor's resources would help 
mitigate this resource capability gap. As the program was to quickly 
find out, this did not materialize and as greater program management 
``oversight'' was needed, there were simply not enough resources to 
cover the needs. During the initial program buildup, G-S developed a 
resource presentation that indicated an additional 200 FTE would be 
needed in G-S alone to provide the expected support directorate roles 
for the initial ``transition'' years of the program. This became known 
as the ``Pig in the Snake'' presentation because of the analogy of a 
relatively large mass being accepted and eventually run through the 
organization. Once the transition period was negotiated, it was 
expected that the final organization would be smaller because of the 
ICGS- provided engineering, logistic and management support 
capabilities and efficiencies. This has yet to and will probably never 
materialize.
Recommendations
    Other than what I've read on the Internet, newspapers or Navy 
Times, I've had extremely limited knowledge of what has happened with 
the Deepwater program since I left the service last spring. I'd like to 
use this fact as a qualifier that some of my following improvement 
recommendations for your consideration might already be taking place or 
may be unnecessary because of other Coast Guard organizational 
decisions which I have no knowledge.
    As indicated in the beginning of my statement, I have read the DHS 
IG report and Admiral Allen's testimony on this subject and I whole 
heartily agree with the IGs findings and the Admiral's initial 
corrective steps to solving the multitude of Deepwater problems. Of the 
Admiral's actions, the formal delineation of technical authority to G-S 
will have the most immediate positive returns. Had this organizational 
responsibility been respected and accepted by the G-ADW or the 
subsequent G-D organizations, there's a strong possibility we would not 
have required either this hearing or expended the countless tax dollars 
on numerous program examinations by a variety of auditing entities.
    Although an excellent start to organizational correction, there are 
others that I think need to be instituted, In no particular order of 
importance:

        Oversight of the contractor must happen. We're fooling 
        ourselves if we actually believe ``insight'' is enough and the 
        contractor will self-monitor, and self-certify their work and 
        deliverables. This is a multi-billion dollar contract and we 
        owe it to the American public to ensure that every dollar is 
        accounted for and spent wisely. This is painfully absent with 
        the existing structure. Until Congress is satisfied with the 
        program's corrective progress, routine and periodic assessments 
        need to be instituted.

        Greater accountability is needed for how the program decisions 
        are made and what was the basis for the decisions. Real cost 
        benefit analyses and trade studies must be the order of the 
        day. Fabricated analysis, or after the fact studies which 
        support a predisposed initiative must be eradicated.

        Real risk-based decisions with an active and managed database 
        need to part of the programs normal assessment of both short- 
        and long-term risk exposures. Mitigation or removal of risks 
        from the database should require the independent verification 
        by the Coast Guard's technical authority.

        Accurate, verifiable and repeatable metrics need to be 
        developed and utilized.

        The continuation of the System Integrator should cease. I 
        failed to see the justifiable return of the investment for 
        these supposedly critical services. Through careful and 
        integrated planning with the current Coast Guard organic 
        staffs, this integrator capability is well within the Coast 
        Guard's proven skill sets.

        The current contract should be modified or restructured to 
        enable the Coast Guard to work directly with the asset 
        manufactures for construction.

        Asset supported logistics and supply chain management should be 
        managed by Coast Guard organic elements as one singular system 
        for all Deepwater and non-Deepwater assets. To date the money 
        directed to the ICGS advertised logistic system has failed to 
        produce any noticeable return on the sizable dollar and 
        personal resource investment.

        Incorporate the exiting G-S cutter certification matrix in all 
        future surface asset procurements.

    The IPT structure can work, but it takes a legitimate commitment 
and hard work by all parties for the opportunity to really collaborate. 
IPT leadership and chairs should not be held by the same entities we're 
trying to govern and manage. It just can't work. If IPTs are retained, 
and I think they should, our contractors, whoever they are need to be 
part of the IPT environment.
    In closing, I greatly appreciate the opportunity this Committee has 
offered me today to testify before you. Concurrent with this oral 
testimony, I've provided a very lengthy and detailed written testimony 
for inclusion in the record. It further amplifies many of my oral 
comments concerning the variety of Deepwater subjects that have brought 
me here.
    I'm more than happy and very willing to answer any and all of your 
questions to the best of my ability.

    Senator Cantwell. Thank you, Captain Jarvis.
    Mr. Teel?

            STATEMENT OF PHILIP A. TEEL, PRESIDENT, 
                 NORTHROP GRUMMAN SHIP SYSTEMS

    Mr. Teel. Good afternoon, Chairperson Cantwell, Ranking 
Member Snowe, and the distinguished members of the Committee 
Subcommittee, and thank you for the opportunity to appear 
before you to discuss Deepwater.
    I'm the Vice Chairman of the Board of Directors of ICGS, 
and the President of Northrop Grumman Ship Systems. As I think 
you may know, Northrop Grumman Ship Systems has nearly 70 years 
of experience designing, constructing, and maintaining ships of 
all types. In that time, Northrop Grumman Ship Systems Gulf 
Coast operations has produced a total of 534 ships, and has 
built 24 percent of the Navy's current operational fleet.
    In just the last 30 years, we've completed 15 new vessel 
designs for a diverse group of military and commercial seagoing 
ships.
    On behalf of Northrop Grumman, and all of the men and women 
working in support of this program, I would also like to thank 
the Subcommittee for their strong support of the Coast Guard, 
and the Deepwater Program.
    The Program has been subject to much criticism, recently. 
My written testimony and my summary of remarks are intended to 
provide you with up-to-date information regarding the 123, 
patrol boat, Fast Response Cutter, and the design and service 
life of the National Security Cutter.
    First, let me address the patrol boats. The 110-foot patrol 
boats have seen extensive duty since their entry in the service 
some 20 years ago. The 123, conversion was intended as an 
interim measure, to extend the life and enhance the 
capabilities of an aging patrol fleet, until new vessels were 
available to replace it. The conversion work was performed 
under subcontract to Northrop Grumman by Bollinger shipyards, 
the original builder of the 110s.
    The conversion project underwent an extensive design and 
review process with contractor and Coast Guard personnel. The 
due diligence was done.
    Six months after delivery, on the first converted vessel--
the MATAGORDA--the crew discovered buckling in her hull and on 
her deck. This discovery occurred immediately following a high-
speed transit in rough seas to avoid Hurricane Ivan. The Coast 
Guard and Northrop Grumman analyzed the situation, and 
concluded that a workmanship condition arising from the 
original 110, construction--not the conversion--was the primary 
cause of the buckling, and repairs were made.
    In March 2005, 6 months later, another converted 123, 
experienced hull deformation. This deformation was different 
from the first. Like the first, previous and subsequent 
analysis had not predicted it. At this time, six converted 
vessels had been delivered, and two were in the process. The 
Coast Guard and the contractors each performed additional, more 
detailed structural analyses. Despite extensive efforts, these 
analyses have not replicated the experiences.
    Additional problems have arisen, and the Coast Guard 
removed these ships from service. We're working with the Coast 
Guard to re-review all data and analysis to isolate the cause, 
or causes, of the problems. Once isolated, and design solutions 
defined, the path forward will be laid out with the Coast 
Guard.
    At the outset, I mentioned the 110s and 123s would 
eventually be replaced by the FRC, or Fast Response Cutter. In 
2005, because of the problems with the 123,, the Coast Guard 
accelerated the design, and construction, of this cutter by 10 
years. A worldwide market survey of existing patrol craft 
determined that no existing craft would fulfill all FRC 
requirements.
    To address the full set of requirements, Northrop Grumman 
proposed a new design. The design included a composite hull 
form, with the potential to save a billion dollars over the 
life of the vessel. The design was unique for patrol boats. 
This is driven by the need to stay within the Coast Guard's 
funding limits, yet satisfy a never-before-seen requirements-
demand on a patrol boat.
    Contrary to some accounts, the FRC did not fail model 
testing. A preliminary test was conducted improperly. When 
conducted properly, the FRC passed the test. Moreover, an 
independent analysis confirmed that the FRC design will meet 
performance requirements.
    To meet the shortfall in patrol boat hours, the Coast Guard 
has pursued selecting an existing, proven patrol boat that--
with limited modifications--can meet its highest requirement 
priorities. This is an interim measure, as this craft will not 
satisfy all requirements originally established for the FRC. 
Thus, the need for a dual path--FRC-B and FRC-A.
    Now, let me turn to the National Security Cutter. The NSC 1 
is a state-of-the-art, frigate-sized Naval ship, the first of 
this 8 of class. The BERTHOLF was launched in September of 
2006, and will be delivered in Fall of 2007. The second is 
under construction.
    With regard to public allegations of inadequate ship 
structure, the NSC 1 is designed to achieve a 30-year service 
life. The NSC was designed using the same structural design 
standards as successfully used on Navy and Coast Guard vessels 
since World War II. Northrop Grumman has full confidence in the 
ability of the NSC to perform all of its intended missions. The 
issue under discussion with the Coast Guard deals with long-
term fatigue-life, related to various assumptions about 
operating conditions. It is not about whether the NSC, as 
designed, will be able to safely and effectively perform its 
mission over the range of operational environments. When 
predicting fatigue-life, even the best engineers may reach 
different conclusions. This is driven by the use of different 
assumptions about operating conditions. Coast Guard and 
Northrop Grumman technical experts are engaged in a meaningful 
dialogue which will lead to final agreement on fatigue 
structure.
    Thank you for the opportunity to present today, and I look 
forward to your questions.
    [The prepared statement of Mr. Teel follows:]

           Prepared Statement of Philip A. Teel, President, 
                  Northrop Grumman Ship Systems (NGSS)
    Good afternoon Chairperson Cantwell, Ranking Member Snowe, and 
distinguished members of the Subcommittee.
    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 design, construction and support of all three classes 
of cutters; the National Security Cutter (NSC), the Offshore Patrol 
Cutter (OPC), the Fast Response Cutter (FRC), as well as the 110, to 
123, 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 this Subcommittee 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.
    Overall Deepwater Program Management: On June 25, 2002, the 
Deepwater Program prime contract was awarded to ICGS. As program 
requirements have changed since 9/11, the Deepwater prime contract has 
been amended accordingly to accommodate the new requirements in support 
of national security.
    There has been an extraordinary level of transparency in program 
management and execution between ICGS and the Coast Guard. The Coast 
Guard has been involved in every aspect of the Program throughout its 
history. Each Deepwater asset undergoes design reviews by government 
and contractor technical experts at key points in the design life 
cycle, with questions and issues adjudicated as part of the review 
process. Personnel from the Coast Guard, Northrop Grumman, Lockheed 
Martin, various subcontractors and ICGS are co-located at production 
sites around the country as well as in the Systems Integration Program 
Office in Arlington, Virginia. Full participation by the Coast Guard is 
built into every level and function within the ICGS team. With respect 
to programmatic decisionmaking, all major acquisition decisions are 
made by the Coast Guard, after review and approval by Coast Guard 
senior leadership through a series of cross-functional government 
teams. These include reviews by subject matter experts from Engineering 
and Logistics, Electronics & Communications, Human Resources, 
Intelligence, and the Programs & Budget Directorate at the staff and 
flag level. Northrop Grumman and ICGS do not make decisions in relation 
to what cutters and boats to buy--we make recommendations. The U.S. 
Coast Guard is the decisionmaking and contracting authority, and has 
retained the traditional contract management functions, including the 
right to issue unilateral change orders, to stop or terminate work, to 
order or not order assets and supplies, and to accept or reject the 
work.
    There is a lot of interest about the way forward for Deepwater. 
Leaders within the highest levels of the Coast Guard, Northrop Grumman 
and Lockheed Martin are committed and focused on the most important 
issues related to the 25-year, $24 billion acquisition program, 
including recent Coast Guard initiatives to strengthen program 
management and oversight--such as technical authority designation, use 
of independent (third-party) assessments, and consolidation of Coast 
Guard acquisition activities under one directorate. Objectives to 
achieve the way forward include: (1) Capitalize on proven, first-
article Deepwater successes; (2) Sustain momentum in recapitalizing the 
Coast Guard through the Deepwater program; and (3) Resolve outstanding 
challenges associated with some projects within Deepwater. The senior 
leadership in each of our organizations is committed to meet regularly 
to review the progress of the program and provide executive level 
oversight at all times, with specific direction when warranted.
    Competition is also an important component of the Deepwater team's 
effort to deliver ``best value'' to the Coast Guard. The tenet of 
competition within the ICGS Deepwater program plan is an open business 
model that invites participation and competition through the life of 
the program. Both contractors have a Contractor Purchasing System that 
is patterned after the Federal Acquisition Regulations. All Northrop 
Grumman purchases over $25K are individually reviewed for compliance 
with purchasing guidelines, and the purchasing system is audited 
(usually every 3 years) by the Defense Contract Audit Agency (DCAA). A 
government-sponsored third-party review of Deepwater acquisition 
practices found our statistics favorable compared to large U.S. Navy 
procurement programs. In addition, competition for subcontract awards 
is encouraged via the annual Industry and Innovation Days where 
suppliers and vendors have an opportunity to provide input on new or 
improved products. ICGS to date has placed orders with more than 600 
suppliers representing more than 41 states and maintains an active 
database of over 3,000 potential suppliers from which it draws to host 
annual supplier innovation and industry days.
    Patrol Boats are small naval ships, generally designed for coastal 
defense duties, operated by a nation's navy, coast guard or police 
force in marine--``blue water''--and littoral and river--``brown 
water''--environments. They are commonly found in various border 
protection roles, including anti-smuggling, anti-piracy, fisheries 
patrols, immigration law enforcement and rescue operations. Patrol 
boats usually carry a single artillery gun as main armament with a 
variety of lighter secondary armament such as machine guns, and are 
diesel-powered, with speeds generally in the 25-30 knot range. The 
above definition aptly describes the 49 ``Island Class'' 110-foot 
patrol boats and the 123-foot conversions under the original Deepwater 
proposal.
    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 and 
extend the life of this vessel until its FRC replacement entered 
operation in 2018. ICGS proposed the conversion concept as the best 
means to provide the Coast Guard with the necessary 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 (U.K.) 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 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 Command, Control, Communications, Computers and 
Intelligence, Surveillance and Reconnaissance (C\4\ISR) capabilities 
and tested, 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 110, WPB operational 
availability.
    After being awarded the patrol boat conversion work, ICGS engaged 
in a rigorous design process that included extensive reviews with all 
stakeholders. These programmatic reviews included a Preliminary Design 
Review, a Critical Design Review and a Production Readiness Review all 
of which were conducted with the Coast Guard before the actual 
conversion work began. Leading up to each of these reviews, the 
evolving design, design drawings and calculations were formally 
presented to the Coast Guard subject matter experts in increasing 
detail for their review, comment and approval. During this series of 
reviews I am not aware that structural, buckling or deformation 
concerns were raised as an issue. In addition, during the conversion of 
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. At the conclusion of the 
MATAGORDA work, they issued a letter of approval for the conversion 
work and expressed no reservations with the feasibility of the 
conversion.
    The Performance Specification requirement calls for the 123, to be 
capable of unrestricted operation up through sea state 3, or seas 
averaging less than four feet. 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 123, is 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 midships. 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 
the 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 
123,, 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.
    In November 2004, ICGS received a contract modification that 
changed the arrival schedule of hulls 9-12 to TBD. Long-lead time 
material for four additional hulls had already been authorized and work 
continued on the 3 remaining hulls in process.
    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, GA, 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 contracted 
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, WPBs. 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. Last, 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.
    In July 2005, then Coast Guard Commandant Admiral Collins' written 
testimony before Congress outlined the two-fold 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.''
    To date the problems associated with the 123, conversion include 
buckling or hull deformation and shaft and propeller alignment 
problems. In addition to the actions previously described, additional 
and substantial work has been (and continues to be) done. In addition 
to the repairs and reviews of structural calculations, we have 
continued the review process by conducting two independent finite 
element analyses, modeling both the original and the upgraded hull, and 
we completed metallurgical testing that revealed an issue in the main 
deck which exists on both the 123, 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, has been engaged to evaluate the 123, hull and provide 
recommendations. Data is being 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. Northrop Grumman and Coast Guard engineers are 
currently reviewing and re-reviewing all available data on the 110, and 
123, patrol boats in an effort to better understand the cause or causes 
of both hull buckling and shaft and propeller alignment problems. 
Depending on the outcome of that analysis the possible outcomes range 
from removing the boats from service to effecting repairs with testing 
followed by placing them back in service. Until all analyses are 
complete, it is premature to speculate on the final cause and the final 
way forward.
    Fast Response Cutter Acceleration: Before Congress in July 2005, 
then Coast Guard Commandant Collins testified: ``A key component of the 
Deepwater program is the replacement of the Coast Guard's 110, Island 
Class Patrol Boat (WPB) fleet. The Island Class patrol boat is a Coast 
Guard multi-mission workhorse and is rapidly approaching the end of its 
serviceable life. Under the initial IDS proposal, the 49 110, Island 
Class WPBs were scheduled to undergo a conversion to 123, WPBs by 2010 
as a bridging strategy. The 123, WPBs would then be replaced by the 
Fast Response Cutter (FRC) starting in 2018. 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. The Coast Guard recently decided to stop 
the conversion project following the first eight conversions. Instead, 
the Coast Guard plans to advance the FRC design and construction by 10 
years, and is analyzing alternatives methods for extending the life of 
the 110-foot fleet, as discussed above.''
    Consistent with this testimony, the Coast Guard accelerated FRC 
design and construction by 10 years. The expanded set of post-9/11 
requirements produced a set of required capabilities that exceeded the 
traditional patrol boat roles filled by the 110s and 123s and other 
similar worldwide patrol boat fleets. A market study was conducted and 
concluded that none of the existing similar sized patrol boats would 
meet these requirements. A series of business case analyses, Total 
Ownership Cost (TOC) studies and preliminary design efforts showed the 
benefits of using a composite hull form to meet this demanding set of 
requirements with a potential to save over $1B in lifecycle cost. The 
predominate savings came from the superior service life of composites. 
The Design to Cost constraints restricted the vessel length to 140 
feet. In order to accommodate the added capability and equipment 
required to meet the post-9/11 mission requirements the resultant 
design was wider for its length than historical and traditional patrol 
boat hull dimensions. Independent third-party analysis by John J. 
McMullen and Associates (JJMA) stated: ``The review team believes that 
the FRC does appear to meet or is capable of meeting the requirements'' 
and acknowledges that ``The FRC preliminary design represents a design 
solution to a challenging set of requirements.'' Additionally, I would 
like to point out that, contrary to what was reported in the press, the 
FRC-A did not fail a tank test--a preliminary test was conducted 
improperly. When this test conducted properly, the FRC-A met all 
requirements, as is confirmed in the final model test report.
    The Coast Guard made the decision to suspend the FRC-A program, as 
the all composite design is now called, and focus on a parent craft 
solution known as the FRC-B. This decision seeks to ensure a proven 
solution to a lesser requirements set. This will enable the additional 
time required to take the FRC-A through a design spiral, and perform 
trade analyses to optimize performance to cost including a robust 
operational test program for the fully capable FRC. The Coast Guard is 
also performing an additional business case analysis and a technology 
readiness assessment to confirm viability of the composite approach.
    The current patrol boat acquisition strategy includes two paths: 
FRC-A, mentioned above and FRC-B. FRC-B will leverage existing patrol 
boat designs to serve as a bridging strategy while the fully capable 
FRC-A is undergoing design and development. The FRC-B program will 
select the candidate design from a field of worldwide patrol boat 
providers and is expected to enter concept design later this year.
    I want to assure the Committee that Northrop Grumman will continue 
to work with the Coast Guard in satisfying its patrol boat mission 
requirements throughout the life of the Deepwater Program.
    National Security Cutter (NSC) Structure and Cost Growth: Designed 
to replace aging Hamilton Class High Endurance Cutters (WHEC) that have 
been in service over 40 years, the National Security Cutter (NSC) is a 
modern, well-armed, high-performance, 421-foot, 4,000-ton frigate-sized 
naval ship, with manned and unmanned aircraft, stern-launched rigid 
inflatable boats and secure communications facilities. It provides the 
Coast Guard with enhanced post-9/11 Homeland security and core mission 
capabilities (drug interdiction, search and rescue, economic zone, and 
fisheries protection). The first of the 8 ship class (USCGC BERTHOLF) 
has been launched and will be delivered to the Coast Guard in the Fall 
of 2007. The second (USCGC WAESCHE) is also under construction and is 
scheduled for delivery to the Coast Guard in early 2009.
    With regard to the structure, we believe the NSC meets contract 
requirements/specifications. The NSC design uses the same Data Design 
Sheet (DDS) standards used in structural design of ships since WWII. 
The NSC is designed to meet a 30-year service life and many of the 
structural items raised by the Coast Guard have been addressed and were 
incorporated in the BERTHOLF and WAESCHE (NSC 1 and 2) prior to 
production. For example, upgraded steel, thicker steel, modifications 
to Fashion Plates and Re-entrant Corners, and the addition of 2 
longitudinal Hovgaard bulkheads to provide increased stiffness at the 
stern were incorporated into the design.
    With regard to NSC fatigue-life, even the best engineers will have 
different opinions. Analysis has been performed on the NSC utilizing a 
relatively new model developed by Naval Surface Warfare Center, 
Carderock Division (Carderock) utilizing two different approaches. The 
difference in the two approaches is whether or not the model is 
benchmarked by calculating the fatigue strength of proven ship designs 
with similar operational characteristics and hull form that has been at 
sea for the desired time. This enables the calculation of permissible 
stress levels that can be applied to test the new design. The results 
of these two analyses have generated a responsible dialog between the 
engineers which will lead to final agreement about enhancements to 
fatigue structure
    Northrop Grumman does not self-certify compliance with the 
structural requirements in the contract. The BERTHOLF has and will 
undergo a comprehensive internal and external certification process. 
The American Bureau of Shipbuilding (ABS) certified 14 Systems Level 
drawings, including structural design drawings. ABS will also certify 
35 ship systems during this acceptance process. These include: Command 
and Control Systems, Propulsion Plant, Machinery Monitoring and 
Control, Fuel Systems, Anchoring Systems, and Steering Systems. During 
the design process, there will be a total of 46 independent third-party 
certifications prior to or as part of the USCGC BERTHOLF (NSC 1) 
delivery process. These include; Final Aircraft Facilities, Flight Deck 
Status and Signaling, Navigation Systems, Interior Communications 
Systems, Guns and Ammunition Weapons System Safety, DOD Information 
Security and Accreditation, and TEMPEST. The U.S. Navy's Board of 
Inspection and Survey (INSURV) will conduct the Ship's Acceptance 
Trials (AT) when the cutter gets underway later this year.
    Cost growth has also been mentioned in the media. Two elements have 
led to the majority of cost growth on the NSC--increased post-9/11 
requirements and the impact of Hurricane Katrina. The NSC that will be 
delivered to the Coast Guard this year is not the same ship that was 
first proposed in 1998. Today's NSC has greatly improved operational 
capabilities that address post-9/11 requirements including Chemical, 
Biological and Radiation (CBR) protection, a Sensitive Compartmented 
Information Facility (SCIF) and more robust aviation installations so 
that the NSC, in addition to its normal embarked Coast Guard aviation 
complement, will be able to launch, recover and operate U.S. Navy, U.S. 
Government agency and partner nation manned and unmanned rotary wing 
aircraft. These enhancements have added approximately 1,000 tons to the 
displacement, including a one-third increase in electrical power 
systems, a tripling of air conditioning and ventilation capacity 
(HVAC), the addition of 25 antennas and a 26 percent growth in the size 
of the berthing spaces.
    It is true that Katrina delayed the delivery of BERTHOLF by several 
months and added cost to the program. Prior to Katrina, BERTHOLF was 
the best ``first of class'' ship in the 70 years that warships have 
been built in Pascagoula. Even taking into account Katrina, BERTHOLF 
continues to set new lead ship standards in quality and efficiency 
with, higher performance to standards than both the first or second 
Arleigh Burke Class (DDG 51) destroyer and labor utilization measures 
that routinely out-perform other programs in our shipyard.
    Much of what has been done on the NSC program is being transitioned 
to the rest of the shipyard to other construction programs. In addition 
to the specific actions as they relate to the NSC program, we are 
investing $57.3 million of our own money in a new suite of management 
tools that will increase our visibility, work sequencing capability, 
material and engineering modeling and capacity and resource planning. 
These tools will enable the reduction in the number of units we 
construct to build the NSC. Currently we build the vessel in 45 units 
and integrate these sub-assemblies into 29 erection lifts on the ship. 
The new tool set will allow us to plan and construct the vessel in less 
lifts, our target is 16, and as we know the less number of lifts the 
less cost. We are investing in our human capital, process improvement, 
and our facilities to reduce the cost associated with building future 
ships.
    Thank you for this opportunity to personally update you on the 
progress of the Deepwater program.
    This is the end of my statement. I welcome your questions.

    Senator Cantwell. Thank you, Mr. Teel.
    Dr. Mackay?

  STATEMENT OF DR. LEO S. MACKAY, VICE PRESIDENT AND GENERAL 
MANAGER, COAST GUARD SYSTEMS, LOCKHEED MARTIN MARITIME SYSTEMS 
                          AND SENSORS

    Dr. Mackay. Good afternoon, Madam Chair and Ranking Member 
Snowe, and the other distinguished members of the Subcommittee. 
Thank you for the opportunity to explain the progress being 
achieved on the U.S. Coast Guard's Integrated Deepwater System 
Program. Speaking for the men and women of Lockheed Martin, 
we're proud to be associated with this critical program, and we 
appreciate very much the continued support of this committee.
    Deepwater is modernizing the Coast Guard by re-capitalizing 
aging assets, providing new assets, and expanding capabilities. 
Lockheed Martin is responsible for four of the five Deepwater 
domains. First, aviation, including the refurbishment and 
upgrades of existing assets, such as the HH-65 helicopter, and 
the HC-130H aircraft. Production of new assets, such as the HC-
144 maritime patrol aircraft, missionized C-130J aircraft, and 
unmanned aerial vehicles, and management of a service contract 
covering the MH-68A HITRON helicopter. Second, Lockheed Martin 
is responsible for C\4\ISR, the command and control network. 
Third, integrated logistics, the processes and systems that 
support fielded assets. And fourth, systems engineering and 
integration, the process to make sure all Deepwater assets can 
work together as a system.
    We work within the Integrated Coast Guard System's joint 
venture with our partner Northrop Grumman, to ensure that 
communications, aviations, and logistics systems are properly 
coordinated with the program's ships and ship systems.
    The purpose of ICGS is to provide for rapid allocation of 
work to the two companies, and to ensure collaboration and 
cooperation between the two companies. Today, when I refer to 
ICGS or separately to the role of Lockheed Martin, this means 
the role of Lockheed Martin within ICGS.
    Together, Lockheed Martin and Northrop Grumman are using 
more than 600 suppliers in 42 states, plus the District of 
Columbia. We maintain an active database of more than 3,000 
potential suppliers. In assessing the program, I think it's 
very important to maintain emphasis on implementation of the 
Deepwater command and control network, C\4\ISR, a very awkward 
acronym for Command and Control, Computers, Communications, 
Intelligence, Surveillance and Reconnaissance. This is the 
network glue that permits various assets, including ships, 
aircraft and shore stations to work together to achieve a 
common purpose. Modern civil, commercial and military systems 
are dependent on the value delivered by the integrating power 
of the network. This is the core responsibility of Lockheed 
Martin.
    The initial system deployment has already resulted in 
measurable progress with the Coast Guard's rescue, enforcement 
and interdiction missions on the high seas. Lockheed Martin is 
accomplishing a high rate of software reuse, as well as system 
commonality and integration using rigorous application of 
proven system engineering processes and capabilities.
    Overall, 65 percent of Deepwater's software is reused from 
government or commercial sources. In addition, the application 
of off-the-shelf software permits Deepwater to take advantage 
of the rapid changes in the commercial marketplace and the 
investments which commercial firms make in their best-of-class 
technologies.
    This approach is the key to commonality, interoperability, 
efficiency, and effectiveness. All of the Coast Guard's 12 
high-endurance and 27 medium-endurance cutters have received 
two command and control system upgrades. As for shore sites, 
there are a total of 12 on track to receive upgrades, 2 
communications area master stations, 8 districts, one sector, 
and of course, headquarters.
    The first medium-range surveillance maritime patrol 
aircraft, the newly designated HC-144, has been transferred to 
the Coast Guard. It arrived at Elizabeth City, North Carolina 
on December 20, 2006, and I am happy to say that it was 9 days 
ahead of its contractual schedule. It's now undergoing 
missionization that will be completed in April.
    The second aircraft was accepted by the government on 
January 25, 2007, and the third aircraft is in flight testing.
    We're working to complete re-engining and upgrading of the 
HH-65 Charlie helicopter, with 65 of 95 helicopters re-
delivered to the Coast Guard to date. The HH-65C can fly 
faster, twice as far, and with twice the payload as its 
predecessor.
    The service contract for the Helicopter Interdiction 
Tactical Squadron, or HITRON, based in Jacksonville, Florida, 
has been renewed for a fourth year. These 8 helicopters are 
equipped with airborne Use-of-Force capability, and have had 
significant impact on illicit drug interdictions. Last May, 
they celebrated their 100th successful interdiction.
    All of our designs and improvements are based on system 
engineering trade studies, analyses and technical 
considerations. In addition, the industry's performance has 
been closely supervised by the Coast Guard with additional 
oversight by the Department of Homeland Security and the 
Congress, and of course, the Government Accountability Office. 
Each of these multiple reviews has provided constructive 
recommendations, as requirements continue to evolve.
    Thank you again for the opportunity to present, and to 
explain the progress we are achieving on the Deepwater program. 
I look forward to answering your questions. Thank you.
    [The prepared statement of Dr. Mackay follows:]

  Prepared Statement of Dr. Leo S. Mackay, Vice President and General 
    Manager, Coast Guard Systems, Lockheed Martin Maritime Systems 
                              and Sensors
    Good Morning, Madam Chairperson and distinguished members of the 
Subcommittee.
    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.
Overview
    The Integrated Deepwater System program is delivering both new and 
upgraded fixed-wing and rotary-wing aircraft; new communications 
systems that are making a significant contribution to improved mission 
performance; and, the logistics systems necessary to support fielded 
assets. We understand the Integrated Deepwater System will continue to 
evolve. To meet this ongoing challenge, Lockheed Martin is applying a 
disciplined system engineering approach to the program. This will 
continue to be vital for achieving more robust capabilities given 
fiscal realities--a one-asset-at-a-time recapitalization approach would 
be unaffordable. Lockheed Martin is committed to providing our best 
talent and capabilities for supporting the Coast Guard.
    Lockheed Martin is primarily responsible for four Deepwater 
domains: System Engineering and Integration, C\4\ISR (the command and 
control network), Logistics and Aviation (refurbishment of existing 
assets and production of new assets). Lockheed Martin's goal is the 
full application of system engineering methodologies to establish the 
best mix of assets and introduction of new capabilities as well as 
implementation of the associated logistics systems. Most important is 
maintaining emphasis on the implementation of the Deepwater system-wide 
command and control network. C\4\ISR (Command and Control, Computers, 
Communications, Intelligence, Surveillance and Reconnaissance) is the 
network ``glue'' that permits various assets including ships, aircraft 
and shore stations to work together to more effectively and efficiently 
achieve a common purpose. Thus, the C\4\ISR domain is of particular 
importance as most modern civil, commercial and military systems are 
dependent on the value delivered by the integrating power of the 
network.
Key Achievements
    We are making good progress and are delivering significant new and 
upgraded capabilities. At the same time, we recognize the system level 
effects of networking are essential to achieving the level of mission 
performance needed by the Coast Guard. Lockheed Martin is accomplishing 
high rates of software reuse as well as system commonality and 
integration by the rigorous application of proven system engineering 
processes and capabilities. In addition, we are managing implementation 
of support systems for all Deepwater program domains. The Lockheed 
Martin team is working closely with our Integrated Coast Guard Systems, 
LLC (ICGS) joint venture partner, Northrop Grumman, to ensure that 
electronic equipment developed and produced under the cognizance of the 
C\4\ISR domain is appropriately configured for installation on the 
ships.
    Every one of the Coast Guard's 12 high-endurance and 27 medium-
endurance cutters have received not one but two command and control 
system upgrades--giving the fleet markedly improved capability to seize 
drugs, interdict migrants and save lives. As for shore sites, there are 
a total of 12 on contract: two Communication Area Master Stations, 
eight Districts, one Sector and Headquarters. 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 Deepwater to take 
advantage of the rapid changes in the commercial marketplace and the 
investments which commercial firms make in their best of class 
technologies. This 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 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 greatest 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 first medium-range surveillance maritime patrol aircraft, the 
newly designated HC-144, has been transferred to the Coast Guard. It 
arrived at Elizabeth City, NC, on December 20, 2006 and is now 
undergoing missionization work that will be completed in April. The 
second aircraft was accepted by the government on January 25, 2007 and 
the third aircraft is in flight testing. The second aircraft will now 
be delivered to Elizabeth City for missionization and two crews are 
already in training. At the same time, we are working to complete re-
engining and upgrading of HH-65 helicopters with 65 of 95 helicopters 
delivered to date. This project was part of the original Deepwater 
program plan. However, at the direction of the Coast Guard, it was 
rapidly accelerated due to safety of flight issues. Lockheed Martin and 
American Eurocopter working with the Coast Guard Aircraft Repair and 
Supply Center are now producing upgraded helicopters (``Charlies'') 
that can fly faster, twice as far and with twice the payload.
    Six long-range surveillance C-130J aircraft are undergoing 
missionization and will be delivered within 15 months after receipt of 
the contract with fully interoperable command, control and 
communications systems. The first aircraft was inducted for 
missionization at Greenville, SC, on December 19, 2006. In addition, 
the service contract for the Helicopter Interdiction Tactical Squadron 
(HITRON) based in Jacksonville, FL, has been renewed for a fifth year. 
These eight MH-68A helicopters are equipped with airborne Use-of-Force 
and have had a significant impact on illicit drug interdictions. The 
squadron celebrated its 100th interdiction last May.
    Industry's performance has been closely supervised by the Coast 
Guard with additional oversight from the Department of Homeland 
Security, the Congress and the Government Accountability Office. Each 
of the multiple reviews has provided constructive recommendations as 
requirements and funding levels continue to evolve. The results so far 
indicate that Deepwater has made a dramatic difference in the 
effectiveness of the Coast Guard with regard to the numbers of drug 
seizures, migrant interdictions and lives saved. Coast Guard statistics 
show double- and triple-digit percent improvements as Deepwater assets 
and upgrades enter the fleet.
Strategic Context of ICGS
    The Deepwater program is modernizing the Coast Guard by providing 
new assets and expanding capabilities in aviation, ships, shore 
stations, logistics, and command, control and communications systems. 
The ICGS joint venture between Lockheed Martin and Northrop Grumman was 
designed as a low overhead contracting vehicle. Its purpose is to 
provide for rapid parsing of work between the two partners while at the 
same time achieving close collaboration and cooperation. It is 
important to note what it is not. The ICGS joint venture is not a 
replacement for Coast Guard decisionmaking. All designs and 
improvements are based on trade studies, analyses, and technical 
considerations. But make no question about it--the Coast Guard is the 
decisionmaker and contracting authority and all major acquisition 
decisions are reviewed and approved by Coast Guard senior leadership. 
ICGS utilizes the depth of capabilities and experience of its partners 
to provide solutions in accordance with Coast Guard requirements. The 
joint venture partners are utilizing more than 600 suppliers in 42 
states plus the District of Columbia. In addition, ICGS maintains an 
active database of more than 3,000 supplier-product applications.
    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 2 weeks 
after 9/11. Since then, the ICGS team was awarded the Deepwater program 
and successfully accomplished a number of changes. Most significant 
were those resulting from the dramatically increased Coast Guard 
operating tempo in the post-9/11 environment. This means that legacy 
equipment began to wear out far more rapidly than had been projected. A 
good example is the HH-65 helicopters mentioned above. While the ICGS 
team's approach 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 more than two-thirds of the fleet have already been 
upgraded and returned to service. It is this inherent flexibility of 
the ICGS joint venture stemming from the deep capabilities of its 
partners that will facilitate our working with the new acquisition 
organization planned by the Coast Guard.
The Way Ahead
    Our overarching goal is to provide more capability to the fleet, 
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. ICGS works 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 difficult, 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.
    Thank you again for the opportunity to present and explain the 
progress we are achieving on the Deepwater program, I look forward to 
answering your questions.

    Senator Cantwell. Thank you, Dr. Mackay, and thank you to 
each of the panelists.
    Captain Jarvis, I would like to start with you. I'm 
concerned that the Coast Guard reinterpreted the performance of 
the National Security Cutters--I'm sure we could have a long 
conversation about that, given how much has been written in the 
various reports about that and the testimony here today--but, 
I'm concerned that this also occurred in the 123, conversion. 
Do you think that that's a problem? Or were any of the other 
assets where this issue of re-interpreting what the performance 
requirements are was problematic across, not just one vessel, 
but across several of the new products that the Coast Guard was 
seeking?
    Captain Jarvis. I understand the question, Senator.
    This problem did exist. And it's somewhat suspect because 
the construct of the contract itself. In the fact, with the 
exception of the NSC, which is the only asset that really had 
any level of refined performance requirements, the rest of them 
were up to the three industry teams to give us their proposals.
    One of the contract deliverables with those proposals was 
their generated performance specification for that particular 
asset. And we'll start with the 123,.
    When the 123, was included in the package, there was a 
proposed performance specification that was going to be with 
the 123,. That proposed performance specification would have 
been the only document we had to try and pin the contractor 
down to the specific performance of that asset.
    Through the maturity of the 123, when it first got to 
Bollinger, the performance specification kept on getting 
modified, and modified and modified, to the point the ``as 
accepted'' performance spec for the 123,--and I think that's 
what the title of it is--the ``as delivered'' performance spec, 
doesn't look exactly like the proposed performance spec that 
did come with the contract. So, it did change.
    So, what does that mean? It means that, by the contract, 
the contractor did, in fact, give us the performance for the 
123,, because the performance spec was written to what the 123, 
could do, instead of the other way around. It did happen. And, 
it's not just in the surface side.
    Senator Cantwell. Well, given that there are cost overruns 
now on several of these vessel plans, do you think this 
committee should be looking at recouping some of these costs to 
the taxpayer? Given that--as I've indicated--I think we're 
talking about hundreds of millions of dollars, or as Senator 
Kerry projected--and I'm assuming he's talking about bills yet 
to be received--billions of dollars for ships that either have 
had to be pulled, or never are going to be deployed, or have 
structural challenges to their current deployment.
    Captain Jarvis. Senator, I didn't have personal knowledge 
of exactly how the money flowed in and out of the Program. I 
had a hard enough time just trying to find out how the 
engineering was working. But, as a taxpayer, I would sure be 
asking those questions. If so much money was devoted to these 
assets, and they're not working, shouldn't there be some sort 
of a recoup coming back? So, as a taxpayer, I would clearly ask 
that question, yes.
    Senator Cantwell. Do you think the Coast Guard, through a 
more traditional process of procurement that has been followed 
in the past, could do a better job in delivering these assets?
    Captain Jarvis. Senator, I think I will agree very much 
with Admiral Allen, in the fact that our past procurements were 
relatively simple, in the fact that they were one asset, or a 
fleet of one asset. This one was definitely more complex. But, 
I do believe, that the traditional way of procuring assets, if 
we use the traditional acquisition manual model for what I 
always call that, healthy tension between the various 
directors, would have had significantly more power given to the 
technical authority, that being the G-S engineers, to ensure we 
may not be here today.
    Senator Cantwell. Thank you.
    Mr. Teel, you say the Fast Response Cutter design--I 
don't--is OK, I guess. That it needs four engines just to 
operate, but I know there has been some internal discussion 
about the design and the fact that it is 52 percent heavier 
than the normal design. So, I want both of you, actually, 
Captain Jarvis and Mr. Teel to respond to that, do you think 
that's meeting the Coast Guard's needs?
    Mr. Teel. Madam Chair, as I said in my verbal testimony, in 
order to achieve the full set of requirements that we were 
responding to for the Coast Guard, the result was what truly is 
a non-traditional patrol boat design. Because of the 
requirements, and the requirements were constrained also by the 
cost, because we were operating under a design-to-cost cap, 
which constrained the length of the vessel. So, it resulted in 
a vessel that was significantly out of the design lanes of 
traditional patrol boats. No patrol boat in the world--we did a 
survey of that, as did the Coast Guard--was able to accommodate 
all of those requirements, and the design was unique.
    That design was evaluated independently as one that would 
satisfy the total set of requirements, albeit, it was heavier 
and did require additional engines.
    Senator Cantwell. Captain Jarvis, do you have any comments 
on that?
    Captain Jarvis. I'd agree the fact that the design for the 
FRC was, in fact, much heavier than we were expecting, and was 
well outside of parametric equations that naval engineers use 
to make determinations as far as hull resistance and 
propulsion.
    We affectionately called the FRC design a ``brick'' in the 
fact that, even a brick--if you put enough horsepower on it--
you can make it plane across the water at 35 knots. This design 
would meet the performance specification, that was never our 
contention. It would meet the performance specification. But 
there were other aspects that we, as the naval engineers, 
always utilized when we were looking at the proposal. The long-
term maintenance cost--four engines on a patrol boat is a 
rather significant maintenance requirement for us long-term. 
There were much more elegant ways of achieving the predominance 
of the requirements than the much heavier FRC design with four 
engines. So, we never contended it wouldn't meet the 
performance. It's just that we didn't think that it was the 
best way of doing it.
    Senator Cantwell. Thank you.
    Senator Snowe, did you have some questions?
    Senator Snowe. Yes, thank you.
    Thank you, Captain Jarvis for your willingness to come 
forward and give us the breadth and depth of the picture in the 
Coast Guard in this monumental failure. I mean, it's just 
replete with failures, and I know that some of this may be able 
to be explained somewhere, but obviously something went 
terribly wrong within the system, and we've got to learn from 
it, understand it, deal with it realistically and see how we 
can go forward.
    But first and foremost, it's going to be critical to 
understand the nature of what went wrong, and how we tackle 
modifying the problems that face us at a time in which the men 
and women depend on these assets for the future. Given the fact 
that the Coast Guard is the third oldest naval fleet in the 
world. And here we are today dealing with major structural 
deficiencies with this re-capitalization program.
    At any time, Captain Jarvis, when there was a disagreement 
with systems integrators and engineers such as yourself, did 
the Coast Guard ever come to you, take up your suggestions with 
respect to the concerns that you had? I mean, where did they 
decide between the disagreements that might exist within this 
program, and obviously it did for a prolonged period of time, 
obviously they were aware of it. Did they ever follow through 
on any of your concerns and recommendations, and how it should 
be done differently, where the deficiencies manifested 
themselves?
    Captain Jarvis. Senator, the answer to your question is 
very simple, because you asked for an all-inclusive answer. 
And, I'm sure somewhere in those 7 years I was engaged with the 
program, the Deepwater Program listened to something I said. 
Predominantly, they didn't. When we would raise the issues in 
that Integrated Process Team environment, where collaboration 
was supposed to be the way of doing business, more often than 
not, the engineering concerns that the G-S Director and 
engineers brought up were discussed, maybe documented and 
whatever the mechanism was for deciding how the outcome was 
going to be, it typically--it typically--did not fall in 
alignment with what our concerns were.
    But, to answer your specific question, Senator, I'm sure 
that there were some places, somewhere along that timeline 
where one of the IPTs that we were engaged with, at least, 
listened to me.
    Senator Snowe. Well, you've obviously given some very 
substantive, in-depth testimony over your service during this 
Deepwater acquisition process, and it's regrettable to me that 
they didn't follow up on some of the serious concerns that you 
raised at a time in which many of these problems might have 
been averted. Do you think we would not be in this situation 
today, had they followed up on some of these serious questions? 
What do you think the interest was? Just to keep it on 
schedule, irrespective of the performance failures?
    Captain Jarvis. Senator, the coined phrase we heard most 
often was ``ruthless execution of the schedule.''
    Senator Snowe. We heard that consistently before this 
committee.
    Captain Jarvis. And we were given a healthy dose of that 
every day. To answer your specific question, would we be here 
if we were listened to more? I suspect not.
    I'm a disciple of what's called ``root cause analysis in 
engineering.'' When you have a problem, you go all the way down 
to its most basic, fundamental problems to make sure it doesn't 
happen again. The most common problem that occurred was almost 
everything that we're talking about today is the fact that the 
G-S engineers were not given their ability to be the technical 
authority that they were in traditional contracts. Admiral 
Allen has seen that as a very significant problem, and I 
commend his efforts to making sure that that was his first 
overt change that should have been done years ago.
    So, had that been in place when this contract was first put 
in place, I don't think we'd be here.
    Senator Snowe. They sort of performed an advisory role, at 
best?
    Captain Jarvis. Senator, we were less than an advisory 
role. Most people considered us as a necessary nuisance. We 
were there because we were a member of the IPT. They listened 
to us, most of our comments were, the favorite phrase was 
``adjudicated,'' that doesn't mean that they were resolved, it 
means most of the times we were just noted in the discussion. 
We had a very, very difficult time trying to make anybody 
respect, honor and listen to what our concerns were. And the 
fact that we're here today is, I think, testament that maybe we 
should have done it better.
    Senator Snowe. Mr. Teel, and Dr. Mackay, I don't know who 
to ask this question of--the contract is self-certified? Is 
that standard procedure? To allow contractors to self-certify?
    Dr. Mackay. Senator, I can talk about, in the aviation and 
C\4\ISR world, there are a number of outside certification 
agencies. For C\4\ISR, the Coast Guard has liaisoned with 
SPAWAR, which is a Navy organization, and in aviation, the new 
HC-144, we had an international certification in the country in 
which it was manufactured, it was provided by INTA, which is a 
Spanish aviation authority. And then, as it comes back here, 
the Coast Guard, I think, collaborates with NAVAIR. So, there 
are a number of independent government certification and 
accreditation agencies that we're subject to in aviation and 
C\4\ISR. I would ask Mr. Teel if----
    Senator Snowe. Well, I guess, the idea here is that the 
Coast Guard is allowing you to certify your own ship designs. 
Where is the independent analysis?
    Mr. Teel. Senator, I'm not sure where the actual allegation 
about us self-certifying comes from. I recognize it was 
identified in the IG report. We, in fact, go through a design 
process and--in many cases, depending on what has been selected 
in the contract--ABS does certification of several elements of 
the ship design. In fact, the designs themselves, the drawings 
are reviewed by the Coast Guard, so I'm unclear about what's 
meant by the allegation that we self-certify. The actual ship 
itself will be tested by the INSURV, Board of INSURV by the 
U.S. Navy, that's who will do the final testing, and 
recommending of the acceptance of the ship, so I'm unclear 
about what is meant by us doing self-certification, because the 
process is reviewed along the way.
    Senator Snowe. Well, the Commandant, and the Inspector 
General indicated that.
    Mr. Teel. Senator, I've told you what I know and understand 
about the way the contract's structured.
    Senator Snowe. I just want to know. Obviously, they 
indicated that, and so I think that that's probably the case, 
in terms of the practice.
    Mr. Teel. Well, what we can do is submit to you the way the 
contract--as further data--how the contract is structured in 
the way the various elements are approved and certified.
    Senator Snowe. I think the key here is that there is not 
independent analysis, I mean, that's the problem. Do you 
acknowledge there are any problems in the contract, from the 
standpoint of the government, I mean, the Coast Guard? Do you 
recognize any problems with the National Security Cutter 
deficiencies? Any problems at all? Did you raise problems with 
the Coast Guard?
    Mr. Teel. Well, we certainly recognize that there is a 
significant issue that's under review about the fatigue-life of 
the ship, yes, ma'am. I do.
    Senator Snowe. Right, and did you acknowledge it at the 
time, at any point during the construction of the ship?
    Mr. Teel. All during the design of the ship, there was 
interaction with the Coast Guard on the design. As Captain 
Jarvis said, our role was to conduct the design and then 
provide that information to the Coast Guard. It went through 
the IPT processes, as described. That's not unusual, the 
dynamic tension was there. I think the question at issue was 
whether or not the way that we proceeded was fully accepted by 
all elements of the Coast Guard. They were accepted in the 
design reviews, as it was provided to us. We were not privy to 
what took place in terms of how the decisions were made, about 
what we recommended in the path that we were taking.
    Senator Snowe. No, I understand that. The Coast Guard 
obviously made some serious mistakes in this regard. Without 
question, given the whole structure. So, I had no doubt that 
you would say that. I think the point is, here, where does the 
responsibility lie, in the final analysis? I mean, you've got 
some monumental problems, whether you agree or disagree, but we 
are where we are. The Fast Response Cutter--they had to look 
for an interim solution to this problem. Even the Commandant 
said in his testimony today, it's unacceptable.
    So, we have that problem. And we have a problem with the 
NSC, we've got to figure out not only the modifications, 
whether or not they will address the problems, but we don't 
even know what the cost will entail. And as I understand it, 
and I disagree with it, we're going to bear the cost. The 
Federal Government is going to have to bear the cost of these 
substantial modifications. So, the fact is, there wasn't any 
built-in incentive, even on your part, to bring these problems 
to the Coast Guard's attention. If it was a so-called ``cost-
plus contract,'' then there's no incentive to correct those 
deficiencies at the point in time, and to recognize them and to 
halt the construction.
    Obviously, there was a problem, because no one brought it 
to our attention. I mean, that's the point here. And, it just 
went on as Captain Jarvis said, that ruthless execution. But 
that shouldn't mean the expense of the cost of the structural 
failures that are inherent in the design at this point, that we 
now have to grapple with, and that's the point here.
    We're facing a serious situation, and I just wonder with 
all that has been said here today, the Inspector General's 
report, what Captain Jarvis said, some of the issues--do you 
acknowledge, do either of you acknowledge that there were 
problems with this contract? With the NSC? Do you agree that 
there were any problems?
    Mr. Teel. Senator, sorry, as I said in my written testimony 
and tried to summarize in the verbal--the National Security 
Cutter was designed to the same standards that ships have been 
designed to since World War II.
    Having said that, we recognize that any design process has 
issues that need to be dealt with along the way. Those issues 
have been dealt with, with the exception of the fatigue-life 
prediction issues. And, again, depending on how one runs 
analyses about fatigue-life prediction, you will get very 
different answers.
    We believe strongly that the NSC will have a service life 
of at least 30 years, using the models that have been used to 
forecast, predict fatigue-life of the NSC. Depending on the 
characteristics that you include in that model--and we've run 
it against both the NSC, that model, and against ships that 
have been in service for many years--the DDG-2, the Navy 
vessel, and the Hamilton class. The predictions, depending on 
what assumptions you make, say that those ships will last 3 to 
8 years, ships that have been in service for 30 to 40 years.
    Those same kind of differing predictions that are used with 
the NSC will show it will last either 53 years, or 8 to 10 
years. And that issue, those issues of fatigue-life, when the 
first onset of a crack in a structurally significant area 
appears is what's at issue. The structure of that ship, as the 
Commandant's testified at other hearings, the ship is safe, and 
capable of performing its operations.
    Senator Snowe. I wish we could go on.
    Senator Cantwell. Senator Snowe, I am sure, on this point, 
we could go on, and I thank you for your question, just the 
vote has started, and I believe that you are onto a question 
that is critically important, and that is, if the system 
integrator, basically, is responsible for developing the 
assets, and then determining whether they've even met the 
performance standards, aren't they just writing us a check, a 
blank check, and saying, ``Here's the bill,'' and changing the 
process along the way.
    I know that, Dr. Mackay and Mr. Teel, you disagree with 
that assessment, but we're going to have to submit more 
questions for the record for you to answer on this. Because I 
don't think this is the last of this hearing.
    And I've asked myself this question--how did we get into 
this situation? And innovation is important, but I was struck 
by a thesis paper that was online, done by an MIT graduate in 
2004, on this very subject. Surprising--sometimes you can get 
the most blunt and honest assessments about what's going on in 
Washington, D.C. outside of Washington, D.C.
    Here's what he wrote about this situation. He said, ``Given 
the risks of placing an organization's future in the hands of 
another organization (namely the systems integrator 
contractor), one wonders why the Deepwater Program was pursued 
in a non-traditional manner that emphasized a system approach 
and mission performance. Several potential arguments exist.
    Perhaps the Coast Guard's limited success in retaining 
talented individuals had developed a gap in internal project 
management capabilities. Perhaps the Coast Guard merely wanted 
to go `faster' than its own capabilities would allow, and an 
external systems integrator could serve as surge capacity. 
Perhaps cost management was the primary objective, and the use 
of a single contractor streamlined the acquisition process and 
allowed for consistency in staffing and contract 
administration. Perhaps the Coast Guard wanted to shift the 
risk of system development to an external party, an 
organization to carry the blame if and when the modernization 
process failed in any way. Perhaps the Coast Guard was 
expending some of the potential capital it had developed with 
Congress to experiment with innovative contracting.
    While all of these explanations are possible, the most 
compelling story is presented by examining status imbalances, 
and organizational competition at two levels: among internal 
Coast Guard communities, and across the Coast Guard's 
competitor organizations. External status dynamics led to a 
Coast Guard focused on securing the services of a Tier 1 
contractor, one capable of pulling their funding needs through 
the system. For as noted by Deepwater Program Executive Officer 
Rear Admiral Patrick Stillman, where he quoted,
    `A partner with Tier 1 supplier affords one the opportunity 
to leverage their network, influence, and political savvy in 
terms of funding obtainment and sustainment, as well as program 
acceleration . . . Selection of a Tier 1 contractor was a very 
important consideration in a program of this scope and scale, 
you just can't get that kind of leverage from a Tier 2 
supplier.' Quote, `Vance Kaufman,'&ho was the Lockheed Martin 
CEO), `doesn't have a problem getting on Tom Ridge's calendar, 
and that helps in a way that no Tier 2 supplier can ever help.'
    Now, I believe in integration, and I believe in innovation, 
but gentlemen, I think we are at a point where now the taxpayer 
is paying a higher bill because of a lack of oversight and 
accountability than was previously there in procurement 
processes with the Coast Guard. I get that this was an 
ambitious program, and one that the Coast Guard wants to 
continue to implement, but I think this committee has many more 
questions to answer.
    I thank you for your testimony today, and we will continue, 
Senator Snowe, working on this issue to resolve this in the 
best interest of the taxpayers.
    This hearing is adjourned.
    [Whereupon, at 4:55 p.m., the hearing was adjourned.]
                            A P P E N D I X

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    Today's hearing should shed some light on the challenges the Coast 
Guard's Deepwater program has encountered, and provide insights on 
options for moving forward.
    The Deepwater program is essential to the Coast Guard's success in 
the post-9/11 world. Considering the aging condition of the Coast Guard 
fleet and the Coast Guard's expanded responsibilities, the Deepwater 
acquisitions are vital to ensure that the Coast Guard can carry out its 
many security and other responsibilities, including search and rescue, 
fisheries enforcement, and drug interdiction. It is imperative that the 
Deepwater assets meet the needs of the Coast Guard in this changing 
environment. It is equally important that American tax dollars are well 
spent.
    The recent release of two reports by the Department of Homeland 
Security Inspector General (DHS IG) on the National Security Cutter 
(NSC) and the 123-foot patrol boats, and a major study by the Defense 
Acquisition University raise concerns about the Deepwater program and 
the manner in which the Deepwater contract has been managed by the 
Coast Guard.
    As the Committee with oversight responsibility for the Coast Guard, 
we have an integral role to play to ensure that the Coast Guard obtains 
the tools it needs and that any problems with this major project are 
appropriately addressed. Admiral Allen knows that this Committee has 
confidence in his extraordinary leadership and proven record and we are 
committed to working with him to solve this problem.
    I thank all of the witnesses for appearing before us today and look 
forward to their testimony.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                         Admiral Thad W. Allen
    Question 1. I appreciate that the Coast Guard is taking important 
steps in the right direction, such as creating its Blue Print for 
Acquisition Reform. But as I mentioned, the Defense report called for 
much greater changes, including that the Coast Guard should ``define 
and implement a revised acquisition strategy that does not rely on a 
single industry entity or contract to produce or support all or the 
majority of USCG capabilities. The strategy should incorporate the use 
of business case analyses to balance the benefits of robust 
competition, the USCG organic support infrastructure, and trusted 
supplier relationships.'' Does the Coast Guard actually intend to re-
enter a contract with ICGS in the face of this advice?
    Do you really believe after all of these failures and the advice of 
the Defense University that the lead systems integrator structure is 
the right approach for the Coast Guard, and that all you need are a few 
small changes to the contract?
    It is my understanding that the Coast Guard is not obligated to 
continue under its present contractual arrangement with ICGS if you 
determine it is not to the Coast Guard's benefit. Is that accurate?
    Answer. The Coast Guard has not ruled out continuing the contract 
with ICGS, but only if we determine that it is in our interest. We are 
considering all procurement options. The Coast Guard recognizes that 
Deepwater acquisition has suffered setbacks. We are in the process of a 
thorough examination of all issues that have an impact on the program 
success.
    To that end, the Coast Guard has formulated seven strategic 
initiatives to reform the Coast Guard's role in systems integration, 
specification standards, and logistics. The execution of these 
initiatives requires careful planning to avoid unintended consequences 
to existing contracts that could create additional costs and schedule 
delays. Also, the Coast Guard is restructuring its acquisition 
organization and processes to facilitate implementing these 
initiatives.
    Under the Federal Acquisition Regulations, any contract may be 
terminated for default if the contractor fails to perform adequately 
according to contract requirements. In other circumstances, if it is in 
the Government's interest, any contract may be terminated for 
convenience, regardless of contractor performance. However, no contract 
termination is valid unless the Government satisfies the requirements 
of the Federal Acquisition Regulation (FAR), Part 49.
    In the case of Deepwater, the proposed restructuring will require 
at least 6 months to fully implement. Therefore, we need to preserve 
the ability to continue contracting with ICGS until we complete 
restructuring.

    Question 2. A key reason for using the unique Lead System 
Integrator approach was to provide integrated assets. Tell me, what is 
integrated about the 123-foot vessels, the Fast Response Cutter-B, and 
the National Security Cutter?
    Answer. An integrated approach is necessary to make sure that the 
different types of assets needed by the Coast Guard can operate 
together and in order to prevent systems and communications 
incompatibility. Different types of assets are needed for different 
missions. In a given mission, a combination of assets will be needed. 
It is imperative that a cutter, a helicopter and a communications 
system be able to work seamlessly.

    Question 3. Isn't it possible to integrate Coast Guard assets 
without relying on a single entity to manage the entire 25-year, $24 
billion contract?
    Answer. It is possible to integrate Coast Guard assets without 
relying on a single entity to manage the entire 25-year, $24 billion 
contract as long as the Coast Guard establishes an internal 
organization that would be responsible for the ``systems engineering 
and integration'' functions. It is imperative that such internal 
organization be established to ensure proper systems engineering and 
integration of Deepwater assets, including enterprise architecture and 
planning; portfolio analysis; cross program support; and test/
evaluation. This will take time, but the new Acquisition Directorate 
will be moving toward that goal.
    Further, to assure that our different assets develop in an 
integrated manner, an oversight mechanism is needed that will assure 
interoperability. We are examining whether this objective can be 
achieved by means other than using a single entity.

    Question 4. Do you continue to think that the mix of assets 
proposed by ICGS in their Deepwater solution is the right mix, or are 
there other vessels, aircraft and systems that might serve the Coast 
Guard well?
    Answer. The mix of assets was developed in 2002 and revised in 
2005. Since the implementation plan extends out to 2027, there will 
likely be changes to the mix to meet changing missions, take advantage 
of new technologies, and address threat changes in the operating 
environment. However, given that the goal was to replace Coast Guard 
Deepwater assets with an integrated system, the basic asset 
architecture remains sound.

    Question 5. Other than the relatively minimal incentive for 
competition in the revised award term criteria, what power does the 
Coast Guard have to ensure adequate competition under the Deepwater 
contracting approach? Is the level of competition adequate in your 
opinion?
    Answer. The Coast Guard has the legal authority to require 
competition at the subcontract levels through contract terms and 
conditions. In addition, the contracting officer can reserve the right 
to consent to subcontracts prior to their award to ensure that adequate 
competition has been obtained. While the Coast Guard is taking a larger 
role in the integration of the Deepwater Program and it will continue 
to evaluate any assets or capabilities that can be competed outside the 
Integrated Coast Guard Systems indefinite-delivery, indefinite-quantity 
contract. Where it makes good business sense to do so, the Coast Guard 
will conduct its own competition. These current and future efforts will 
ensure adequate competition. Therefore, we believe we have a good level 
of competition.

    Question 6. You have mentioned that the Coast Guard would be open 
to utilizing the Navy's contracting expertise and maximizing buying 
power and minimize risk by purchasing existing assets, such as the 
Navy's Unmanned Aerial Vehicle ``Fire Scout''. I also see in your FY08 
budget request that the Coast Guard plans on delaying funding for the 
Offshore Patrol Cutter to study whether the Navy's Littoral Combat Ship 
might work for the Coast Guard. Does this approach signal a new Coast 
Guard strategy?
    Answer. I do not consider this to be a new strategy. The sixth 
strategic element of the USCG's Maritime Strategy for Homeland Security 
is to Ensure Readiness of the Coast Guard for Homeland Defense. One of 
the near-term initiatives to support that strategic element includes 
fielding Deepwater Assets to increase Operational Capability and DOD 
compatibility. If we can use assets that are being developed by our 
sister service, the U.S. Navy, we increase compatibility. We also have 
a National Fleet Policy Agreement with the U.S. Navy, signed by ADM 
Mullen and ADM Collins last March, that states our ``. . . forces will 
be designed, whenever possible, around common command, control, and 
communications equipment and operational, weapons and engineering 
systems, and include coordinated operational planning, procurement, 
training, and logistics.'' It also makes sense to look at alternative 
assets if they can do our missions and do them at a lower cost. Often 
this lower cost comes from Navy accomplishing the initial training and 
logistics, with the Coast Guard paying the Navy for the incremental 
cost of supporting the Coast Guard.

    Question 7. On June 21, 2005, this subcommittee held a hearing on 
the revised Deepwater Implementation Plan. At that hearing I asked your 
predecessor, Admiral Collins, if using a lead systems integrator is the 
best way to control costs, especially given the experience of the Army 
with the Future Combat System acquisition. Admiral Collins responded to 
me that the lead systems integrator mitigates risk to the Coast Guard 
versus using a traditional procurement approach. That if the Coast 
Guard were to do this acquisition in-house, it would be at least 15 
percent more costly.
    Now, 2 years later, you're dealing with huge cost overruns with the 
NSC, FRC, and other assets. Does the Coast Guard still hold the views 
expressed by your predecessor, that the lead systems integrator is the 
best approach and will produce the best value for taxpayers?
    Answer. This method is a way to make sure that different types of 
assets will work with each other. It is also a way to avoid the risk of 
duplicating functions that can occur when conducting semi-autonomous 
acquisition. At a time in which many Coast Guard assets are reaching 
the end of their service life in a 10-year period and in a time of 
constrained budgets, it is important to maximize interoperability and 
minimize duplicative efforts.
    In 2002, the Coast Guard could not effectively manage the 
acquisition with in-house resources. Handling the acquisition in-house 
would have led to increased risks and increased costs. However, the 
Coast Guard is now taking a larger role in the integration of the 
Deepwater Program and I have made substantial changes to improve 
government oversight and control of the program. While we expect some 
cost overruns on the NSC, I think it is important to point out that 
most of the cost increases on the NSC cover increased post-9/11 
capabilities. Increased post-9/11 capabilities include Shipboard 
Sensitive Compartmented Information Facility (SCIF), Airborne Use of 
Force (AUF), and Chemical, Biological, Radiological, Nuclear, Explosive 
(CBRNE) defense.
    We are currently reviewing all aspects of the next award term 
contract to ensure that the role of the system integrator is 
subordinate to Coast Guard management and oversight.

    Question 8. Admiral, I am disturbed by the IG's findings that the 
Coast Guard is reinterpreting the performance standard for the National 
Security Cutter in a way that weakens the requirement, from 230 days 
``underway'' to 170 to 180 days underway. The contract seems pretty 
clear on its fact that 230 days is the requirement. Can you please 
comment on that, Admiral?
    Answer. The Coast Guard did not change or decrease a performance 
standard but rather clarified an ambiguity in the Performance 
Specification between the narrative portion of paragraph 3.1.1.2 and 
Table 3. Section 3.1.1.2 that indicates the specifications states, 
``The ship is expected to be underway 230 days in an average year.'' 
Chart 3 lists Days Away From Homeport (DAFHP) as 230 days per year. 
DAFHP is a more inclusive term which has Days Underway as a subset. 
Table 3 details indicate the following:
         Days away from home port                       230
        Transit days                                    20
        Logistics days away from homeport               45
        Mission days                                   165
        Days in homeport                               135
                                               -------------
            Total days per year                        365

    The ambiguity between the narrative in paragraph 3.1.1.2. and Table 
3 caused a misunderstanding about the number of underway days required 
in the specifications. However, the performance specification has 
always been for 185 days underway (165 mission days + 20 transit days). 
A modification was issued to remove ambiguity and not for the purpose 
of reducing performance requirements. The modification will show the 
requirement as 230 DAFHP/185 days underway. By comparison, current 
Coast Guard high-endurance cutters are programmed for 185 DAFHP/135 
days underway.

    Question 9. Was this decision to ``redefine'' the contract's 
performance requirement unique to the National Security Cutter? Didn't 
the Coast Guard do pretty much the same thing with the performance 
specification for the 123-foot vessel conversion? In fact, didn't the 
Coast Guard alter the standard after the MATAGORDA (the first 123-foot 
vessel) didn't meet the original contract performance requirements?
    Answer. As discussed in previous responses, the Coast Guard did not 
redefine contract performance requirements for the NSC. For the 123-
foot WPB, the Coast Guard approved four revisions to the performance 
specification that primarily addressed concept of operations conflicts 
with the Command, Control, Communications, Computers, Intelligence, 
Surveillance and Reconnaissance (C\4\ISR) capabilities. All revisions 
to the specification occurred prior to the CGC MATAGORDA (WPB 1303) 
buckling incident.

    Question 10. Admiral, this tells me that the Coast Guard is letting 
the industry contractor off the hook because it could not meet its own 
promises of performance. Why would you want to do that? Doesn't that 
mean that the Coast Guard and the taxpayer will cover for industry's 
mistakes?
    Answer. As discussed in previous responses, the Coast Guard has not 
reduced performance requirements. Rather, there was an ambiguity in the 
performance specification for the NSC. One section specified 230 days 
underway without elaboration, while a table in the specifications in 
another section correctly listed the details regarding the 230 days. 
The table showed the following:
 Transit days--vessel is underway                                     20
Logistics days away from home port (at pier or anchored and          45
 not underway)
Mission days--vessel is underway                                    165
                                                            ------------
Days away from home port                                            230

    The performance specification has not been changed; it has been 
clarified to avoid any future misunderstandings.

    Question 11. Why did the Coast Guard ignore the concerns of its own 
engineering experts and decide to go ahead with construction of the 
National Security Cutter?
    Answer. The Coast Guard did not ignore the concerns of its 
engineering experts prior to awarding the NSC 1 Production DTO 0030BC 
on 22 June 2004. In fact, throughout the preliminary, contract, and 
detail design phases the Coast Guard required ICGS to re-examine many 
of the design details that resulted in numerous improvements to 
Longitudinal Bulkhead, Side Shell and Superstructure, and the 01 Level 
Strength Deck. The Coast Guard's Assistant Commandant for Engineering & 
Logistics Resources (CG-4) structural concerns regarding Strength Deck 
Stringer Plates, Superstructure Re-entrant Design, Shell Fashion 
Plates, Hangar Racking Strength, Hole Control, 01 Knuckle, and 
Reduction Gear Structure required additional analytical study in order 
to understand them and determine any necessary design changes. Having 
weighed the cost, schedule, and performance risks, the Program 
Executive Officer (PEO) elected to award DTO 0030BC while pursuing a 
parallel path of conducting an independent assessment of the CG-4 
concerns. It is important to note that these engineering experts filled 
billets and positions established by Deepwater to accomplish these 
types of reviews.
    In March 2005, the Coast Guard, using Deepwater funds, commissioned 
Naval Surface Warfare Center--Carderock Division (NSWC-CD) to perform 
an assessment of the National Security Cutter's (NSC) structural design 
and fatigue-life. The USCG maintained close communication with NSWC-CD 
throughout the duration of the study and received several progress 
reports in the form of round table technical briefings. It was not 
until December 2005 that NSWC-CD, in a preliminary report, advised the 
Coast Guard that they had determined a fatigue problem. NSWC-CD's final 
report was delivered to the Coast Guard in October 2006 after going 
through NSWC-CD's quality review process.
    Based on fatigue load model updates performed by NSWC-CD, finite 
element models established by NSWC plus reviews and inputs from 
structural experts from the CG-4 Engineering and Logistics Center 
(ELC), maximum permissible stress levels for the NSC were developed. 
The Coast Guard and ICGS developed a technical solution to structurally 
enhance NSC 3-8 prior to production award based on those maximum 
permissible stress levels. ICGS provided the Coast Guard with a cost 
proposal based on the technical data on 22 February 2007. The proposal 
is currently under review and will be negotiated in conjunction with 
the award of NSC 3. The Coast Guard is continuing to analyze and 
develop solutions to make modifications to NSC 1 and 2 after delivery 
well before fatigue-life becomes an issue.
    If the Coast Guard had elected to not award DTO 0030BC in June 2004 
in lieu of mitigating all structural concerns, and given the fact that 
it took approximately 2 years in analyzing and developing structural 
enhancement solutions, then production of NSC 1 would have been delayed 
significantly with compounding impacts to cost and subsequent NSC 
construction schedules. During those 2 years, the 378 WHECs, which will 
be replaced by the NSCs, continued to experience maintenance problems 
and a loss of underway days. In order to ensure continued capabilities 
to meet maritime missions, the best approach for the Coast Guard was to 
continue NSC construction while the final structural enhancements were 
being designed.

    Question 12. The IG's report says that the Coast Guard determined 
that it would be more costly to delay construction than to address 
design concerns early in the process. Is there any documentation that 
this is true?
    Answer. No formal Business Case Analysis was performed to quantify 
the cost in delaying construction. Although structural concerns with 
the National Security Cutter (NSC) design were identified in the 
Integrated Product Team (IPT) process, the Program Executive Officer 
(PEO) decided that the large cost in delaying production outweighed the 
potential cost impact of delaying the remaining technical modifications 
until later hull production and retrofitting the initial hulls as 
needed. The decision to award DTO 0030BC was thoroughly and 
appropriately documented in detail by two decision memoranda (one by 
the Agency Acquisition Executive for baseline change items and the 
other by the Deepwater PEO addressing all other considerations).
    Additional documentation leading up to the DTO award decision 
includes: (1) the briefing documenting the findings of the DTO 
Readiness Review (a decision meeting conducted by the NSC IPT); (2) two 
briefings by the Integrated Deepwater System Contracting Officer to the 
PEO providing a list of the risk items that must be cleared prior to 
the DTO award; and (3) a series of IPT minutes, that document the IPT 
tracked Critical Design Review Exit Criteria, including risk items that 
had to be resolved prior to award of DTO 0030BC. These minutes included 
structural issues carried by the IPT as a risk management item. None of 
the recommendations in these documents contradicted the PEO's decision. 
The following structural enhancements were incorporated in the NSC 
design before production began on NSC 1.

   Redesigned inner bottom structure beneath reduction gear.

   Removed superstructure expansion joint

   Reduced size of 01 deck penetrations and increased thickness 
        of surrounding insert plate

   Installed superstructure fashion plates

   Installed Hovgaard bulkheads

    Question 13. Since the Deepwater contract was signed in June 2002, 
the combined cost of NSC 1 and 2 has increased from $517 million to 
approximately $775 million. But this figure does not yet include costs 
due to production delays, costs due to Hurricane Katrina, or costs for 
needed modifications to the NSC design. I understand the combined cost 
of NSC 1 and 2 could be $1 billion or more. Is that true? $500 million 
more than the original cost?
    Who will pay for these costs increases? What is the Coast Guard 
doing to recoup costs?
    Who will bear the cost for needed design changes to both the NSC 3 
through 8 that are not yet constructed?
    Answer. The amount of $517.0M used in the 2002 contract for the 
first two NSCs did not include post-9/11 requirements changes, 
inflation from 2002 to 2007, or hurricane impacts. The below table 
summarizes our current cost estimates for NSCs 1 and 2 based on all 
project needs:

        National Security Cutter (NSC) Budget Change Data Summary
                          [dollars in millions]
------------------------------------------------------------------------
                                           NSC 1      NSC 2      Total
------------------------------------------------------------------------
Preliminary & Contract Design                 $7.3                  $7.3
------------------------------------------------------------------------
Detailed Design                              $60.4                 $60.4
------------------------------------------------------------------------
Long Lead Time Materials                     $74.4      $51.9     $126.3
------------------------------------------------------------------------
Contract Production Budget                  $180.1     $142.7     $322.8
------------------------------------------------------------------------
June 2002 Contract Price in 2002 Dollars (A)                      $516.8
------------------------------------------------------------------------
Subtotal of Post-9/11 Changes, Engineering Change Proposals,      $261.0
 and Government Items in 2002 Dollars not in June 2002
 Contract Price (B)
------------------------------------------------------------------------
Assumed 1.85 percent Inflation from 2002 to 2006 (C)               $59.2
------------------------------------------------------------------------
Hurricane Katrina Amounts in 2006 Dollars (D)                     $123.0
------------------------------------------------------------------------
      Updated Total                                               $960.0
------------------------------------------------------------------------
Notes:
(A) Only represents Contract Costs with ICGS.
(B) ICGS Costs Plus CG Post-9/11 Changes necessitated by the Homeland
  Security Act and Government Equipment and items such as Testing/
  Evaluation, and Engineering Changes.
(C) Assumption based on guidance provided by OMB.
(D) Congress funded an additional $123M in FY 2006 for hurricane-related
  costs for the NSC 1 and the NSC 2.

    The change in the amount of funding required is the responsibility 
of the Coast Guard for Post-9/11 Changes, government items, associated 
inflation impacts and hurricane damage. All of the Engineering Change 
Proposals except for the structural upgrades are related to the Post-9/
11 Changes. The exact cost of these changes will be determined after 
negotiations. The Coast Guard has determined that the NSC structural 
upgrade is not within the existing statement of work/specifications and 
has therefore issued a change to the NSC 3 solicitation in order to 
obtain a cost proposal that will subsequently require negotiation. If 
appropriate, a similar change will be made, either through ICGS or 
after delivery of the ships, to implement the structural modifications 
on NSC 1 and 2. For NSC 1 and 2, the structural changes will be 
incorporated through a change to existing contract terms or a new ship 
modification contract.
    For NSC 3 and future ships the cost for necessary structural 
modifications will be incorporated into a new contract agreement.

    Question 14. Why was Northrop Grumman going ahead with ordering 
lead materials and taking other steps for construction when the NSC 
designs had not even been approved by the Coast Guard? It sounds to me 
like Northrop already had the Coast Guard locked in to buying a 
questionable design.
    Answer. Although Long Lead Time Material (LLTM) is normally ordered 
after Critical Design Review (CDR) (03 June 2003), the Deepwater 
Program Office elected to award LLTM on 19 March 2003 upon completion 
of Preliminary Design Review (PDR) (11 March 2003). Due to the limited 
availability of shipboard equipment/systems and the limited pool of 
suppliers, it is common for shipyards to require more than 12 months 
for LLTM orders. With what appeared at the time to be minimal risk in 
the design changing from PDR to CDR, the Deepwater Program Office 
elected to award LLTM to preserve schedule. All materials from all LLTM 
orders prior to CDR are usable, even with structural upgrades.

    Question 15. Why does the Coast Guard plan to take delivery of the 
National Security Cutters 1 and 2 even though they have design flaws?
    Answer. The Coast Guard does not intend to take delivery of NSC 1 
or NSC 2 until each cutter has completed Acceptance Trials and ICGS has 
demonstrated that each cutter meets the specified Performance 
Requirements. Any structural modifications on NSC 1 and NSC 2 will 
largely be completed during each of the cutters' post-delivery yard 
availabilities. Both cutters will be fully capable of all mission 
requirements and are expected to meet performance specifications 
throughout their expected service life.

    Question 16. Isn't there a chance that the problems with the first 
National Security Cutter could require repairs sooner than at 
regularly-scheduled maintenance (5 years time)? Wouldn't losing the NSC 
for the length of time needed to make repairs impose an additional 
strain on the Coast Guard's urgent national security mission?
    Answer. The Deepwater Program Office and the Coast Guard Technical 
Authority (the Assistant Commandant for Engineering and Logistics 
Resources (CG-4)) are currently developing structural enhancement 
retrofit solutions to be incorporated during planned, post shakedown 
maintenance availabilities for NSC 1 and NSC 2. The first maintenance 
availability (approx. 3&nths in duration), scheduled to commence 12 
months after delivery, has been incorporated into the Pacific Area's 
operational planning factors. CG-4 is developing incremental technical 
work packages that address specific areas of concern as related to 
expected fatigue/service life. Those specific areas with critical 
fatigue/service concerns will be incorporated into the first 
maintenance availability. Follow-on structural modifications (as 
dictated by projected fatigue-life) will be incorporated into 
subsequent, planned maintenance availabilities.

    Question 17. Who will pay for the needed repairs to both the NSC 1 
and 2 and the design changes for the 6 others not yet constructed? What 
is the Coast Guard doing to recoup costs?
    Answer. For National Security Cutters (NSC) 1 and 2, the structural 
changes will require the Coast Guard to issue a change to existing 
contract terms (or to issue a new ship modification contract). For NSC 
3 and future ships, the cost for necessary structural modifications, 
will be incorporated into a new contract agreement.

    Question 18. I understand Northrop's warranty for the National 
Security Cutter is only for 1 year after delivery. I understand that 
typically the Coast Guard would be doing tests and getting the ship 
prepared for service during that time, but that it will not be in 
actual operation by the end of that year. Given the newness of the 
designs that Northrop is using for these cutters, doesn't this mean 
that the Coast Guard and the American taxpayer are essentially funding 
industry R&D?
    Answer. Although the NSC Performance Specification is unique in 
kind, NGSS is applying existing shipbuilding standards and proven 
technologies in the design and construction of the NSC. The 1-year 
warranty period is typical for newly constructed naval combatants and 
is similar to those employed by the Navy's Supervisor of Shipping 
(SUPSHIPS) at this and similar shipyards.

    Question 19. The two controls on the performance of ICGS were to 
be: (1) total ownership costs, and (2) operational effectiveness. Has 
the ICGS met either of these with respect to the major vessels being 
delivered?
    Answer. Total Ownership Cost and Operational Effectiveness of each 
surface asset cannot be quantitatively measured or realized until 
respective assets have been delivered and observed in service. The NSC 
will be evaluated during Operational Test and Evaluation and during 
normal operations throughout its service life.

    Question 20. Admiral, the testimony of Mr. Teel who we will hear 
from shortly seems to suggest that there is nothing wrong with their 
design for the FRC. Do you agree with that assessment, and if not, why? 
How could there be such a fundamental difference of opinion on whether 
the design meets Coast Guard's needs?
    Answer. The Coast Guard identified high technical risks with the 
Integrated Coast Guard Systems' (ICGS) proposed composite design that 
led to suspension of the composite Fast Response Cutter (FRC) design 
efforts on 27 February 2006. These risks were validated by an 
Independent Third-Party Design Review conducted by Alion--John J. 
McMullen & Associates (JJMA) that was completed on 10 April 2006 and by 
a panel of independent composite technology experts from the U.S. Navy, 
private industry, academia, and the U.S. Coast Guard who participated 
in a Technology Readiness Assessment of the FRC-A composite in December 
2006. These technical risks would impact the manufacture of the 
composite hull and had the potential to impact cost and schedule.

    Question 21. You allowed ICGS to award the design of the FRC to 
itself, when Northrop Grumman had no experience with designing such 
vessels. Now, years later, you have decided to issue a call for 
competitive proposals to design and build a shorter-term replacement 
for the FRC. Why did you agree to allow Northrop to design this vessel 
in the first place? And shouldn't you also be considering either off-
the-shelf designs or a full competition for the longer-term FRC?
    Who is responsible for the costs of changing the design for the 
longer-term vessel?
    Answer. Under the overarching Integrated Deepwater System contract, 
the current design related Delivery Task Orders (DTOs) for the FRC 
(which has now been designated as FRC-A Class) was based on a composite 
hull form and was awarded to ICGS as the prime Deepwater contractor. 
ICGS in turn subcontracted with Northrop Grumman Ship Systems and 
Lockheed Martin. At the time of award, the Coast Guard did not 
anticipate experiencing the degree of technical risk that led to the 
suspension of design efforts on 27 February 2006. Within the DTO 
description, specification, work statement, and terms/conditions, the 
Coast Guard neither directed nor prohibited ICGS from hiring or 
subcontracting with patrol boat design agents. At the time of the FRC-A 
Class DTO, there was no reason to prohibit ICGS from subcontracting 
directly to Northrop Grumman Ship Systems.
    The Coast Guard intends to compete all future design and 
construction of the FRC-B Class patrol boats as a Coast Guard 
procurement. The Coast Guard also remains open to considering a parent 
craft (off-the-shelf design) patrol boat in our FRC-A Class acquisition 
strategy.

    Question 22. I am very concerned that the Coast Guard's Deepwater 
office may have hired former Coast Guard staff who joined industry 
firms before the appropriate time had passed. Can I be confident that 
all ethics rules were followed?
    Answer. The question suggests that the Coast Guard hires support 
contractor employees directly. Support contractor employees are hired 
by and work for support contractors, not the Coast Guard. All hiring 
decisions in these cases are made by support contractors, not the Coast 
Guard.
    Transitioning and transitioned Coast Guard personnel are personally 
responsible for complying with all post-government-service-employment 
ethics rules. Coast Guard attorneys are made available to provide 
ethics guidance to all transitioning and transitioned personnel to help 
ensure that those personnel comply with the ethics rules. The Coast 
Guard does this through one-on-one sessions, group seminars and online 
training.
    The Coast Guard takes prompt and appropriate action when it has 
reason to conclude that a transitioning or transitioned person is about 
to, or has, violated any relevant ethics rule.

    Question 23. I must admit that I am also concerned with the lack of 
transparency and quite frankly, honesty, in Coast Guard's dealings with 
Congress on these issues. Just last year in our hearing on the Coast 
Guard's budget, you told me that you had walked on the first National 
Security Cutter from stem to stern and that all was fine with this 
ship. In fact, you already knew then that there were concerns regarding 
its design. Now, here we are at this hearing. I think you would agree 
that we need more open and frequent communications from the Coast Guard 
on Deepwater? And that this would help, not hurt, the Coast Guard and 
the likelihood that this program will be a success? Can I rely on you 
to provide more frequent and open information about Deepwater going 
forward?
    Answer. I agree that we need more open and frequent communication, 
and believe that such communication will benefit the overall success of 
the Deepwater Program as we move forward. The Deepwater Program Office 
is prepared to provide monthly briefings on all surface/system assets 
similar to the regularly scheduled monthly briefings being provided to 
the House and Senate Appropriations Committee staffs on the patrol boat 
replacement effort and development of the FRC. We value the oversight 
the Congress provides and will expeditiously respond to any requests 
for additional Deepwater Program information.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                         Admiral Thad W. Allen
    Question 1. Admiral Allen, I am one of the Coast Guard's strongest 
supporters, and have long supported the Deepwater program. However, the 
list of problems with the conversion of major vessels and other assets 
under the contract raise concerns that there are fundamental problems 
with the entire Deepwater program. Do you think the individual issues 
that have occurred are merely isolated incidents, or are they 
indicative of more serious problems?
    Answer. The structural issues experienced on the 110, to 123, 
conversion are considered to be isolated within the 123, Conversion 
Program. However, to increase the assurance that follow-on Deepwater 
surface assets are properly designed and constructed to an integrated 
and comprehensive set of standards, the Coast Guard intends to expand 
the role that the American Bureau of Shipping (ABS) will play in the 
Deepwater Program. Additionally, the Coast Guard is installing 
additional engineering rigor and oversight in the development of 
Deepwater Designs by way of:

   Requiring Contractor to incorporate and to provide coarse-
        mesh and fine-mesh finite element models as Contract Data 
        Deliverables in the design of subsequent assets.

   Requiring Contractor to obtain consent to subcontract with 
        future design agents.

   Conducting Technology Readiness Assessments of future 
        surface assets before awarding Design DTOs.

   Increasing application of Independent Third-Party Review and 
        Analyses.

   Formalizing the role of the Coast Guard's Chief Engineer and 
        Technical Authority.

    Question 2. At this point, all possible solutions to getting this 
program back on track should be considered. I know you are working on 
important internal management reforms. What is your plan to address the 
other problems identified and get the program moving in the right 
direction?
    Answer. Sir, I believe the changes that I have made will get the 
Deepwater Program moving in the right direction. They include:

   Moving Deepwater acquisition staff and resources to the 
        Acquisition Directorate to form one Acquisition Shop to 
        increase efficiency and improve processes.

   Designating the Assistant Commandant for Engineering and 
        Logistics Resources (CG-4) as the Coast Guard's technical 
        authority for all new ship acquisition designs.

   Adding staff on the government side to the Deepwater Program 
        to perform greater contractor oversight and assume some of the 
        system integrator duties.

    Initiate a Business Case Analysis for all new acquisition decisions 
to ensure we are building and buying the right tools for our Coast 
Guard men and women at the best value to the government.

    Question 3. Admiral, at our budget hearing last June, I asked you 
if there were any projects besides the Fast Response Cutter within the 
Deepwater Program that were experiencing problems, and made a specific 
mention of the National Security Cutter. While your answer mentioned 
some cost increases, it did not mention any other problems. However, 
the DHS Inspector General's report on the National Security Cutter 
indicates that design flaws were an issue prior to that time. At what 
point were you made aware of the problems highlighted by the DHS IG?
    Answer. To clarify my testimony, on 14 June 2006 I stated ``There 
are some technical issues associated with the construction that we will 
address in subsequent hulls.'' Regarding the fatigue-life of the NSC, 
the Deepwater PEO informed me in March of 2005 that he was tasking 
Naval Surface Warfare Center, Carderock Division to perform an 
independent analysis of the NSC to address the Assistant Commandant for 
Engineering & Logistic Resources (CG-4) concerns regarding the 
structural adequacy and fatigue-life of NSC critical areas. On 5 
September 2005 I was deployed to the Gulf Coast as the Principal 
Federal Official for Hurricanes Katrina and Rita. I did not resume my 
duties as Chief of Staff until February 2006. At that time I was made 
aware that the DHS Inspector General was concluding the audit.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. John F. Kerry to 
                         Admiral Thad W. Allen
    Question 1. I believe the Coast Guard should drop its contractors, 
solicit new contractors through an open and competitive bidding 
process, and assert firm control over every important managerial 
decision. Do you agree? If not, what is the alternative?
    Answer. I agree that the Coast Guard must assert firm control over 
critical management decisions and that is why I have made several 
critical changes that will ensure the Coast Guard is the decisionmaker. 
For Deepwater, this includes the use of Business Case Analyses (BCA) 
for all major acquisition decisions, use of third-party analysis, 
incorporation of relevant GAO and IG audit recommendations, elevating 
the role of the Coast Guard technical authority, reorganizing the 
Integrated Product Teams (IPT) to be led by qualified Coast Guard 
personnel and adoption of the ``Coast Guard Blueprint for Acquisition 
Reform'' as a framework for a new model acquisition organization.
    The Short Range Prosecutor (SRP) is an example of where a BCA 
suggested going outside Integrated Coast Guard Systems (ICGS) as the 
preferred alternative. I will hold ICGS accountable for making sure 
that awards are based on best value source selection. If ICGS is unable 
to satisfy this requirement, I will turn to other procurement 
alternatives that can result in awards based on best value source 
selection.

    Question 2. Do you believe that Lockheed and Northrop made 
management and purchasing decisions that increased their bottom line at 
the expense of efficiency and concern for the taxpayer?
    Answer. The Coast Guard is not privy to the information that 
motivated the business decisions of either Lockheed or Northrop; thus, 
the Coast Guard is unable to answer the question asked.

    Question 3. Do you believe that the delays and management problems 
with Deepwater have compromised national security?
    Answer. The delays and problems experienced with delivered assets 
such as the 123, cutter modifications have affected the Coast Guard's 
ability to reduce the gap in patrol boat mission hours but our national 
security has not been compromised. As evidenced in our response to 
Hurricane Katrina, the Coast Guard has an inherent ability to 
reallocate resources in a short time to respond to significant events 
and will continue to perform in this manner even as we recapitalize our 
cutters and aircraft.

    Question 4. Does the Deepwater contract allow the government to 
recoup funds stemming from design flaws for the cutters and patrol 
boats that will have to be fixed? Who pays for that?
    Answer. In general, the contractor is responsible for performing 
according to the requirements of the contract and the Government is 
required to deal fairly with the contractor. If the contractor is at 
fault for defects or other failure of the product to perform 
adequately, the Government can demand correction at no cost, have the 
correction performed by a different contractor and charge the current 
contractor. The Government can also demand a price reduction; and, in 
extreme circumstances, a termination for default is warranted. The 
Deepwater Contract conforms to all contracting principles in accordance 
with the Federal Acquisition Regulations (FAR).

    Question 5. In 2004, the GAO issued its 11 recommendations on how 
to improve Deepwater. One was to study whether a traditional contract 
or multiple contracts would cost less then the systems integrator 
contract approach you currently use. In spite of all the cost overruns 
and delays and negative media, the Coast Guard has refused to do it. 
Why hasn't the Coast Guard implemented GAO's recommendation to study 
alternative contract arrangements?
    Answer. The Coast Guard has studied alternative contract 
arrangements. The Coast Guard has the ability to look to other sources 
for any part of the Deepwater mix of assets and capabilities. On March 
14, 2007, ADM Allen signed a decision memorandum approving the 
termination of the current FRC-B (replacement patrol boat) acquisition 
with ICGS and reassigning it to the Coast Guard's acquisition 
Directorate. This action will ensure full and open competition, enable 
us to acquire a patrol boat that is more capable, help to control 
costs, and deliver replacement patrol boats in the shortest time 
possible.

   This decision is based on the Coast Guard's ongoing 
        commitment to improving program management to achieve best 
        value for taxpayers and the government.

   Schedule impacts will be managed by combining the design and 
        production phases into one effort.

   The Coast Guard expect to release the Request for Proposal 
        (RFP) for this plan in May 2007.

    Question 5a. Isn't it essential that the Coast Guard drop the 
Systems Integrator concept, whether or not it drops Lockheed and 
Northrop?
    Answer. As announced by ADM Allen on April 17, 2007, the Coast 
Guard is assuming a greater oversight and management role in the 
Deepwater Program.

    Question 5b. Don't you think the time has come to at least study my 
recommendation that you drop the current contract and issue a new one?
    Answer. Prior audits and studies conducted by various entities such 
as GAO, and the National Defense University (NDU) have provided 
feedback on the ``system of systems'' acquisition strategy and found it 
to be a valid contracting mechanism when adequate program and technical 
oversight is applied. The management changes that Coast Guard is 
currently adopting will improve the Deepwater Program and be more cost 
effective and deliver much needed tools more quickly to the men and 
women of the Coast Guard than would occur if the current contract were 
dropped and a new contract issued. The initial Deepwater Program took 6 
years to go from approval of the Mission Needs Statement to contract 
award in 2002. It took an additional four to 6 years for major capital 
assets like the National Security Cutter and the Maritime Patrol 
Aircraft to be close to delivery or to have been actually delivered.

    Question 6. Many of the problems with Deepwater stem from the 
unusual contract between the Coast Guard and its contractors that 
empowered them to make management decisions as well as poor oversight 
and decisionmaking from your managers and engineers. These problems 
have been documented for at least 5 years, and are deeply troubling.
    For instance, a 2004 internal Coast Guard memo from Rear Admiral 
Erroll Brown to Rear Admiral P.M. Stillman which outlines Admiral 
Brown's concerns regarding design flaws for the National Security 
Cutters seems to have been completely ignored. Admiral Brown outlined 
many of the structural flaws that we now know will cost an additional 
$500 million to fix, and stated that the contractors ``ended any 
collaborative effort'' to remedy them.
    So, clearly, the Coast Guard has known for some time that the 
ineffective collaboration with its contractors is at the root of the 
problems we're discussing today.
    Here's what I don't understand: Why did the Coast Guard decide, in 
May 2006, to extend the contract with Lockheed and Northrop for 43 
months starting in June 2007 given what it knew at that point?
    Answer. The Coast Guard's decision regarding the length of the 
award term was based upon an extensive Coast Guard review of the joint 
venture's performance during the first 42 months (June 2002-December 
2005) of the base period. Based on the input from the Award Term 
Evaluation Board using pre-determined contractual criteria, the Award 
Term Determining Official made the period of performance determination 
which was 43 months. Many aspects of the program were considered, 
including the successful C\4\ISR legacy cutter upgrades, the re-engined 
HH-65Cs, and the C-130J missionization project; along with the aspects 
of the program that were less successful. The fact that the contractor 
did not receive an award term of 60 months is a reflection that the 
Coast Guard wanted improved contractor performance. While the 43-month 
award provides an opportunity for improved performance, it does not 
obligate the Government to award any work to ICGS or to continue with 
the ICGS prime contract during the Award Term I period since the 
minimum requirements of the Indefinite Delivery/Indefinite Quantity 
contract were already met during the base period from 2002 to 2007.

    Question 7. In your written testimony, you state: ``The Coast Guard 
has been and remains fully involved in the management of this program 
and has made all final and critical decisions.''
    Let me contrast this with Mr. Skinner's written testimony. He says:

        ``The Deepwater contract essentially empowered the contractor 
        with authority for decisionmaking. Therefore, the Coast Guard 
        was reluctant to exercise a sufficient degree of authority to 
        influence the design and production of its own assets. 
        Specifically, under the contract ICGS was the Systems 
        Integrator and assigned 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.' ''

    Can you explain the discrepancy between your view of the program 
and Mr. Skinner's?
    Answer. The Deepwater Acquisition Strategy assigned Integrated 
Coast Guard Systems (ICGS) responsibilities as the Systems Integrator, 
to develop an integrated system of assets, as well as C\4\ISR and 
Logistics components, to meet the Coast Guard's requirements. This 
strategy was developed in a competitive environment and ICGS was 
awarded the contract in June 2002 over two other competing industry 
teams.
    The Assistant Commandant for Engineering and Logistics Resources, 
the Coast Guard technical authority, has been and will continue to be 
fully involved in all asset design and configuration decisions. As one 
example, the National Security Cutter (NSC) Integrated Product Team, 
which included Coast Guard technical experts who were funded by 
Deepwater Program resources, was responsible for many design changes 
and improvements to the NSC structure well before the Coast Guard hired 
Naval Surface Warfare Center--Carderock Division to conduct a 
structural assessment of the NSC. The Coast Guard modified every DTO 
that was originally proposed by ICGS. Further, when the post-9/11 
Mission Needs Statement changes were made for specific assets, adding 
new capabilities for and adjusting the quantity of each asset, ICGS did 
make an initial recommendation, but the final mix of assets was 
completely decided and justified to DHS in 2004 by the Coast Guard. 
However, I agree with Mr. Skinner that while the Coast Guard has always 
had this degree of authority, we were at times reluctant to use it, a 
situation I have remedied.

    Question 8. One of the main problems with Deepwater that have been 
identified by the IG's office as well as GAO has been the Coast Guard's 
understaffed acquisition office. I know the Coast Guard is well aware 
of this. At a recent staff briefing Rear Admiral Gary Blore, who now 
heads the acquisition office, stated that the Coast Guard's oversight 
staff is only 20 percent of what the Department of Defense would employ 
on a similar sized contract.
    Can you tell me how much progress you've made hiring acquisition 
staff, especially those with technical expertise?
    Answer. The Deepwater Program Office and the Office of Acquisition 
have been authorized and funded for 36 new government positions for 
Fiscal Year 2007. We're currently recruiting these positions, which 
include program management, technical engineers, logisticians, business 
financial managers, and contracting specialties.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Trent Lott to 
                         Admiral Thad W. Allen
    Question 1. Please explain the days underway and sea condition 
inputs for each Naval Surface Warfare Center Carderock Division's 
fatigue-life analysis conducted on the National Security Cutter (NSC).
    Answer. NSWC Carderock Division's fatigue-life analysis was 
conducted using the computer program SPECTRA for which 6,900 days at 
sea was used as an assumption. This value was based on assuming 63 
percent operability or 230 days underway per year over the course of a 
30-year service life. (Note: NSWC-CD unilaterally chose to use 230 days 
underway. Their analysis was adjusted later by the Coast Guard 
technical authority to reflect the days underway referenced in the NSC 
Performance Specifications).
    NSWC Carderock considered two operational areas for their analyses: 
Northern Pacific and General Atlantic. The sea condition assumptions 
were determined by: (1) established wave height probabilities for 
specific oceanographic areas, using Ochi (1976) six-parameter sea 
spectra; and (2) probabilities associated with time spent at specific 
headings and speeds for ranges of specific wave heights.
    The wave height probability inputs for the General Atlantic were 
selected as a pre-programmed function of the SPECTRA software. The 
General Atlantic wave height probabilities are a combination of the 
Ochi North Atlantic with data from the Caribbean, Mediterranean, and 
Atlantic between the U.S. East Coast, and Spain, as is described in the 
March 2000 NSWC Carderock Report NSWCCD-65-TR-2000/07 March 2000, 
``User's Guide for SPECTRA: Version 8.3''.
    The wave height probability inputs for the Northern Pacific case 
were actually derived by numerically averaging the wave height 
probabilities associated with three buoy geographical positions (GP-12, 
GP-13, and GP-16) along the Gulf of Alaska, in accordance with values 
published in the October 1995 NSWC Carderock report NSWCCD-HD-1048-01, 
titled ``Global Wave Statistics for Structural Design Assessments''. 
The geographic location of the three buoy positions are portrayed in 
the following map.



    At Coast Guard request, NSWC-CD also conducted analyses of 170-180 
days underway per year and less severe operating areas.

    Question 2. Please describe how these inputs compare to the NSC 
concept of operations as initially developed and, if applicable, as 
modified.
    Answer. The wave height probability assumption values used by Naval 
Surface Warfare Center Carderock Division (NSWC-CD) to prepare their 
published report include those values representative of the National 
Security Cutter (NSC) operating conditions and Concept of Operation 
(CONOP). NSWC-CD's Gulf of Alaska (``Northern Pacific'') analysis 
represents operating the NSC only in the Gulf of Alaska in the worst or 
most severe conditions of the entire Northern Pacific Ocean. The 
``General Atlantic'' conditions represent a combination of data from 
the Caribbean, Mediterranean, and Atlantic between the U.S. East Coast, 
and Spain. These conditions are less severe than sea state 
probabilities appropriate for design of the NSC class of ships.
    In March 2006, the Coast Guard reviewed the current CONOPs for each 
of the 8 NSCs and determined that the NSCs to be homeported in Alameda, 
California will experience the most-severe sea conditions within the 
NSC fleet. Applying the same wave-height statistics used by NSWC-CD, 
CONOPs-derived wave height probabilities for the Alameda-based NSCs sea 
state probabilities were calculated by the Coast Guard for analyzing 
the NSC as a class of ships. The same professionals who authored the 
NSWC-CD report were engaged throughout this process to perform analyses 
from these inputs in order to derive outputs from their SPECTRA 
software, and to provide analytical advice.
    Various scenarios for days underway per year were established by 
the Coast Guard for input by NSWC-CD to their SPECTRA software program. 
The scenarios were based on: (1) differing interpretations of Deepwater 
contract requirements (230, 207, and 185 days per year) and, 
subsequently, (2) on actual Coast Guard minimum requirements (170 days 
per year) as identified by the Coast Guard Technical authority:

        ``The analysis conducted by NSWC-CD used 230 days of operation 
        in the North Pacific as an initial assumption and ``bracketed'' 
        the operational profile by using 230 days in the General 
        Atlantic as a less severe wave profile loading case. I agree 
        with your assessment that designing the NSC to operate 230 
        days, on average, each year in the North Pacific would lead to 
        an overly conservative design. Enclosure (1) is a spreadsheet 
        that G-RCD developed to illustrate the NSC operational profile 
        for application in subsequent fatigue-life analysis 
        calculations. By applying the current post delivery OT&E 
        activity schedule and some basic assumptions regarding 
        scheduled and unscheduled availabilities, I conclude the NSC 
        will operate, on average, between 170 to 180 days per year in 
        the Pacific Ocean north of the Equator. I therefore recommend 
        that no less than 170 days per year, on average, in the Pacific 
        Ocean north of the Equator, with the associated and appropriate 
        sea spectra, be used as the operational profile for fatigue 
        design calculations.''

    Question 3. Also, please describe how these inputs compare to the 
historical use of the Hamilton Class cutters that the NSC will replace 
and the standards used for Navy combatant ships.
    Answer. Based on review of historical data between 1992 and 2005, 
HAMILTON Class cutters have averaged 129 operating days underway per 
year.
    For 2004 and 2005, the Navy reported in the Navy Ship Operations 
Assessment that it actually had 287 ship years in 2004 and 252 ship 
years in 2005. In 2004 and 2005, these ships were underway for 418,707 
and 453,998 total hours respectively. This amounts to 60.8 ship days 
underway per ship year for 2004 and 75.1 ship days underway per ship 
year for 2005 based on dividing total hours by 24. Based on their 
hours, naval combatants built for the Navy, unlike those built to be 
employed as Coast Guard Cutters, will be subjected to much less time 
underway. Because the Navy and the Coast Guard have different 
operational tempo, personnel tempo, and maintenance schedules, the 
average number of ship days underway for each ship in the Navy and the 
Coast Guard does not lend itself to a useful comparison.

    Question 4. I understand that the Coast Guard, the Department of 
Homeland Security Science and Technology Directorate, and Northrup 
Grumman Ship Systems has discussed a plan to fund construction of an 
FRC-A composite hull demonstrator craft. Do you support construction of 
such a demonstrator?
    If so, do the FY07 appropriation and FY08 request for the Deepwater 
program include adequate funding for the Coast Guard's share of such a 
plan?
    Answer. The Department of Homeland Security (DHS), Office of 
Science and Technology has requested funding for the Composite 
Demonstrator Program in their FY 2008 budget. The Coast Guard does not 
currently have, nor is the Coast Guard requesting, funding in its 
budget to support this initiative. However, the demonstrator could 
potentially add value to Coast Guard efforts to validate the production 
readiness and total ownership cost of composite patrol boats, such as 
the FRC-A Class patrol boat.

    Question 5. Please describe the Coast Guard's plans to house NSC 
commissioning crews during their temporary assignment to Pascagoula, 
MS.
    Answer. The Coast Guard is currently exploring multiple options for 
housing NSC crews, including other military and commercial sources. We 
are performing market research to determine commercial availability of 
berthing in the Gulf Coast area, which is still subject to impact of 
hurricane reconstruction demand. The current plan for housing of the 
pre-commissioning crew of CGC BERTHOLF is for them to stay at a 
commercial lodging facility within a 30 mile radius of the shipyard in 
Pascagoula, MS.

    Question 6. Do these plans include the use of Navy housing?
    Answer. No. The Coast Guard investigated the availability of Navy 
housing within 30 miles of the shipyard for berthing National Security 
Cutter (NSC) crews. The Navy's Lakeside facility in Pascagoula, MS was 
initially approved, but because of schedule changes for Navy ships 
under construction in Pascagoula, the Navy facility no longer has space 
available for Coast Guard crews.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                         Admiral Thad W. Allen
    Question 1. The independent analysis on the NSC is complete, and 
the Coast Guard has decided to incorporate the structural modifications 
recommended nearly 2 years ago. What are the final costs of these 
modifications and who will be responsible for the additional costs?
    Answer. Many of the structural modifications recommended 2 years 
ago were incorporated into the design prior to awarding the NSC 
production contract, including numerous improvements to Longitudinal 
Bulkhead, Side Shell and Superstructure, and the 01 Level Strength 
Deck. Additional concerns regarding Strength Deck Stringer Plates, 
Superstructure Re-entrant Design, Shell Fashion Plates, Hangar Racking 
Strength, Hole Control, 01 Knuckle, and Reduction Gear Structure 
required additional analytical study in order to understand them and 
determine any necessary design changes. Integrated Coast Guard Systems 
(ICGS) has submitted a proposal to address this latter group, but the 
evaluation of the proposal and negotiations are not yet complete. The 
cost share associated with these modifications will not be known until 
negotiations have been conducted.

    Question 2. In August 2006, the Coast Guard announced the length of 
the next Deepwater contract award term--43 months. According to the 
Coast Guard, the next milestone in the process is to negotiate the 
terms of the contract between the Coast Guard and ICGS. What would be 
the impact on the Coast Guard and the Nation of not renewing the 
contract with ICGS?
    Considering the performance of the ICGS to date, what are other 
options available to the Coast Guard to recapitalize its aging fleet of 
vessels and aircraft? To what degree has the Coast Guard investigated 
these other options?
    Answer. If the Coast Guard does not renew the contract with 
Integrated Coast Guard System (ICGS), then the Coast Guard would have 
to restart the procurement process for all Deepwater assets. For large 
complex procurements (such as the National Security Cutter), it could 
take approximately 3 years to award a contract, which means that aging 
legacy assets being replaced by new procurements, would have to remain 
in service much longer than planned. In addition, there may be more 
delays that a new contractor may experience in providing the new 
assets. The impact on the Nation is that the Coast Guard may not be 
able to provide its current level of services at present funding levels 
because more funding would go into less capable, maintenance intensive, 
high cost legacy assets, which would have to remain in service longer.
    The Coast Guard has a great deal of flexibility in recapitalizing 
its aging fleet of vessels and aircraft. The Coast Guard met the 
minimum ordering quantities under the Indefinite Delivery-Indefinite 
Quantity contract early in the base period of the Deepwater contract 
and therefore is no longer obligated to purchase additional assets, 
systems, or services through ICGS. In fact, the Coast Guard has 
exercised this option when ICGS did not offer the best value to the 
Government. For example, in July 2006, the Coast Guard decided to 
procure the cutter small boat (short range prosecutor) using full and 
open competition instead of using ICGS. On March 14, 2007, a similar 
decision was made to halt the replacement patrol boat (FRC-B) 
procurement with ICGS and instead to procure the 12 vessels using full 
and open competition.

    Question 3. Several reports from the GAO raised concerns about the 
Coast Guard's oversight of the Deepwater contractors. The IG report 
concludes that the Deepwater contract does not require ICGS or its 
subcontractors to act upon the advice of the Coast Guard technical 
experts. What actions are you taking to improve the oversight of the 
Deepwater contractor?
    Answer. The Coast Guard has made the following changes in order to 
improve Deepwater program management:

   Move Deepwater acquisition staff and resources to the 
        Acquisition Directorate to increase efficiency and improve 
        processes.

   Designate the Assistant Commandant for Engineering and 
        Logistics Resources (CG-4) as the Coast Guard's technical 
        authority for all new ship acquisition designs.

   Add staff on the government side to the Deepwater Program to 
        perform greater contractor oversight and assume some of the 
        system integrator duties.

   Initiate a business case analysis for new acquisition 
        decisions to ensure we are building and buying the right tools 
        for our Coast Guard men and women and obtaining the best value.

   Increase application of independent third-party review and 
        analyses.

    Fundamentally, all ICGS' (and its subcontractors') actions are 
based on contract documents which must be approved by government 
contracting officers. The enhanced role of the technical authority and 
the Coast Guard's ability to affect all industry actions through the 
contracts re-establishes government primacy on design--as demonstrated 
by the Coast Guard-directed National Security Cutter (NSC) structural 
enhancements and stop work of the original Fast Response Cutter (FRC).

    Question 4. The Defense Acquisition University contends that 
reorganization is necessary but is not enough. What are your thoughts 
about moving away from the current structure of the Deepwater contract 
toward a more traditional full and open competition model?
    Answer. The Coast Guard will use the traditional full and open 
competition model to procure Integrated Deepwater System assets when it 
makes sense to do so. This occurred very recently when the Coast Guard 
decided that the Fast Response Cutter ``FRC-B'' solution proposed by 
Integrated Coast Guard Systems was not the best value. The decision to 
use traditional full and open competition for the FRC-B was based on 
the Coast Guard's ongoing commitment to achieve the best value for 
taxpayers and the government.

    Question 5. Does the Coast Guard need a systems integrator to 
recapitalize its fleet of legacy cutters and aircraft?
    Answer. The goal of the Deepwater Program is not to simply 
recapitalize assets, but to create a Coast Guard system of surface and 
air assets with an integrated C\4\ISR and logistics capability. At the 
time the Deepwater Program was conceived, systems integrator expertise 
was not an inherent core competency in the Coast Guard and it was 
determined that it would be most cost effective to acquire that 
expertise from industry. However, using lessons learned (and to improve 
management oversight of the contractor), beginning in the Fall of 2004 
the Coast Guard took steps to reduce its reliance on Integrated Coast 
Guard Systems (ICGS). Currently, in parallel with the ongoing Office of 
Acquisition and Deepwater Program consolidation initiative, the Coast 
Guard will support systems integrator functions with existing resources 
allocated to various organizational components and augmented as needed 
with independent (third-party) contractors and other government 
entities in order to achieve the required competencies and 
capabilities. Continued support for the System Engineering and 
Integration (SE&I) budget request in the FY 2008 President's budget 
remains essential to the success of these efforts and initiatives.

    Question 6. According to the IG report, the Coast Guard did not 
conduct a formal business case analysis before deciding to move forward 
on the NSC, and there was very little background or documentation to 
support the Coast Guard's reasons for moving forward. The Deepwater 
contract is judged on cost, schedule, and performance. But it appears 
that at least in the case of the National Security Cutter, the Coast 
Guard sacrificed performance, and possibly cost, to stay on schedule. 
When future design or systems issues arise, how will your proposed 
organizational changes resolve the inevitable conflict between meeting 
cost, schedule, and performance?
    Answer. The proposed acquisition organizational change will provide 
Coast Guard's operational, project, and functional chain of command 
with accurate and timely data and information needed to resolve cost, 
schedule, and performance conflicts. Future business case analyses, 
with third-party review, will develop proposed solutions, within the 
triple constraints of cost, schedule, and performance that best align 
with the Department of Homeland Security and Coast Guard priorities and 
fit tactical and strategic needs.
    The following initiatives will directly benefit the Coast Guard's 
ability to address cost, schedule, and performance conflicts:

   Designating the Assistant Commandant for Engineering and 
        Logistics Resources (CG-4) as the Coast Guard's technical 
        authority for all new ship acquisition designs.

   Adding government staff to the Deepwater Program to perform 
        greater contractor oversight and assume some of the system 
        integrator duties.

   Initiating business case analyses for new acquisition 
        decisions to ensure the Coast Guard is building and buying the 
        right tools for the best price.

    Question 7. The lack of Coast Guard acquisition personnel and 
experience has been a recurrent theme in Deepwater oversight issues. 
What is the Coast Guard doing to fill the staffing vacancies and 
bolster experience?
    Answer. The Coast Guard is committed to maximizing use of available 
civilian recruitment and retention incentives, including Direct Hire 
Authority for selected civilian series, full utilization of the 
Superior Qualification policy, career entry-level opportunity 
positions, and enhanced use of other available hiring incentives to 
ensure a reduction in existing staff vacancies.
    The Coast Guard has aggressively sought the assistance from experts 
in the field of acquisition to help address the issue of inexperienced 
personnel. The recent Defense Acquisition University (DAU) Deepwater 
Quick Look Study recommended changes in the Coast Guard's acquisition 
workforce management. Specifically, the study recommended a combination 
of human capital initiatives including recruitment of personnel with 
significant major systems acquisition experience and appropriate 
certification levels, training and mentoring of existing personnel, and 
establishment of policies and procedures that places acquisition 
excellence and development of business competencies at a level 
equivalent to the value the Coast Guard places on operational 
excellence and experience. As a result of this study, and other lessons 
learned following project execution, the Coast Guard developed the 
Blueprint for Acquisition Reform. As part of this blueprint, the Coast 
Guard will institute innovative approaches to indoctrinate and train 
the acquisition workforce. Training components will include mandatory 
entry-level training, tailored CG training, professional development 
seminars, mentorship programs, and recertification and training 
opportunities through DAU and the Federal Acquisition Institute. This 
approach will help to ensure professional growth and opportunities for 
acquisition certifications at all levels of the organization. In 
addition, the Coast Guard will ensure alignment of newly developed 
position descriptions with roles and responsibilities for new hires 
under the consolidated Deepwater/Acquisition (CG-9) organization to 
facilitate the selection process for hiring qualified acquisition 
personnel in contracting, program management, and other acquisition 
professions.

    Question 8. What can Congress do to help in this effort?
    Answer. The Coast Guard greatly appreciates Congressional support 
for the President's FY 2008 budget request.

    Question 9. How will the transfer of acquisitions personnel to the 
OE appropriations as requested in the Coast Guard FY08 budget assist in 
these efforts?
    Answer. The transfer of acquisition personnel to the OE 
appropriation will provide a broader pool of workforce available to 
assist in meeting acquisition deliverables. This will ensure 
operational assets are available in a timely manner to meet critical 
mission requirements. This transfer will also allow the Coast Guard 
additional flexibility, within the existing FTE caps, to make higher 
level prioritization of personnel resources, placing AC&I priority 
needs alongside OE priority needs.

    Question 10. The IG reports there was considerable concern with the 
difficulties encountered trying to obtain access and information from 
the Coast Guard and ICGS. In its response, the Coast Guard stated that 
the Department is working to promulgate Department-wide guidance on 
dealing with the DHS Office of Inspector General. Has DHS addressed the 
concerns you raised about a Department-wide audit policy?
    Has the Department promulgated a policy regarding internal audits?
    Answer. Yes, DHS is working with the Coast Guard as well as other 
DHS Components to promulgate Department-wide policy on DHS OIG 
relations.
    DHS current management directive addresses with OIG the following 
concerns:

   OIG procedures requiring Component heads to ensure that 
        documents are promptly provided to the OIG and to assist in 
        arranging interviews.

   DHS and Component audit liaisons assist OIG by arranging 
        timely access to documents and officials, while minimizing 
        operational impact.

   DHS employees ``cooperate fully by disclosing complete and 
        accurate information pertaining to matters under investigation 
        or review.''

   States that DHS employees shall ``not conceal information or 
        obstruct audits, inspections, investigations, or other official 
        inquiries.''

    Question 11. In his testimony, Captain Jarvis said that as 
Deepwater assets were being developed, the Coast Guard ignored the 
opinions of some of its own engineers in favor of those from the 
industry-led Integrated Product Teams. Do you agree with his 
assessment? How did the Coast Guard reconcile differences between its 
own experts and industry experts?
    Answer. The Coast Guard did not ignore the concerns of its 
engineering experts prior to awarding the National Security Cutter 
(NSC) 1 Production DTO on June 22, 2004. In fact, throughout the 
preliminary, contract, and detail design phases the Coast Guard 
required ICGS to re-examine many design details that resulted in 
numerous improvements to longitudinal bulkhead, side shell, and 
superstructure, and the 01 level strength deck. The Assistant 
Commandant for Engineering and Logistics Resources (CG-4) identified 
structural concerns regarding strength deck stringer plates, 
superstructure re-entrant design, shell fashion plates, hangar racking 
strength, hole control, 01 knuckle, and reduction gear structure that 
required additional analytical study to understand them and determine 
if design changes were necessary. Having considered the cost, schedule, 
and performance risks, the PEO elected to award the NSC 1 Production 
DTO while pursuing a parallel path of conducting an independent 
assessment of the CG-4 concerns.
    In March 2005, Deepwater Program funds were used for Naval Surface 
Warfare Center--Carderock Division (NSWC-CD) to perform an assessment 
of the NSC's structural design and fatigue-life. The Coast Guard 
maintained close communication with NSWC-CD throughout the study and 
received several progress reports in the form of round table technical 
briefings. It was not until December 2005 that NSWC-CD, in a 
preliminary report, advised the Coast Guard that they had detected a 
fatigue-life problem. NSWC-CD's final report was delivered to the Coast 
Guard in October 2006.
    Based on fatigue-load model updates performed by NSWC-CD, finite 
element models established by NSWC-CD, plus reviews and input from 
structural experts from the CG-4 Engineering and Logistics Center 
(ELC), maximum permissible stress levels for the NSC were developed. 
The Coast Guard and Integrated Coast Guard Systems (ICGS) developed a 
technical solution to structurally enhance NSC's 3-8 prior to 
production award based on those maximum permissible stress levels.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. David Vitter to 
                         Admiral Thad W. Allen
    Question 1. What percentage of the current Deepwater mission is 
covered by the 110, patrol craft? Can you describe the tempo under 
which these boats have been operating and their performance?
    Answer. The stateside 110, WPBs contribute 30 percent of the total 
performed Deepwater patrol hours in 2006. If the Operation Iraqi 
Freedom vessels are also included in total patrol boat hours then the 
110, WPB fleet contributed 38 percent of the total performed patrol 
hours in 2006. However, the percentage of hours performed is not 
equivalent to the percentage of the Deepwater mission. The 110, WPB 
platform is not ideal for execution of all missions. While a capable 
interceptor and pursuit vessel the 110, WPB is limited in 
communications, range, endurance, and small boat launch capability.
    For patrol boats, the Coast Guard defines operational tempo as 
programmed patrol hours. Within the 110, WPB fleet, there are three 
optempo levels: stateside without a designated Maintenance Augmentation 
Team (MAT), stateside with a designated MAT, and those that operate in 
support of Operation Iraqi Freedom. Programmed optempo ceilings/targets 
for these vessels are:

   Stateside without dedicated MAT support--1,800 hours/year

   Stateside with dedicated MAT support--2,200 hours/year

   In support of Iraqi Freedom--no programmed hour 
        ceiling*
---------------------------------------------------------------------------
    \*\Note: 110, WPBs operating in support of Iraqi Freedom average 
3,683 hours annually per hull.

    The percent completion of programmed hours is a good general 
assessment of 110, patrol boat performance. On average in 2006, 
stateside 110, WPBs achieved 91.4 percent of their combined 69,300 
---------------------------------------------------------------------------
programmed hours.

    Question 2. I mentioned this issue at the hearing, but you said 
that you needed to reply for the record. Were you or other senior 
leadership of the Coast Guard made aware of a proposal from years ago 
to provide a new hull, instead of only partially repairs to the hull, 
for the 110, to 123, conversion for $1 million more per copy?
    Answer. The Coast Guard was aware of one informal presentation by 
Bollinger Shipyard, Inc. (BSI) to Vice Admiral Peterman (then RADM 
Peterman, Seventh Coast Guard District Commander) in August 2004. 
Additionally, Integrated Coast Guard Systems (ICGS) made an informal 
presentation to the then-Commandant (ADM Collins) in September 2004. 
Both of these informal presentations involved completely replacing the 
metal hull of the 123, instead of only replacing a portion of the hull. 
The Coast Guard did a preliminary review based on the very limited 
information presented, but was hindered by a lack of information on the 
engineering approach, including no written cost information (only 
verbal estimates were provided).
    Based on that situation, the Coast Guard verbally responded that 
the risk of so many unknowns did not allow the Coast Guard to make any 
decision on the value of this approach. BSI and ICGS were advised that 
if this approach truly had merit, then an ``Unsolicited Proposal'' in 
accordance with the Federal Acquisition Regulations should be sent to 
the Coast Guard. Neither firm submitted an ``Unsolicited Proposal.''

    Question 3. What factors caused the Coast Guard to not accept this 
proposal?
    Answer. The Coast Guard did a preliminary review based on the very 
limited information presented. The preliminary review was hindered by a 
lack of information on the engineering approach, including no written 
cost information (only verbal cost estimates were provided).
    Based on that situation, the Coast Guard verbally responded that 
the risk of so many unknowns did not allow the Coast Guard to make any 
decision on the value of this approach. Bollinger Shipyards, Inc. and 
Integrated Coast Guard Systems were advised that if this approach truly 
had merit, then an ``Unsolicited Proposal'' in accordance with the 
Federal Acquisition Regulations should be sent to the Coast Guard. 
Neither firm submitted an ``Unsolicited Proposal.''
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                           Richard L. Skinner
    Question 1. Do the findings of the Defense Acquisition University 
confirm the findings of your various studies that there are some 
recurring, programmatic problems with Deepwater that are bigger than 
problems with specific assets?
    Answer. Yes

    Question 2. Can you explain why your office concluded that the NSC 
was required to meet a performance standard of 230 days underway, and 
why there seems to be so much disagreement about this finding?
    Answer. Interviews with Coast Guard contracting personnel and 
subject matter experts and independent contractors (i.e., Silski, 
Scott, and the U.S. Navy's Surface Warfare Center--Carderock) all told 
us that the understanding of everyone involved was the 230 day underway 
at sea versus the Days Away From Home Port (DAFHP) standard as is now 
claimed by the Coast Guard. It should be noted that our interviews were 
conducted with CG personnel that were involved with the drafting of the 
original performance standard. It should also be noted that the DAFHP 
standard is a crew management standard--not a cutter performance 
standard. The Coast Guard has yet to provide documentary evidence to 
support their DAFHP contention. The Coast Guard, in amending the 
Deepwater contract to reflect the lower 185 days underway standard, 
gave away an important and valuable capability that will negatively 
affect the operational capability of the NSC and the OPC.

    Question 3. Isn't it more than just a little troubling that the 
Coast Guard is reinterpreting the contract's requirements? What are the 
implications of this?
    Answer. Defining the standard to what an asset can do rather than 
what the Coast Guard needs the asset to do is a disturbing trend within 
the Deepwater Program, which needs to end.

    Question 4. The NSC report has virtually no information about ICGS. 
Why is that?
    Answer. Our NSC report documented the difficulty we had obtaining 
access to contractor personnel and information. It was because of this 
problem that we recommended the Coast Guard amend the Deepwater 
contract to allow the OIG unfettered access to all contract personnel, 
documents, and information associated with the Deepwater contract.

    Question 5. Mr. Skinner, the report from your office describes 
significant problems with access to Coast Guard documents and personnel 
during the investigation. I understand from staff discussions with your 
office that the problems arose when your staff sought to talk to the 
Coast Guard's Engineering and Logistics Center--the Coast Guards own 
expert engineers. Is this the case?
    Answer. That is correct. In fact, these access issues caused the 
NSC to shut down its audit for a period of 5 weeks while we negotiated 
an agreement to have unfettered access to ELC personnel. Since then, we 
have made a concerted effort to convince the Coast Guard and the 
Department to enforce the IG Act of 1978 and DHS MD 0810.1 which 
clearly provide the OIG with the authority to have unfettered access to 
Department personnel including those employed or contracted by the 
Coast Guard. I would also point out that similar access issues have 
been encountered with TSA, CBP, and ICE. Once again, it was because of 
these types of access issues that we recommended the Department require 
all contracts within the Department to include a clause which clearly 
allows the OIG unfettered access to all DHS contract personnel, 
documents, and information, including the Deepwater contract.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                           Richard L. Skinner
    Question 1. Mr. Skinner, in conducting the audits on the National 
Security Cutter, the C\4\ISR systems, and the 110-foot conversion 
project, what were some of the more systemic, broad problems that you 
found with the Deepwater program and its management?
    Answer. Some of the systemic problems identified with the Deepwater 
contract include:

   Coast Guard's failure to exercise an appropriate level of 
        technical oversight over the Deepwater contract.

   Coast Guard's willingness to amend asset performance 
        requirements to meet asset capabilities rather than Coast Guard 
        mission needs.

   Coast Guard's failure to develop and document the business 
        case underlying key Deepwater decisions including the decision 
        to go ahead with NSC production against the written advice of 
        the Coast Guard's subject matter experts.

   NSC and 123, Performance requirements that were ill-defined.

   Contractor willingness to install equipment and systems that 
        do not meet minimum contract requirements.

   Coast Guard's willingness to issue waivers for critical 
        equipment and C\4\ISR system installations (i.e., installation 
        of low smoke cables and the installation of topside navigation 
        and communications equipment) with the knowledge that the 
        equipment/systems did not meet minimum contract performance 
        requirements.

   Self-certification instead of using an independent third 
        party.

   Although Coast Guard officials are involved in high-level 
        Deepwater IT requirements definition processes, they have 
        limited influence over contractor decisions toward meeting 
        these requirements.

   A lack of discipline in IT requirements change management 
        processes provides little assurance that the requirements 
        remain up-to-date or effective in meeting program goals.

   Certification and accreditation of Deepwater C\4\ISR 
        equipment has been difficult to achieve.

   Due to limited oversight as well as unclear contract 
        requirements, the agency cannot ensure that the contractor is 
        making the best decisions toward accomplishing Deepwater IT 
        goals.

   Insufficient C\4\ISR funding has restricted accomplishing 
        the ``system-of-systems'' objectives that are considered 
        fundamental to Deepwater asset interoperability.

    Question 2. What are some of the top action items that the Coast 
Guard should be taking to ensure that this program gets back on track?
    Answer. There are a number actions being contemplated and 
implemented which should greatly improve the Coast Guard's management 
of the Deepwater Program. They include:

   Implementing each of the recommendations contained in the 
        DAU Study;

   Reassert technical oversight and control over the Deepwater 
        contract;

   Accelerate the hiring of trained and certified civilian 
        acquisition specialists;

   Ensure unfettered OIG access to contractor personnel, 
        documents, and information;

   Postpone construction of NSCs 3-8 until a mitigation plan to 
        address all NSC structural deficiencies is fully developed and 
        independently evaluated; and

   Postpone construction of the FRC until after a design has 
        been independently evaluated by an independent third party.

    Question 3. Are there any recommendations in your reports that 
would require legislation?
    Answer. Not at this time.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. John F. Kerry to 
                           Richard L. Skinner
    Question 1. Over the past 2 months, The New York Times and The 
Washington Post have run scathing articles detailing the mismanagement 
of the Deepwater contract. The Times quoted a Coast Guard engineer, 
Anthony D'Armiento, as saying: ``This is the fleecing of America. It is 
the worst contract arrangement I've seen in my 20 plus years in naval 
engineering.'' I believe the Coast Guard should drop its contractors, 
solicit new contractors through an open and competitive bidding 
process, and assert firm control over every important managerial 
decision. Do you agree?
    Answer. That is one alternative. However, we believe the Coast 
Guard can salvage the program if they move quickly to gain control over 
the existing contract.

    Question 2. If not, what is the alternative?
    Answer. The Coast Guard is in the process of initiating a major 
reorganization of its Acquisition Directorate and Deepwater Acquisition 
Program. As far as the reorganization of the Deepwater Program is 
concerned, the Coast Guard has stated that it is committed to:

   implementing each of the recommendations contained in the 
        DAU Study;

   asserting technical oversight and control over the Deepwater 
        contract;

   improving management accountability by requiring the 
        development of business case analyses in support of key 
        Deepwater acquisition decisions;

   removing the H.60 clause which allows ICGS to be reimbursed 
        for the expenses associated with contract delays;

   amending the Deepwater contract to include off ramps, 
        improve competition, and eliminate self-certification by 
        contractors;

   accelerating the hiring of trained, experienced, and 
        certified civilian acquisition specialists;

   ensuring unfettered OIG access to contractor personnel, 
        documents, and information;

   developing a plan to eliminate the structural design issues 
        with NSCs 1-2;

   postponing construction of NSCs 3-8 until a mitigation plan 
        to address all NSC structural deficiencies is fully-developed, 
        independently evaluated, and funded; and

   postponing construction of the FRC until after a design has 
        been evaluated by an independent third party.

    If fully-implemented, the aforementioned changes should 
significantly improve managerial accountability and control, reduce 
acquisition costs through increased competition, and enhance the safety 
and mission capability of Deepwater mission assets.

    Question 3. Do you believe that Lockheed and Northrop made 
management and purchasing decisions that increased their bottom line at 
the expense of efficiency and concern for the taxpayer?
    Answer. I do not know.

    Question 4. Do you believe that the delays and management problems 
with Deepwater have compromised national security?
    Answer. Yes, in the sense that the design problems with the 110,-
123, Modernization project, the suspension of the FRC design effort; 
and the structural design and safety issues associated with the NSC 
have delayed the deployment of Deepwater assets that are critical to 
maritime security. It has also cost taxpayers hundreds of millions of 
dollars that could have been better spent on additional aircraft and 
cutters to further improve the Coast Guard's ability to perform its 
Deepwater and Ports and Waterways Coastal Security missions.

    Question 5. Does the Deepwater contract allow the government to 
recoup funds stemming from design flaws for the cutters and patrol 
boats that will have to be fixed? Who pays for that?
    Answer. The Department is looking into this very issue. The initial 
indications are that the Coast Guard (and American taxpayers) will end 
up footing the bill for the 123, FRC and NSC design fiascos.

    Question 6. Mr. Skinner, Mr. Caldwell--both your offices have 
issued various reports on Deepwater and made recommendations to improve 
the program. The GAO made 11 recommendations to the Coast Guard in 2004 
ranging from implementing a plan to increase acquisition staff and 
oversight to establishing criteria to justify design and engineering 
changes. Some of these have been implemented, some haven't.
    These recommendations are good. But at the same time, aren't they 
just tiptoeing around the fact the contract structure is fundamentally 
flawed?
    Answer. The contract that was signed was flawed, however, Coast 
Guard has recently identified steps to gain control over the contract.

    Question 7. Would you agree that, 9/11 notwithstanding that the 
main reason for the delays and cost overruns with Deepwater stem from 
the unusual contracting arrangement that empowered the contractors to 
take matters into their own hands as well as the Coast Guard's 
inability to assert control over the program?
    Answer. Yes.

    Question 8. Do you believe costs could be contained and that 
Deepwater could be completed earlier than expected if the Coast Guard 
decided against extending Lockheed's contract and instead found new 
contractors through a competitive bidding process under improved Coast 
Guard oversight?
    Answer. I cannot say.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Trent Lott to 
                           Richard L. Skinner
    Question. Please describe the ship design and construction 
expertise of your staff and any outside experts you used to analyze the 
National Security Cutter.
    Answer. As I testified before the Committee in the hearing held on 
February 14, 2007, the OIG's report on the acquisition of the National 
Security Cutter relied entirely upon the analyses of subject matter 
experts with over 300 years of experience as structural naval 
architects and professional engineers. Further, these individuals are 
internationally renowned as leaders in their field with numerous 
publications and ship design and construction industry honors to their 
credit.
    For example, the Coast Guard's subject matter experts assigned to 
the Coast Guard's Engineering Logistics Command (ELC) who initially 
identified the structural design issues associated with the NSC (Rear 
Admiral E. Brown, Captain K. Jarvis, R. Sheinberg, C. Cleary, K. 
Brower, Dr. A.L. Tunik, and P. Hirsimaki have collectively, more than 
252 years of ship design and construction experience. When you add the 
experience of Robert Sielski, Robert Scott, and Dr. David Kihl and his 
staff at Carderock, the experience level is even higher. All of these 
individuals are of international renown in their respective fields. 
Consequently, it should not be a surprise that their conclusions were 
similar in substance to those reported by the ELC back in March 2004. 
Subject matter experts include:
    Rear Admiral Erroll Brown (USCG Retired)--33 years experience--Rear 
Adm. Brown graduated from the U.S. Coast Guard Academy in 1972. He 
majored in Marine Engineering and has a Masters degree in Naval 
Architecture and Marine Engineering, with a second Masters in 
Industrial and Operations Engineering from the University of Michigan.
    Admiral Brown was awarded a Masters of Business Administration 
degree from Rensselaer Polytechnic Institute in 1986 and graduated the 
Naval War College with a Masters degree in National Security and 
Strategic Studies in 1994. He also completed Harvard's John F. Kennedy 
School of Governmental Programs for Senior Executives in National and 
International Security.
    His awards include the Legion of Merit, Meritorious Service Medal 
(2 awards), Secretary's Award for Meritorious Achievement, and the U.S. 
Coast Guard Commendation Medal (2 awards).
    Final assignment: Assistant Commandant for Systems (G-S).
    Captain Kevin Jarvis--29 years of Coast Guard experience in naval 
architecture and marine engineering. Predominance of service was in 
naval engineering and logistic-related assignments 1993 DOT-USCG 
Federal Engineer of the Year award. Served on 3 cutters as engineering 
officer and chief engineer. Other professional qualifications include:

   Graduate, USCG Academy--BSE in Electrical Engineering.

   Two MS degrees from University of Michigan; one in Naval 
        Architecture and Marine Engineering and one in Mechanical 
        Engineering.

   MA in National Security and Strategic Studies from the Naval 
        War College.

   MS in Quality Systems Management with an emphasis in Six 
        Sigma from the National Graduate.

    Final assignment: Commanding Officer, U.S. Coast Guard, Engineering 
Logistics Command.
    Rubin Sheinber--40 years of experience in naval architecture/
engineering. Other professional qualifications include:

   Graduate, University of Dansk, Poland--B.S. and M.S. in 
        Naval Engineering.

   Eleven years working for a European shipyard that produced 
        30 ships a year.

   Chief Naval Architect for 8 years for Halliburton 
        Corporation where he directly supervised 400 personnel assigned 
        to several European shipyards.

   From 1987 to 2007, ship design and construction for the U.S. 
        Coast Guard. During the course of the NSC audit, he was the 
        Coast Guard's Chief Naval Architect at their Curtis Bay Coast 
        Guard facility located outside of Baltimore, MD.

    Mr. Sheinberg is currently assigned as Chief of Naval Architecture, 
U.S. Coast Guard, Engineering Logistics Command.
    Dr. Alfred Tunik--45 years of experience as a naval architect. He 
is a graduate in Naval Architecture from the Leningrad Shipbuilding 
Institute, working for 20 years at research institutes in Russia, 
including the Arctic and Antarctic Research Institute. After 
immigrating to the United States, he worked for 18 years at the 
American Bureau of Shipping, where he developed rules for ice-
strengthened ships. In 1999, he began work as an independent 
consultant. Dr. Tunik helped to develop the first Russian Register 
rules for Arctic Ships. He is currently involved in developing the 
first international rules for polar ships. He has participated in 
several Arctic ship trials, and has published more than 30 works in 
English on Arctic engineering and ice mechanics. Dr. Tunik is currently 
with the U.S. Coast Guard.
    Chris Cleary--24 years of experience as a General Naval Architect. 
He serves as the Deepwater Program contact within the Engineering 
Logistics Command, and was the representative on the National Security 
Cutter's Integrated Product Team. Other professional qualifications 
include:

   Graduated from the Stevens Institute of Technology, B.S. in 
        Naval Engineering, 1983.

   Began working with the Coast Guard Design Branch in 1983, 
        transitioning to the Engineering Logistics Command in 1996.

   Chairman of a NATO specialist team on small ship design.

   Previous work included: HEALEY, WLB 225, Great Lakes Ice 
        Breaker, and Deepwater.

   Mr. Cleary currently spends approximately 60-70 percent of 
        his work on new acquisitions.

    Kenneth Brower--45 years of experience as a naval architect. Mr. 
Brower played an important role in other ships built for the Navy as a 
Chief Naval Architect. Other professional qualifications include:

   Consultant to Bath Iron Works where he worked on the DD(X) 
        project. Three years at George Sharp Co., head of the 
        structural design group. Projects included: CGN-38 Class and 
        Staten Island Ferry.

   John J. McMullen & Associates for 3 years as project 
        engineer on the U.S. Navy's Ticonderoga class cruiser 
        (designer).

   Between 1976 and 1978 worked for design consulting firm, 
        Santa Fe Corp.

   Between 1978 and 2001 operated his own naval architectural 
        firm that specialized in comparative naval architecture. Mr. 
        Brower has studied and published extensively on ship design 
        issues. Also worked as a consultant to Northrop Grumman Ship 
        Systems during the early stages of the Deepwater program and 
        also consulted on the design of U.S. Coast Guard icebreakers 
        and buoy tenders.

   Served as consultant to Rosenblatt & Son (a company that 
        performed much of early design work on Deepwater surface assets 
        including the NSC, OPC, and FRC.

   Since January 2002, Mr. Brower as been with the U.S. Coast 
        Guard, Engineering Logistics Center.

    Paul Hirsimaki--36 years of naval architect and marine engineering 
experience. Other professional qualifications include:

   Graduate, Massachusetts Institute for Technology, B.S. Naval 
        Architecture (1970).

   Naval architect with NAVSEA from 1970-1978, with a prominent 
        role in several U.S. Navy ship construction projects including 
        the DD993 and the LSD41 design.

   Structural engineer for the U.S. Coast Guard, Engineering 
        Logistics Command from 1979-2007, performing structural, 
        stability and weight analyses for a variety of cutters 
        constructed for and operated by the Coast Guard.

    Mr. Hirsimaki is currently a civilian employee with the U.S. Coast 
Guard Engineering Logistic Center (since 1978).
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                           Richard L. Skinner
    Question 1. The DHS Office of Inspector General is currently 
putting the final touches on a report regarding the Fast Response 
Cutter (DHS OIG-07-23). In the course of that investigation, did you 
find any indications that the Coast Guard is making progress with its 
oversight responsibilities?
    Answer. Our Office has identified a number of systemic problems 
with the Deepwater Program, and has made numerous recommendations, 
that, if implemented, will greatly improve oversight of the program. 
Thus far, our Office has issued the following three reports associated 
with the acquisition of Deepwater assets/systems:

        Improvements Needed in the U.S. Coast Guard's Acquisition and 
        Implementation of Deepwater Information Technology Systems 
        (OIG-06-55)

        Acquisition of the National Security Cutter, United States 
        Coast Guard (OIG-07-27)

        110,/123, Maritime Patrol Boat Modernization Project, United 
        States Coast Guard (OIG-07-23).

    These reports identified a number of systemic problems with the 
Deepwater Program contract, including, Coast Guard's:

   failure to exercise an appropriate level of technical 
        oversight over the Deepwater contract;

   willingness to amend asset performance requirements to meet 
        asset capabilities rather than Coast Guard mission needs;

   failure to develop and document the business case underlying 
        key Deepwater decisions including the decision to go ahead with 
        NSC production against the written advice of the Coast Guard's 
        subject matter experts;

   willingness to issue waivers for critical equipment and 
        C\4\ISR system installations (i.e., installation of low smoke 
        cables and the installation of topside navigation and 
        communications equipment on the 123-foot patrol boat) with the 
        knowledge that the equipment/systems did not meet minimum 
        contract performance requirements; and

   ill-defined performance requirements for the National 
        Security Cutter and the 110,/123, patrol boat modernization 
        project;

    And,

   contractor willingness to install equipment and systems that 
        do not meet minimum contract requirements; and

   self-certification performed, not by an independent third 
        party, but by the Deepwater contractor or sub-contractor.

    These issues were prominent topics of discussion between my staff 
and the Coast Guard over the course of these three audits. However, it 
was not until after the most recent reports on the National Security 
Cutter and the 123-foot Patrol Boat were issued did the Coast Guard 
begin to acknowledge the magnitude of the managerial and technical 
oversight issues impacting their Acquisitions Directorate in general, 
and the Deepwater Program in particular.
    The recently issued Blueprint for Acquisition Reform in the Coast 
Guard (Blueprint) is an honest attempt by the Coast Guard to review 
lessons learned from past acquisitions and evaluate input from the 
Defense Acquisition University (and other independent sources) to 
identify specific issues that have impeded the efficient execution of 
past acquisition projects. The Blueprint contains a number of 
initiatives, which, if fully implanted, should improve the efficiency, 
effectiveness, and economy of future Coast Guard acquisitions. While 
the Blueprint includes a number of initiatives, few if any have been 
implemented. Consequently, it remains to be seen exactly how effective 
it will be.
    OIG strongly recommends the Coast Guard implement the following 
corrective actions as they consider any reorganization of Deepwater 
acquisitions, including:

   implementing each of the recommendations contained in a 
        recent Defense Acquisition University study;

   asserting technical oversight and control over the Deepwater 
        contract;

   improving management accountability by requiring the 
        development of business case analyses in support of key 
        Deepwater acquisition decisions;

   removing the H.60 clause which allows ICGS to be reimbursed 
        for the expenses associated with contract delays;

   amending the Deepwater contract to include off ramps, 
        improve competition, and eliminate self-certification by 
        contractors;

   accelerating the hiring of trained, experienced, and 
        certified civilian acquisition specialists;

   ensuring unfettered OIG access to Coast Guard and contractor 
        and subcontractor personnel, documents, and information;

   developing a plan to eliminate the structural design issues 
        with NSC's 1-2;

   postponing construction of NSC's 3-8 until a mitigation plan 
        to address all NSC structural deficiencies is fully-developed, 
        independently evaluated, and funded;

   ensuring the fatigue-life of the NSC and OPC meet the 230 
        days underway (in the General Atlantic and North Pacific 
        regions) standard as stated in the original Deepwater contract; 
        and

   postponing construction of the Fast Response Cutter until 
        after the design has been evaluated by an independent third 
        party (i.e., the U.S. Navy's Surface Warfare Center--Carderock 
        Division).

    If these corrective actions are fully implemented, these changes 
would:

   improve managerial and contractor accountability;

   reassert Coast Guard dominance over the development and 
        implementation of Deepwater technical requirements;

   reduce Deepwater acquisition costs through increased 
        competition;

   increase the level of transparency surrounding key Deepwater 
        decisions; and

   enhance the safety and mission capability of Deepwater 
        mission assets.

    Question 2. The DHS OIG Report on the Acquisition of the National 
Security Cutter states the Coast Guard allowed the Contractor to self-
certify compliance with the standards. In the footnotes of the report 
(page 14), the Deepwater Surface Statement of Objectives state, ``. . . 
performance specification and cutter specific certification matrix are 
certified either by self-certification or by an independent agent, 
except that the contractor shall use American Bureau of Shipping (ABS) 
to certify compliance with ABS standards.'' What are the practical 
differences and implications between ABS certification and ``self-
certification'' with ABS certifying compliance with ABS standards?
    Answer. The practical difference between certifications performed 
by the American Bureau of Shipping (ABS) and ``self-certifications'' 
performed by ICGS is that certifications performed by ABS represent an 
independent evaluation of the contractor's compliance with the design 
and construction standards identified in the Deepwater contract. 
According to the Deepwater contract, ``The role of the certification 
agent is to serve as an independent agent who verifies that the 
contractor has demonstrated compliance with the applicable standards.''
    Background--In June 1999, the Coast Guard and the ABS signed a 
Memorandum of Agreement (MOA) to jointly develop a Cutter Certification 
Plan that included 1,175 individual standards intended to govern the 
design, construction, and certification of all cutters acquired under 
the Deepwater Program. These standards were identified to ensure that 
the bidding industry teams' proposed cutter designs would result in 
vessels that met the Coast Guard's unique safety and operational 
requirements. The ABS is one of ten organizations that belongs to the 
International Association of Classification Societies whose 
responsibilities include the establishment and application of technical 
standards related to the design, construction of ships and offshore 
structures. The standards developed by the classification societies are 
intended to contribute to the structural strength and integrity of 
essential parts of the ships hull and its appendages. As an 
independent, self-regulating body, ABS has no commercial interest 
related to ship design, ship building, or ship operations and therefore 
does not suffer impairments that would prevent it from serving as an 
independent certification agent on behalf of the Coast Guard.
    The joint ABS/Coast Guard Cutter Certification Plan further 
specified a certifying agent for each design standard to ensure that 
all cutters would be objectively evaluated for compliance. The MOA 
between ABS and Coast Guard stipulated that ABS would be the designated 
certification agent for any ``ABS standards'', i.e., modified ABS Rules 
applicable to the hull, mechanical, and electrical areas of Coast Guard 
vessels, that were identified in the Cutter Certification Plan. 
However, when it issued its Deepwater Request for Proposal, the Coast 
Guard allowed the bidding industry teams to select alternatives to 
approximately 85 percent of the 1,175 joint Coast Guard/ABS design and 
construction standards, and it further permitted industry to select the 
certifying entity for any non-ABS design standards that were selected 
as alternatives to the originals. In submitting its Deepwater proposal, 
ICGS elected to self-certify its compliance with all of the 
alternatives it was permitted to select for any non-ABS design 
standards.
    Implications--The Coast Guard's decision to allow the Deepwater 
contract bidders to deviate from joint ABS/Coast Guard Cutter 
Certification Plan without Coast Guard approval gave the selected 
systems integrator, ultimately ICGS, wide latitude in developing the 
designs for all cutters to be acquired under Deepwater, including the 
National Security Cutter, and the Fast Response Cutters. The decision 
also increased the risk that bidders could select potentially ill-
defined or inappropriate cutter design criteria that could be 
inconsistent with the original intent of the MOA. Further, by allowing 
the systems integrator the authority to self-certify its compliance 
with most design standards, the Coast Guard eliminated a key oversight 
tool for ensuring that cutter designs developed under the Deepwater 
contract met both contractual and Deepwater mission performance 
requirements. For example, our review, ``110,/123, Maritime Patrol Boat 
Modernization Project'' (OIG-07-23), highlighted the flaws associated 
with the concept of contractor self-certification with design 
standards. In two instances, ICGS certified compliance with the design 
standards when in fact the actual construction of the 123, patrol boat 
was not compliant with the standards identified in the certification 
plan.
    In our report, ``Acquisition of the National Security Cutter'' (DHS 
OIG-07-23), we discussed the inability of OIG auditors to obtain 
unfettered access to Coast Guard and contractor personnel, documents, 
and information. This was an unprecedented situation that was contrary 
to Federal statute and Department directive. In its response to the NSC 
report, the Coast Guard stated that the Department is working to 
promulgate Department-wide guidance on dealing with the DHS Office of 
Inspector General. We look forward to resolving this issue in the near 
future.

    Question 3. In the DHS OIG Report on the Acquisition of the 
National Security Cutter (DHS OIG-07-23), the OIG reports considerable 
concern with the difficulties encountered trying to obtain access and 
information from the Coast Guard and ICGS. In its response, the Coast 
Guard stated that the Department is working to promulgate Department-
wide guidance on dealing with the DHS Office of Inspector General. What 
is the status on the DHS OIG memo to the Secretary outlining 
Department-wide policy concerning agency cooperation with the DHS IG?
    Answer. As discussed in our report, we provided a one-page 
memorandum for the Secretary's signature identifying our authorities, 
and a four-page document providing Frequently Asked Questions regarding 
interactions with our auditors and inspectors, to be issued to all 
Department of Homeland Security personnel. We are aware of no activity 
by the department with respect to either document as of the date of the 
hearing.

    Question 3a. Has the DHS OIG faced similar problems with Coast 
Guard cooperation in previous or currently ongoing audits?
    Answer. Yes. During the OIG's review of the Coast Guard's 
Helicopter Interdiction Squadron Lease and the HH-65 Re-engining 
Project. The HITRON audit was not completed due to competing priorities 
within the OIG, Office of Audits, and the delays resulting from the 
inability of staff to obtain timely and unfettered access to Coast 
Guard and contractor personnel, documents, and information. As a 
result, events overtook the audit as problems with the leased 
helicopter (the MH-68) were eventually resolved and the Coast Guard 
moved ahead with its HH-65 Re-engining Project. The Coast Guard intends 
to replace the MH-68 helicopter with tan AUF version of the HH-65C and 
terminate its HITRON lease during January 2008.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. David Vitter to 
                           Richard L. Skinner
    Question 1. You indicated that you received a ``Hotline Complaint'' 
regarding the 110,/123, conversion. Did this complaint include any 
allegations regarding the hull or structure of the vessel?
    Answer. No.

    Question 2. Do you believe that the current ``bridge strategy'' for 
the coastal patrol boats is adequate to fulfill the demands of this 
workhorse?
    Answer. No. The Coast Guard needs to replace its aging and 
deteriorating fleet of Island Class patrol boats as soon as possible. 
The Coast Guard's March 14, 2007, decision to build the Fast Response 
Cutter-B, outside of the Deepwater program is a good first step in 
resolving the Coast Guard's ever-expanding patrol boat gap. The Coast 
Guard could further close the patrol boat capability gap if it would 
agree to built the Fast Response Cutter-B at more than one shipyard. 
Building the cutter at more than one shipyard would:

   expand the competition (and the potential savings) 
        associated with the next round of Fast Response Cutters (FRC) 
        to be built;

   expedite the deployment of the FRC and hasten the end to the 
        patrol boat gap; and

   hasten the retirement (and the expense) of operating and 
        maintaining the Island Class fleet.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                          Stephen L. Caldwell
    Question 1. Do the findings of the Defense Acquisition University 
confirm the findings of your various studies that there are some 
recurring, programmatic problems with Deepwater that are bigger than 
problems with specific assets?
    Answer. Yes, the Defense Acquisition University (DAU) findings are 
similar to and confirm many of the issues we have identified in the 
past. In 2004 and in subsequent assessments in 2005 and 2006, we 
reported concerns about the Deepwater program in three main areas--
improving program management, strengthening contractor accountability, 
and promoting cost control through greater competition among potential 
subcontractors. In its recent study, DAU echoed some of these same 
concerns. For example, the report notes that the Coast Guard has 
insufficient number of acquisitions personnel and insufficient 
experience in major systems acquisition, and lacks a management model 
and processes sufficient for the management and oversight of the 
Deepwater major systems acquisitions. These broader concerns, as well 
as others DAU raised, go beyond the specific problems at the asset 
level.

    Question 2. Your testimony finds that there is an inherent conflict 
of interest in giving private industry so much control over a 
government contract. You state that ``Giving contractors more control 
and influence over the government's acquisition in a systems integrator 
role creates a potential risk that program decisions and products could 
be influenced by the financial interest of the contractor--which is 
accountable to its shareholders--which may not match the primary 
interest of the government, maximizing its return on taxpayer 
dollars.'' Doesn't this risk grow when we are talking about such a 
long-term, open-ended contract as we have here with the Deepwater 
program?
    Answer. The Deepwater contract is an Indefinite Delivery/Indefinite 
Quantity (IDIQ) contract. Generally an IDIQ contract is not the type of 
contract in which the government's risks are open-ended. Under an IDIQ 
contract the government orders supplies or services when needed. The 
government can limit the amount of supplies or services it orders by 
minimizing the number of task or delivery orders it creates. The 
inherent conflict of interest in giving private industry increased 
control over a government contract is one example of a conflict. 
Conflicts of interests may arise in many contexts. Management controls 
and contract clauses may be implemented to minimize the risk of 
conflicts to the government.

    Question 3. GAO was the first entity to warn of risks inherent in 
the Deepwater contract approach. A top concern was the lack of 
competition required. GAO found that the Deepwater contract gives sole 
authority to the industry contractor to determine whether to ``make-or-
buy'' assets, and whether to hold open competition for subcontracts. 
How have these concerns been borne out?
    Answer. We have noted in our past work that the Coast Guard's 
hands-off approach to make-or-buy decisions and its failure to assess 
the extent of competition raised questions about whether the government 
would be able to control Deepwater program costs. While the Coast Guard 
has now taken steps to establish a reporting requirement for the 
systems integrator to provide information on competition on a semi-
annual basis, the Coast Guard is currently planning to procure 
remaining short-range prosecutor vessels outside of the systems 
integrator contract. By doing so, the Coast Guard expects to achieve 
cost savings. We will continue to assess the Coast Guard's efforts to 
hold the systems integrator accountable for ensuring an adequate degree 
of competition.

    Question 4. Given the open-ended nature of this kind of contract, 
where Coast Guard merely defined its needs and ICGS develops assets to 
meet them, isn't a cost-plus arrangement particularly risky?
    Answer. Cost reimbursement orders issued under IDIQ contracts, like 
some of those issued under the Deepwater contract, are designed to be 
used when there are uncertainties in contract performance which do not 
permit costs to be estimated with sufficient accuracy to use any type 
of fixed-price order. In the Coast Guard's case, use of performance-
based, cost reimbursement orders, in which the Coast Guard defines a 
need and asks the contractor to develop an asset that meets its need 
may be an appropriate response. The questions that help identify risk 
to the government include: (1) How well established are the 
government's requirements? and (2) How well has the government managed 
and supervised the contractor's performance?

    Question 5. Last year, GAO brought to our attention problems with 
the design of the Fast Response Cutter. In the course of your audit, 
did you reach a conclusion as to what led the Coast Guard to the 
situation they now find themselves in?
    Answer. We did not reach any conclusions as to the root cause(s) 
for the suspension of FRC design work. As we reported, the Coast Guard 
suspended FRC design work in February 2006 due to high technical risks 
with the emerging design. In particular, an independent design review 
by third-party consultants preliminarily demonstrated, among other 
things, that the FRC would be far heavier and less efficient than a 
typical patrol boat of similar length. We did note that this review 
validated some concerns that had been raised by the Coast Guard's 
Engineering Logistics Center over 1 year prior.

    Question 6. Based on your June 2006 audit of the Fast Response 
Cutter procurement program, how much money has been invested in the 
design and analysis of the composite Fast Response Cutter?
    Answer. As we reported, as of May 2006, the Coast Guard had spent 
approximately $26.7 million on design and test efforts. We have not 
conducted any additional analysis to determine how much has been spent 
on these efforts since that time.

    Question 7. At present, does the Coast Guard or the American people 
have anything to show for that investment?
    Answer. The Coast Guard had planned to accept the first FRC in 
2007; however, the Coast Guard's decision to suspend design work in 
late February 2006 has precluded that from occurring. Since the design 
suspension, the Coast Guard has begun to re-evaluate the use of a 
composite hull material for a newly-designed FRC (FRC-A). The Coast 
Guard has commissioned a business case analysis comparing the use of 
composite versus steel hulls and the Department of Homeland Security's 
Science and Technology Directorate will be conducting tests on 
composite hull technology. In the interim, the Coast Guard is planning 
to acquire a commercial ``off-the-shelf'' patrol boat design that can 
be adapted for Coast Guard use (FRC-B) and is working toward having the 
first FRC-B delivered in 2010. While there is not much tangible to show 
for the money invested in the FRC program to date, we know there have 
been lessons learned and are encouraged by the Commandant's recent 
pledge to: (a) reaffirm the role of the Coast Guard's Chief Engineer as 
the technical authority for all acquisition projects; (b) employ 
independent, third-party design reviews as new assets are developed or 
major modifications are contemplated; and (c) cultivate a more robust 
relationship with Naval Sea and Air Systems Commands to leverage 
outside technical expertise.

    Question 8. In 2004, GAO provided 11 recommendations to the Coast 
Guard for improving its management of the Deepwater project. Don't 
several of the open recommendations involve the problems with the 
Integrated Product Teams--the core mechanism for integrating the Coast 
Guard's experts and programs into the Deepwater process?
    Answer. We believe that effective management of the Deepwater 
program depends heavily on strong collaboration among the Coast Guard, 
the systems integrator, and subcontractors. The Integrated Product 
Teams (IPTs) are the vehicle used to bring these parties together and 
were established as the primary tool for managing the Deepwater 
program. While IPTs are an important element of the Deepwater program, 
only 1 of the 11 recommendations we made in 2004 pertained to the IPTs. 
Specifically, we recommended that the Coast Guard strengthen the IPTs 
by providing them better training, approving charters, and improving 
systems for sharing information between teams. The Coast Guard has 
undertaken some efforts to address these problems and we will continue 
to monitor the Coast Guard's progress at addressing this 
recommendation.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                          Stephen L. Caldwell
    Question 1. Mr. Caldwell, do you agree that eight of the eleven 
recommendations that GAO provided to the Coast Guard back in 2004 for 
improving Deepwater oversight, have been fully implemented, and only 
three remain outstanding?
    Answer. In April 2006, we reported that of the 11 recommendations 
we made in 2004, only 5 had been implemented. The Coast Guard does not 
plan to implement one of the recommendations, pertaining to 
establishing a baseline to determine whether the acquisition approach 
is costing the government more than the traditional asset replacement 
approach. We reported in 2006 that the 5 remaining recommendations had 
been only partially implemented. These are:

   Improve integrated product teams responsible for managing 
        the program by providing better training, approving charters, 
        and improving systems for sharing information between teams.

   Provide field personnel with guidance and training on 
        transitioning to the new Deepwater assets.

   Establish a timeframe for putting steps in place to measure 
        contractor's progress toward improving operational 
        effectiveness.

   Establish criteria to determine when to adjust the project 
        baseline and document the reasons for change.

   Develop a comprehensive plan for holding the systems 
        integrator accountable for ensuring adequate competition among 
        suppliers.

    We are in the process of assessing Coast Guard actions in response 
to our recommendations and expect to report on the results of our 
analysis later this year.

    Question 2. How significant are the three open recommendations to 
Coast Guard management of the Deepwater contract?
    Answer. We believe that each of the 5 open recommendations is 
important to the Coast Guard's ability to manage and oversee the 
Deepwater contract. They fall into three broad areas: effectively 
implementing key components of management and oversight; improving 
contractor accountability; and controlling costs through competition. 
We will continue to assess the Coast Guard's progress in our ongoing 
work.

    Question 3. The Defense Acquisition University report raises a much 
broader set of concerns with respect to the Deepwater contract and 
contracting approach. Do you agree with their findings and 
recommendations?
    Answer. The DAU study found that some of the causes that have 
significantly increased the risk of procuring the Deepwater 
capabilities included insufficient numbers of Coast Guard acquisition 
personnel and lack of a management model and processes sufficient for 
managing and overseeing this acquisition. These broader concerns go 
beyond the specific problems at the asset level. We believe the DAU's 
findings and recommendations will be helpful for the Coast Guard as it 
moves forward with the Deepwater acquisition.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. John F. Kerry to 
                          Stephen L. Caldwell
    Question 1. Over the past 2 months, the New York Times and The 
Washington Post have run scathing articles detailing the mismanagement 
of the Deepwater contract. The Times quoted a Coast Guard engineer, 
Anthony D'Armiento, as saying: ``This is the fleecing of America. It is 
the worst contract arrangement I've seen in my 20 plus years in naval 
engineering.'' I believe the Coast Guard should drop its contractors, 
solicit new contractors through an open and competitive bidding 
process, and assert firm control over every important managerial 
decision. Do you agree?
    Answer. Whether the Coast Guard terminates its contractors and 
makes award to new contractors or brings the work in-house will not 
necessarily produce a successful acquisition result. Proper management 
attention will be needed in any case to obtain a successful acquisition 
result. That being said, competition is a key component for controlling 
costs. The Commandant's recent pledge to reaffirm the role of the Coast 
Guard's Chief Engineer as the technical authority for all acquisition 
projects appears to be designed to assert more government control over 
important management decisions.

    Question 2. If not, what is the alternative?
    Answer. See the response to Question 1 above.

    Question 3. Do you believe that Lockheed and Northrop made 
management and purchasing decisions that increased their bottom line at 
the expense of efficiency and concern for the taxpayer?
    Answer. GAO has not done any work to support this conclusion. What 
our work has indicated is that with proper surveillance and management 
attention, among other factors, contractor efficiency can be increased.

    Question 4. Do you believe that the delays and management problems 
with Deepwater have compromised national security?
    Answer. It is true that problems in fielding effective Deepwater 
assets can have an adverse impact on the Coast Guard's operational 
capabilities. For example, the Coast Guard's decision to remove its 
eight 123-foot patrol boats from service in November 2006 after the 
conversion of these vessels from 110-foot patrol boats failed has added 
to the Coast Guard's critical gap in patrol hours. To the extent that 
these patrol boats served a variety of missions, their removal from 
service means that the Coast Guard faces greater challenges in meeting 
these missions, some of which may involve national security or homeland 
security interests.

    Question 5. Does the Deepwater contract allow the government to 
recoup funds stemming from design flaws for the cutters and patrol 
boats that will have to be fixed? Who pays for that?
    Answer. At this time, we are not aware of any special clause in the 
Deepwater contract that would allow the government to recoup costs for 
design flaws, but we are continuing to review the contract. Government 
contracts generally, and the Deepwater contract specifically, are 
subject to the Contract Disputes Act. Under the Contract Disputes Act, 
disagreements over responsibility for contract performance proceed 
through a disputes process where each party has an opportunity to 
present its claims and arguments for resolution. This process is 
incorporated into the contract through a disputes clause. These clauses 
generally only allow for the recovery of costs once responsibility for 
the subject of the disagreement has been determined. In addition, while 
it does not appear the contract addresses cost recoupment specifically, 
the contract does contain warranty provisions, which if breached, 
permit the government to avail itself of certain remedies. Without 
special provisions that speak to recoupment, the Coast Guard and ICGS 
will have to resolve any such disagreements through the Federal 
Acquisition Regulation disputes clause and process incorporated into 
the contract.

    Question 6. Mr. Skinner, Mr. Caldwell--both your offices have 
issued various reports on Deepwater and made recommendations to improve 
the program. The GAO made 11 recommendations to the Coast Guard in 2004 
ranging from implementing a plan to increase acquisition staff and 
oversight to establishing criteria to justify design and engineering 
changes. Some of these have been implemented, some haven't. These 
recommendations are good. But at the same time, aren't they just 
tiptoeing around the fact the contract structure is fundamentally 
flawed?
    Answer. As GAO work has indicated in the past, contract management 
and execution have a greater impact on the government's risks than the 
contract structure.

    Question 7. Would you agree that, 9/11 notwithstanding that the 
main reason for the delays and cost overruns with Deepwater stem from 
the unusual contracting arrangement that empowered the contractors to 
take matters into their own hands as well as the Coast Guard's 
inability to assert control over the program?
    Answer. Our work has shown that after 9/11, the revisions to 
Deepwater led to increases of $7 billion in the overall estimates 
across Deepwater assets. The total increase--from $17 billion to $24 
billion--was largely due to enhanced homeland security mission 
requirements. Beyond that, GAO has not done any work to specifically 
identify the sources of other cost increases across Deepwater assets, 
or the extent that the type of contracting arrangement led to 
additional costs. In 2004, GAO recommended that the Coast Guard 
establish a baseline for determining whether this acquisition approach 
is costing the government more than the traditional asset replacement 
approach, but the Coast Guard decided not to implement this 
recommendation.

    Question 8. Do you believe costs could be contained and that 
Deepwater could be completed earlier than expected if the Coast Guard 
decided against extending Lockheed's contract and instead found new 
contractors through a competitive bidding process under improved Coast 
Guard oversight?
    Answer. Any new contract awarded for the remaining work will more 
than likely have to allow the new contractor to invoice the government 
for its start-up costs. ICGS may have invoiced similar costs for its 
own effort. In addition, obtaining competitive offers for an effort of 
this size may not reduce the time frames for performance as any 
competition takes time for the government to prepare a solicitation, 
offerors to prepare responses, and the government to evaluate those 
responses. Further, a new contractor may need time to bring its 
resources up-to-speed, which may include hiring new personnel or 
providing new facilities, in order to respond to the government's 
needs. That being said, however, competition is a key component for 
controlling costs, and injecting more competition in the Deepwater 
program could help contain costs.

    Question 9. Mr. Caldwell, how many other major Federal contracts 
that use the Systems Integrator approach are currently in operation?
    Answer. We do not have a precise number of major Federal contracts 
that use a systems integrator approach. This type of business 
arrangement can give the contractor extensive involvement in 
requirements development, design, and source selection of major systems 
and subsystem contractors. For example, GAO has reviewed the Army's 
Future Combat System (FCS), which employs a lead systems integrator to 
assist in defining, developing, and integrating a network of weapons 
and other systems. The Army's decision to employ a lead systems 
integrator for the FCS program was framed by two factors: (1) the 
ambitious goals of the FCS program, and (2) the Army's capacity to 
manage it. A systems integrator has also been employed by the 
Department of Homeland Security to help secure U.S. borders and reduce 
illegal immigration under the Secure Border Initiative (SBI).

    Question 10. Was there a comparable military contract that the 
Coast Guard could have used to compare its approach before it decided 
to empower the contractors with so much authority?
    Answer. We have not done any analyses that would have identified a 
comparable military contract that the Coast Guard could have used to 
compare its approach. In terms of the Coast Guard's decision to use 
this approach, we reported in 2001 that documentation detailing the 
basis for the decision--the depth of the analysis performed, the 
factors considered, the expertise sought (people contacted), and the 
compelling reasons why the approach was chosen--was not recorded prior 
to its approval by Coast Guard acquisition officials. At that time, we 
noted that without thorough documentation, the rigor of the Coast 
Guard's analysis was unknown.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                          Stephen L. Caldwell
    Question 1. As part of the GAO's 2005 review of the Deepwater 
program, GAO proposed 11 recommendations for the Coast Guard to 
implement to improve contractor oversight and ensure greater 
accountability. In your 2006 report, the GAO states that the Coast 
Guard has implemented or partially implemented 10 of the 11 
recommendations. In light of what we now know regarding the National 
Security Cutter, has the Coast Guard made additional progress toward 
fully implementing your recommendations?
    Answer. Since our 2004 report, the Coast Guard has taken a number 
of steps to address issues contained in these recommendations. In 
February 2007, the Coast Guard reported to Congress on the status of 
its efforts in implementing our recommendations to improve program 
management, ensure greater accountability, and facilitate cost control 
through competition. We are in the process of assessing Coast Guard 
actions in response to our recommendations and expect to report on the 
results of our analysis later this year.

    Question 1a. Does the GAO believe the recommendations go far 
enough?
    Answer. We made these original recommendations 3 years ago. While 
we strongly believe they were comprehensive at the time and have led to 
some positive changes in the way the Coast Guard is managing and 
overseeing the Deepwater program, the program continues to evolve over 
time and our ongoing work may lead to additional recommendations.

    Question 1b. In the research GAO conducted on Deepwater over the 
last several years, was there any indication--either from the Coast 
Guard or from your own auditors--of the problems that have come to 
light with respect to the National Security Cutter?
    Answer. While we have been reviewing the Deepwater program for a 
number of years, the focus of our reviews has been on issues related to 
the condition of the legacy assets that are being replaced, changes to 
the Deepwater implementation plans to incorporate post-9/11 homeland 
security requirements, and management and oversight of the program. We 
have only recently shifted the focus of our reviews to the individual 
assets that are being designed and constructed as part of the Deepwater 
program. In planning and performing our Deepwater reviews, we 
coordinate not only with our Congressional clients, but also with 
others in the Federal audit community, in particular, the Department of 
Homeland Security's Office of Inspector General (DHS-IG). In late 2005, 
we determined that DHS-IG was planning to begin a review of the 
National Security Cutter and in an effort to not duplicate work they 
were doing, have delayed any work we planned involving the NSC until 
they completed their review. Now that the DHS-IG report has been 
released, we are now in the process of determining whether there are 
remaining issues that should be pursued that were not addressed in the 
DHS-IG report.
                                 ______
                                 
    Response to Written Question Submitted by Hon. David Vitter to 
                          Stephen L. Caldwell
    Question. Do you believe that the Deepwater program is still 
``risky,'' as GAO stated in a 2004 report?
    Answer. We first described the Deepwater program as ``risky'' in 
2001 due to the unique, untried acquisition strategy for a program of 
this magnitude within the Coast Guard. Because it did not have the 
technical expertise or resources, the Coast Guard decided to use a 
system-of-systems approach in which it relied on a systems integrator 
(contractor) to replace the Coast Guard's deteriorating assets with an 
integrated package of aircraft, vessels, associated communications 
equipment, and supporting logistics. In a system-of-systems 
arrangement, the delivery of Deepwater assets is interdependent and 
schedule slippages and uncertainties associated with potential changes 
in the design or deployment of any one asset can increase the overall 
risk that the Coast Guard might not be able to meet its expanded 
homeland security missions within given budget parameters and milestone 
dates. In addition, the Deepwater program is a performance-based 
acquisition, meaning that it is structured around the results to be 
achieved rather than the manner in which work is performed. If 
performance-based acquisitions are not appropriately planned and 
structured, there is an increased risk that the government may receive 
products and services that are over cost estimates, delivered late, and 
of unacceptable quality. In 2004 and in subsequent assessments in 2005 
and 2006, we reported concerns about the Deepwater program in three 
main areas--improving program management, strengthening contractor 
accountability, and promoting cost control through greater competition 
among potential subcontractors. While the Coast Guard has taken some 
actions to improve program outcomes, the program still contains risks 
and we will continue to assess the Coast Guard's progress at addressing 
the outstanding recommendations.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                        Captain Kevin P. Jarvis
    Question 1. Were there specific performance requirements for each 
major asset that allowed the Coast Guard to hold ICGS accountable? If 
not, how could the assets that ICGS was delivering be evaluated in 
terms of whether they met Coast Guard needs?
    Answer. As part of the performance-based contract strategy, the 
Coast Guard was providing the contractor maximum latitude to develop 
the particular asset characteristics that would deliver the needed 
``integrated'' system performance attributes. With the exception of the 
National Security Cutter (NSC) which had specific performance 
requirements stipulated as part of the contract, each proposed asset 
from the contractor would have an accompanying, ``performance 
specification'' which would be delivered as a contract CDRL for Coast 
Guard review and approval. The concept was that this ``performance 
spec'' would be the contract document which would assure the Coast 
Guard the needed tool for holding the contractor accountable. 
Unfortunately, the original version of the ``performance spec'', 
provided as part of the contractor's proposal, was revised with (G-D) 
IPT approval as the asset's capabilities matured such that the required 
performance spec now aligned with the delivered asset capabilities. 
This process of continual specification adjustments to meet asset 
delivery realities was contrary to the contract's original premise of 
having an asset built to an established performance specification; not 
the other way around. Examples of this contorted process are most 
evident with 123, WPB performance specification revisions and their 
related time-lines.

    Question 2. Captain, I am concerned with the fact that the Coast 
Guard has reinterpreted the performance requirements for the NSC. Did 
this also occur with the 123, conversion or any other vessel assets?
    Answer. Many of the NSC performance requirement modifications can 
correctly be tied back to 9/11-induced increases in needed performance 
and capability. The same can not be said for, or honestly justify the 
123, WPB performance specification modifications. In my opinion, the 
123, specification reinterpretation efforts were the results of 
realized performance, capability and anticipated cost induced gaps that 
could be conveniently closed by adjusting the performance 
specification. This method of adjusting the performance specification 
for an assortment of reasons existed with other assets as well.

    Question 3. The Department of Homeland Security's Inspector General 
is today releasing a report that concludes that ICGS, on several 
occasions, willfully and knowingly deviated from contractual 
obligations in modifying the 110, patrol boats. Is this conclusion 
surprising to you?
    Answer. As of this date I have not read the DHS IG report on the 
110,-123, patrol boat modification. That said, I would not be surprised 
with their conclusions since I was continually voicing ``contract 
accountability'' concerns as the program ``ruthlessly executed'' the 
contract. The 100,-123, modification process is filled with many 
examples of convenient contract interpretation and decisions that 
continually frustrated G-S and MLC naval engineers.

    Question 4. Why do you think it took so long for the concerns of 
the Coast Guard's own engineering experts to be heard?
    Answer. I don't know and it was one of the most frustrating 
circumstances I've ever experienced in my Coast Guard career! That 
said, the G-D leadership was very comfortable with their complete 
reliance on their ``outsourced'' and ``industry'' provided engineering 
inputs. The continual rhetoric from the entire G-D staff concerning 
this position stalled any opportunity to equally and fairly assess the 
Coast Guard engineer's technical recommendations and warnings. By 
categorizing G-S input as ``too cautionary'' and ``obstructions'' to 
project schedule completion, G-D was able to discount many G-S 
assessments. Why this obvious G-D position to ``outsource'' and 
trivialize the G-S technical efforts was so successful with the 
remainder of the senior Coast Guard leadership is still a great mystery 
to me.

    Question 5. I understand that unlike traditional procurement, under 
the Deepwater project, ICGS was supposed to bear greater responsibility 
for sustainment of the assets it was delivering. Was this your 
experience?
    Answer. The contractor's proposal included not only greater 
responsibility for maintenance and sustainment of their new assets, but 
also the expectation of needed sustainment initiatives for the ``to be 
replaced'' Coast Guard legacy assets. ICGS first delivered surface 
asset, the 123, WPB had a poorly integrated and almost non-existent 
maintenance and logistic sustainment plan. Although the G-S 
organization recognized this ICGS sustainment gap and offered a 
``logistic bridging strategy'' until theirs matured, it was not 
accepted by IGCS and ultimately the G-D program. In addition to the 
123, WPB structural failures, the ICGS inability to logistically 
sustain the planned 123, operational profile contributed to the 
eventual failure of 110,-123, modification part of the ``system-of-
systems'' concept. As for the ICGS ``legacy'' sustainment commitment to 
the Coast Guard, it only materialized after significant senior level 
pressure and high visibility material needs for both the surface and 
air legacy assets. On the surface side of the ledger, the 270/210 MEP 
and the 110 MSA projects were not funding sustainment responsibilities 
the ICGS elements or G-D program elements willingly accepted or 
promoted. At the time of my departure from the Coast Guard, there still 
existed significant risk with the ICGS NSC logistical support plan. 
Many requests for supply chain process details were never answered by 
ICGS logistical elements. The absence of any established ``sustainment 
process'' for the NSC is currently a major problem that has only 
recently received appropriate attention.

    Question 6. Captain, does the Coast Guard have the ability to 
supply any capabilities, such as logistics, themselves rather than 
relying on ICGS?
    Answer. The Coast Guard has a very flexible, talented and proven 
engineering, logistics and maintenance sustainment capability for its 
surface, air and C\4\ISR assets. This capability and expertise exists 
at their ELC, AR&SC, TISCOM and C2CEN Centers of Excellence in addition 
to their MLC organizational infrastructure. From the beginning of the 
Deepwater contract, the remainder of the Coast Guard tried to leverage 
this proven technical expertise and capability as a value add to the 
program and ICGS to no avail.

    Question 7. Do you think that the Coast Guard could obtain the 
assets it needs through a more traditional contract, instead of the 
current ``integrated'' ICGS approach?
    Answer. Yes. Although the Coast Guard has never been faced with 
such a large asset replacement program in the past, I firmly believe 
Coast Guard directorate personal can be organizationally blended under 
the guidance of the SAM to achieve superior asset procurement and 
integration results.

    Question 8. What was ``integration'' supposed to mean, and in your 
opinion, has it panned out?
    Answer. My expectation of integration was a carefully constructed 
strategic and tactical execution process by which each delivered asset 
would to the greatest extent possible, leverage commonality and 
interoperability of their technical development processes, material 
supply chain elements, operational capabilities, workforce support 
infrastructure and training concepts. Although it is still relatively 
early in the overall ICGS Deepwater timeline and this may indeed become 
a reality, to date this level of integration is painfully absent.

    Question 9. The recent Defense Acquisition University report notes 
that the Coast Guard is taking steps to address internal management 
issues and structures. Do you believe that such steps alone are enough 
to address the problems that have arisen with the Deepwater program?
    Answer. As a ``quick look'' report, the DAU assessment is a great 
start. As of this writing, I am unaware of the referenced Blueprint for 
Acquisition Reform details, and how they address the organizational 
realignments necessary to ensure a ``proper'' balance exists between 
the Coast Guard's operational, technical, resource and acquisition 
staffs and their initiatives. As crippling as the Deepwater program's 
strategic and tactical execution errors were, it was their overly 
friendly relationship with the contractor and their seemingly 
purposeful and planned corruption of proven organizational roles, 
responsibilities and relationships that doomed any possible positive 
program results. It is here where the DAU report only scratches the 
surface.

    Question 10. Do you think the Lead Systems Integrator approach is 
bringing an extra value or cost savings?
    Answer. No. I firmly believe the Coast Guard has the needed 
``integration'' capability with a much better ``value add'' metric.

    Question 11. The rationale that the Deepwater office gave for 
proceeding with the NSC despite Admiral Brown's concerns was that to 
delay would result in costs to the project due to the fact that ``long 
lead-time materials''--including some pretty major items such as 
engines--had already been put into place. Does this mean that the Coast 
Guard had already issued an order for Northrop to begin work on this 
project before the Coast Guard even authorized the design?
    Answer. On March 19, 2003, the Coast Guard signed the delivery task 
orders (DTO) which authorized the ordering of NSC long lead-time 
materials (LLTM) and commencement of contract and detailed design. The 
alignment of these two DTO's is not uncommon since many critical hull 
characteristics and key internal components, some of which are long 
lead times materials, are identified and typically acknowledged as 
building sequence steps leading up to the ``contract and detail 
design'' step. The significance of these dates, their relationship to 
when NSC structural designs concerns were raised by G-S Naval Engineers 
and the rational of using LLTM delays to the Admiral Brown memo is 
indeed troubling. Almost from the award of the Deepwater contract in 
June 2002, G-S engineers utilized the IPT process to identify, discuss 
and try to resolve what would eventually become ``independently 
verified'' structural design concerns with the NSC. During the months 
June through October 2002, the G-S elements at virtually every IPT 
level documented concerns with the ``functional design'' and 
recommended a series of ``mitigation'' steps to reduce the risk while 
the NSC was still in the ``electronic design'' phase. Our collective 
concern was to address and mitigate these concerns prior to cutting any 
steel. In the Fall of 2002, a Flag level presentation with G-D (the 
Coast Guard Deepwater program manager), G-S, G-O and elements from ICGS 
and the ELC present, officially raised the engineering concerns to the 
Flag Level. Concurrently, these concerns were also documented at the 0-
6 level indicating our opinion that the NSC design wasn't ready to 
progress through subsequent contract approval steps. In spite of these 
concerns and continual risk discussions, no collaborative corrective 
steps were accomplished within IPT structure. The design moved forward 
and the LLTM and contact/detail design were awarded. From the award of 
these DTOs to the ``production readiness review'' (PRR) and the 
ultimate NSC construction build authorization (awarded June 20, 2004), 
G-S engineers undertook a series of independent engineering analysis 
steps to add yet additional credibility to our findings and 
recommendations. The contract completion of this independent analysis 
was specifically established to coincide weeks before the planned PRR. 
It was because of this timing and the formality of Admiral Brown's 
approval and the forwarding memo on March 29, 2004, to G-D, we hoped to 
have one last chance to make the necessary design changes before the 
DTO was signed by G-D to authorize ICGS to commence building the NSC. 
The facts indicate that even this additional verification had little 
effect on the NSC advertised delivery schedule. Because of these past 
schedule-driven practices, for the program to now use LLTM as the 
rational for project delay costs associated with proceeding with NSC 
construction seems unjustified. After all, the official authorization 
to actually start building the NSC didn't occur until almost 3 months 
later. I concede that there could be some increased costs and delays if 
the program acted now, almost 18 months after G-S first identified 
their concerns, but at least it would still be before any authorization 
to cut steel was approved by the Coast Guard. To my knowledge G-S was 
never provided or shown any details as part of a cost analysis 
comparing possible delay costs with possible engineering corrective 
costs after delivery of the NSC.

    Question 12. A traditional procurement allows the Coast Guard to 
set detailed specifications and requirements. With Deepwater, the Coast 
Guard set its performance requirements and ICGS has the freedom to 
suggest what products it should buy or design to meet those 
requirements. Isn't that approach risky and open to a high degree of 
disagreement?
    Answer. A performance-based contract versus the traditional 
approach with government provided details and requirements could be 
deemed more risky. But by using a careful balance of traditional 
contract and performance contract elements, the risk could be mitigated 
to an acceptable level. The placement of this balance point was a 
continual source of disagreements with this contract. Many G-S 
technical details and requirements originally provided were deemed too 
prescriptive by the industry teams and obviously the G-D staff. As a 
result, they were eventually removed and the contract balance point 
shifted to a decidedly greater performance-based contract. This in turn 
set-up future friction points where G-S engineers evaluated the 
technical merit of ICGS deliverables and determined a number of 
performance gaps with the various designs. Because of the nature of the 
contract and the unhealthy reliance on the contractors engineering 
input by the G-D staff, these early G-S performance assessments would 
have to await the actual delivery of the specific asset to test or 
prove its performance capability. The performance results of 123, WPB 
speak loudly on the risks of performance contracts that go unchallenged 
early in the design phase.

    Question 13. Isn't that what's happening now, with the National 
Security Cutter?
    Answer. Yes. G-S-projected NSC performance gaps will not be 
validated until delivery and acceptance trials are completed. Our point 
continues to be that once founded, these gaps may be either too 
expensive or feasibly impossible to correct. Do we then accept the 
asset with these flaws, or is the contract mechanism strong enough to 
establish damages against the contractor? The early unresolved 
disagreements associated with this performance-based contract will 
result in difficult times answering the previous question.

    Question 14. In your testimony, you state that ``the NSC is getting 
closer to an operational status with many of the needed logistical 
support details and deliverables still ill-defined''. Is there a 
problem with the logistical support that ICGS is supposed to supply?
    Answer. Yes! After 5 years of contract life, millions of dollars 
expended on the ICGS analysis of Coast Guard logistic and maintenance 
practices, promises of robust supply chain processes, performance-based 
contracts and responsive logistic delivery systems, the Coast Guard has 
yet to see any real details which support the ICGS claims. With this 
reality and the dismal logistic support capability for the 123, WPB, 
for the last year of my Coast Guard career, we were developing the 
strategy and tactics needed to implement an executable Coast Guard 
logistic plan to support the NSC in anticipation of an ICGS failure to 
support NSC1. Using past Coast Guard major acquisitions and a similar 
delivery reference point to that of the NSC, a bulk of the provisioning 
technical documentation, equipment spares, support plans and 
organizational policies and practices would have already been in place. 
This logistic performance gap is as severe, if not more so than the 
various ICGS-delivered design deficiencies.

    Question 15. Can you tell us why you think we are in situation we 
are in with respect to the 123, patrol boats?
    Answer. In my opinion, the 123, situation resulted from a number of 
avoidable factors. Mostly significant of these was the poorly crafted 
organizational relationship whereby the Deepwater program placed a 
greater trust and confidence in their own contractors and the ICGS 
engineers rather then the Coast Guard`s own proven, unbiased technical 
and logistic experts. Add to this, a performance-based contract with 
relatively few established technical requirements, even fewer efforts 
to mandate thorough reviews of established contract deliverables, and 
finally a schedule that was ``ruthlessly executed'' by all G-D 
elements. Collectively, these integrated factors turned old, but 
economically repairable 110, WPBs, into new structurally compromised 
non-operational 123, WPB hulks.
                                 ______
                                 
  Response to Written Question Submitted by Hon. Daniel K. Inouye to 
                        Captain Kevin P. Jarvis
    Question. Captain Jarvis, your background as the former Chief 
System's Deepwater Integration Officer and Engineering and Logistics 
Center Director puts you in a unique position to have very informed 
views on the best way to fix the current problems with the Deepwater 
program. What are the most significant changes that you think the Coast 
Guard should make to get the program back on track?
    Senator Inouye, I offered a number of un-prioritized corrective 
recommendations as part of both my written and oral testimony. I also 
indicated that many of Admiral Allen's current Deepwater-related 
actions and initiatives will do wonders in getting the Deepwater 
program back on an even keel. Along with his establishment of the G-S 
directorate as the Coast Guard's ``technical authority'' for all 
engineering-related issues, the following are the most significant 
changes that I believe need to take place. First, greater contract 
accountability, visibility and contractor oversight is an absolute 
must. I suspect this will require a certain amount of restructuring 
with the existing contract, but in the long run, it should help avoid a 
duplication of these first disastrous 5 years. Second, the Coast Guard 
should be enabled to contract directly with asset builders, and the G-S 
cutter certification matrix should be incorporated as the basis for 
needed technical building requirements and standards. The System 
Integrator, in my opinion has not proven his worth. Third, the current 
Coast Guard engineering and logistic infrastructure should be given 
first priority to logistically sustain and maintain its fleet; it has 
the capability and expertise. Only if a ``real'' cost benefit analysis 
proves that an outsourcing option provides a better result should the 
Coast Guard capability be assessed for replacement. Concurrent with any 
outsourcing decision, extreme care needs to be taken to ensure that 
only distinct ``outsourceable'' elements are identified and that the 
entire Coast Guard capability isn't compromised by piecemeal outsourced 
operations. The remainder of my written recommendations can be 
implemented in any order.
                                 ______
                                 
       Response to Questions Submitted by Hon. Maria Cantwell to 
                           Mr. Philip A. Teel
    Question 1. Mr. Teel, the list of problems with surface assets is 
long. The 123-foot patrol boat conversion failed and 8 Coast Guard 
patrol boats are now out of service; the design of the Fast Response 
Cutter has been found to be unsuited for Coast Guard's needs, and the 
National Security Cutter as designed will not achieve the Coast Guard's 
performance goals. Does Northrop Grumman bear any responsibility for 
these problems?
    Answer. Northrop Grumman is wholly dedicated to the Deepwater 
Program and takes very seriously its contractual obligations to the 
Coast Guard. There is no single common factor associated with the 
aforementioned Deepwater issues. As such, the issues associated with 
the 123s, Fast Response Cutter and National Security Cutter are 
separately addressed below in more detail.
123, Conversion

    ICGS proposed the 123, conversion as an appropriate means to 
provide the Coast Guard with the necessary capability to meet its 
mission objectives while remaining within the confines of the program 
funding requirements. During the initial Deepwater competition, 
offerors 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 those annual funding limitations. An interim solution was 
therefore proposed to modify the legacy 110-foot patrol boats to allow 
these modified vessels (converted to 123 feet) to satisfy many of the 
Coast Guard's patrol boat requirements until a new design could be 
fielded.
    Our proposal to convert the 110, vessels was based on information 
then available and known to us. Prior to proposal submission, 
Bollinger, our subcontractor and original builder of the 110s, reviewed 
Coast Guard surveys of major structural repairs performed on the 110 
fleet. These surveys indicated that 110, structural deficiencies, when 
present, were the result of corrosion and could be addressed by 
identifying and renewing corroded plating and structure. This 
information was consistent with a Coast Guard report, dated March 8, 
2002, prepared by the 110, WPB Emergency Service Life Evaluation Board 
(SLEB Report). The SLEB Report stated that the 110, hulls were in 
deteriorated condition but that the periodic repair of hull plating 
would improve the readiness of the fleet. Consistent with the SLEB 
Report and the Coast Guard surveys, ICGS determined that replacement of 
thin hull plating would be sufficient to overcome the deteriorated 
condition of the 110s.
    Following contract award, but before any conversion work began, the 
Coast Guard, ICGS, Northrop Grumman, and Bollinger conducted a 
Preliminary Design Review, Critical Design Review, and Production 
Readiness Review of the 123, design and proposed conversion scope of 
work. During these reviews, ICGS and Northrop Grumman presented to the 
Coast Guard the engineering analyses and design approach for the 123, 
conversion effort.
    The 110, vessels delivered for conversion were in worse condition 
than anticipated. While the worse than expected condition of the ships 
would require more replacement of hull plating, the Coast Guard, 
Northrop Grumman, and Bollinger did not believe that the viability of 
the conversion approach was in question.
    Following the buckling on the MATAGORDA, a joint Coast Guard and 
Northrop Grumman tiger team discovered that the vessel had a pre-
existing 110, workmanship issue at the location of the hull buckling. 
Specifically, a hidden, unwelded aluminum deck stringer was discovered 
immediately beneath the area where the failure occurred. All eight 123s 
were examined, and an unwelded stringer was found on one additional 
hull undergoing conversion. When modeled using finite element analysis, 
the stresses in the panels which failed on the MATAGORDA were 
significantly higher than the stresses shown when the model was run 
with this stringer intact. Based on this finding, ICGS and the Coast 
Guard believed this to be the primary cause of the buckling on 
MATAGORDA, and repairs were made accordingly.
    In an effort to further improve the structural integrity of 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 expected operating range of the 123s, these 
additional stiffeners were considered to provide an added margin of 
strength. The three stiffener bands were added to all the 123s.
    Northrop Grumman has been committed to and remains committed to 
identifying the root causes of the 123, structural issues. After 
learning of the MATAGORDA buckling in mid-September 2004, Northrop 
Grumman immediately began a review of all available information and 
reports on the incident. Northrop Grumman formed a Tiger Team with the 
Coast Guard Engineering Logistics Center (ELC), Bollinger Shipyards, 
and ICGS to investigate the cracking and buckling problems that had 
occurred on this vessel during its transit run away from Hurricane 
Ivan. The Tiger Team investigation occurred between September 2004 and 
January 2005.
    As part of the Tiger Team effort, Downey Engineering performed 
finite element analyses of the 123,, which modeled the converted hull. 
In addition to these analyses, Northrop Grumman performed hull girder 
section modulus calculations and longitudinal strength calculations. 
Despite these extensive analyses and calculations, the Tiger Team was 
not able to correlate the problems actually experienced on the vessel 
based on the reported sea states. Northrop Grumman also retained Stress 
Engineering Services, Inc. to conduct metallurgical testing between 
August 2006 and February 2007. This testing revealed an issue on the 
main deck that exists on the 123s and across the entire legacy 110, 
fleet. Northrop Grumman also collected data 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 stern-launch system, are being reexamined and 
validated.
    The Coast Guard ELC commissioned its own finite element analysis, 
which at the time was not shared with Northrop Grumman. In February 
2006 NGSS offered to perform a comprehensive engineering assessment at 
no cost to the Coast Guard. The Coast Guard declined the offer with the 
exception of some metallurgical testing. In early 2006, the Coast Guard 
ELC conducted additional testing and analysis on the 123s. Northrop 
Grumman was not provided an opportunity to participate in this testing. 
In fact, it was not until January 2007 that the Coast Guard began to 
share the test results with Northrop Grumman. Since that time, however, 
the Coast Guard is now sharing their test data with Northrop Grumman so 
it can be analyzed in conjunction with all of the other test data.
    In summary, Northrop Grumman has assumed responsibility for working 
with the Coast Guard to understand the structural issues experienced on 
the 123s, and has devoted, and will continue to devote, significant 
resources to this effort well beyond our contractual obligations.
National Security Cutter

    The Contract contains a 30-year service life requirement for the 
NSC and the vessel as designed will meet this requirement. As required 
by the contract, Northrop Grumman designed the NSC in accordance with 
proven U.S. Navy Design Data Sheets. In fact, the NSC design is 
structurally more sound than required under these Navy standards
    The Coast Guard and Northrop Grumman agree that there is no safety 
issue or operational restrictions associated with the current NSC 
design. In his January 30, 2007 testimony before the House Subcommittee 
on Coast Guard and Maritime Transportation, Commandant Allen stated, 
``There has never been a question of safety related to the ship's 
structure, nor have we ever anticipated any operational restrictions 
related to its design.'' In addition, the American Bureau of 
Shipbuilding (ABS) has certified the structural design drawings of the 
NSC.
    The discussions between Coast Guard and Northrop Grumman engineers 
on the NSC relate to fatigue-life. Unlike service life, fatigue-life is 
not a contract requirement. As discussed more fully in the response to 
National Security Cutter Question 5 below, the Naval Surface Warfare 
Center--Carderock Division (Navy Carderock) performed an analysis of 
the predicted fatigue-life of the NSC using a model not benchmarked or 
based upon valid historical data and realistic operating conditions. 
When properly benchmarked, a 53.8 year fatigue-life is predicted for 
the NSC design. The differing fatigue-life analyses have resulted in a 
dialogue between engineers which will lead to a final determination on 
the need for any enhancements to further extend fatigue-life.
    Although not required by contract, Northrop Grumman has undertaken 
the responsibility for working with the Coast Guard and Navy Carderock 
to achieve consensus on the predicted and desired fatigue-life of the 
NSC. Northrop Grumman has been involved in extensive analyses and 
dialogue with government engineers to resolve these issues to the 
satisfaction of the Coast Guard.
Fast Response Cutter

    ICGS and Northrop Grumman originally proposed a Fast Response 
Cutter (FRC) with a steel hull design. Following contract award, 
substantial post-9/11 changes in the Coast Guard's mission and 
requirements resulted in a set of required capabilities that exceeded 
traditional patrol boat functions. As a consequence, the steel design 
originally proposed by ICGS and Northrop Grumman did not satisfy the 
new and expanded requirements of the Coast Guard. In addition, the 
Coast Guard accelerated the delivery requirement for the FRC by 10 
years.
    To meet the expanded post-9/11 requirements and accelerated 
schedule, Northrop Grumman conducted trade studies, the results of 
which indicated that a composite hull would significantly reduce the 
life cycle cost of maintenance and best serve the Coast Guard's new 
post-9/11 mission requirements. The Coast Guard then elected to pursue 
the composite approach with a design-to-cost limit. This design-to-cost 
approach became a ``production cost cap'' but without any requirements 
trade-offs being accepted by the Coast Guard. These design constraints 
resulted in a shortened vessel length and wider beam than traditional 
patrol boat hull dimensions. No existing patrol boat in the worldwide 
inventory could satisfy the Coast Guard's requirements set.
    The Coast Guard and industry each conducted analyses of the FRC 
design and the best value approach for meeting Coast Guard operational 
requirements. Northrop Grumman is not aware of any Coast Guard 
determination that the FRC design is ``unsuited'' for the post-9/11 
mission requirements. To the contrary, an independent study has 
confirmed the ability of the proposed FRC design to meet the 
challenging Coast Guard operational requirements.
    Currently, the Coast Guard is sponsoring an independent business 
case analysis to determine if a steel or composite hull design is most 
cost effective. Northrop Grumman analysis has shown that the service 
life of a composite hull will be considerably longer than a traditional 
steel hull. While Northrop Grumman stands behind its FRC design, it 
will support the Coast Guard's ultimate decision in this matter.

    Question 2. How is it that under this performance-based contract, 
Northrop Grumman has tremendous discretion in choosing and designing 
the assets needed to meet Coast Guard needs, and yet Northrop is not 
responsible for assuring that these assets actually work and perform to 
those needs?
    Answer. ICGS does not ``choose'' the assets to be developed for the 
Deepwater Program. Instead, the Coast Guard makes the choices after 
considering ICGS proposed asset designs which, before they are chosen, 
are reviewed and approved by Coast Guard senior leadership through a 
series of cross-functional government teams. The Coast Guard is and 
always has been the decisionmaking and contracting authority for the 
Deepwater Program, and has retained traditional contract management 
functions, including the right to issue unilateral change orders, to 
stop or terminate work, to order or not order assets and supplies, and 
to accept or reject the work.
    ICGS and Northrop Grumman are responsible for developing surface 
assets that comply with the performance requirements. Throughout the 
development phase, ICGS and the Coast Guard conduct reviews for each 
Deepwater asset. These programmatic reviews include a System 
Requirements Review, a Preliminary Design Review, a Critical Design 
Review and a Production Readiness Review, all of which are conducted 
with the Coast Guard before the actual conversion or construction work 
begins. Leading up to each of these reviews, the evolving design, 
design drawings and calculations are formally presented to the Coast 
Guard subject matter experts in increasing detail for their comment and 
approval. Assets are not constructed until the Coast Guard reviews and 
approves the design.
    The Coast Guard is responsible for determining whether the surface 
assets meet applicable performance requirements. Before accepting 
delivery of each Deepwater surface asset, the Coast Guard conducts 
acceptance testing and sea trials with the assistance of third-party 
experts. For example, during the NSC inspection and acceptance process, 
ABS will certify 35 ship systems, including Command and Control 
Systems, Propulsion Plant, Machinery Monitoring and Control, Fuel 
Systems, Anchoring Systems, and Steering Systems. Indeed, prior to or 
in conjunction with the delivery of the NSC BERTHOLF, there will be a 
total of 46 independent third-party certifications. These independent 
certifications include Final Aircraft Facilities, Flight Deck Status 
and Signaling, Navigation Systems, Interior Communications Systems, 
Guns and Ammunition Weapons System Safety, DOD Information Security and 
Accreditation, and TEMPEST. The Navy's Board of Inspection and Survey 
will conduct the Ship Acceptance Trials for the NSC.
    The contractual obligations of ICGS and Northrop Grumman do not end 
upon delivery of the surface assets. Rather, Northrop Grumman remains 
responsible after delivery for assuring that the Surface assets meet 
the contract requirements pursuant to its warranty obligations. For 
example, following the transfer to the Coast Guard, NSC 1 will enter a 
twelve month warranty period, during which ICGS will correct any 
deficient items or complete any contractor-responsible work. This one-
year warranty period was specifically requested by the Coast Guard in 
the Deepwater Request for Proposals (RFP), and is common to the 
shipbuilding industry. Any defects in workmanship or materials provided 
by ICGS that occur within the warranty period are corrected by ICGS at 
its expense. The warranty extends to the proper installation of 
Government-furnished property and, in the event modification is 
performed on the Government-furnished property, also extends to such 
modification work.
    Any failures attributable to legacy asset equipment in a conversion 
or upgrade program are corrected by the Coast Guard within their 
existing infrastructure. Failures to Deepwater equipment outside the 
terms of the warranty are addressed by the ICGS Lifetime Operations and 
Support organization as prioritized and funded by the Coast Guard. As 
in the case of the 123s, ICGS works cooperatively with the Coast Guard 
to address any problems with the ships regardless of whether these 
problems are within the scope of the warranty.

    Question 3. Do you know of any examples in which ICGS, Lockheed 
Martin, or Northrop Grumman used the awarding of Deepwater subcontracts 
to industry partners as a means to leverage other potential deals or 
contracts for Lockheed Martin or Northrop Grumman?
    Answer. No. Competition in the Deepwater Program is governed by a 
number of procurement rules patterned after the Federal Acquisition 
Regulation (FAR), and are designed to promote full and fair 
competition. ICGS, Northrop Grumman, and Lockheed Martin conduct 
competitions under the Deepwater Program pursuant to these FAR-based 
provisions. Northrop Grumman utilizes these competitive procedures to 
the maximum extent practicable. Awards are made on the basis of the 
best value for the Coast Guard and not on what is best for the 
contractors.
    Subcontract procurement under the Deepwater Program is an open and 
highly transparent process. All Northrop Grumman purchases over $25K 
are individually reviewed for compliance with purchasing guidelines, 
and the purchasing system is audited (usually every 3 years) by the 
Defense Contract Audit Agency (DCAA). A government-sponsored third-
party review of Deepwater acquisition practices found Lockheed Martin 
and Northrop Grumman subcontracting statistics to be favorable when 
compared to the statistics of Naval Air Systems Command and Naval Sea 
Systems Command. In addition, competition for subcontract awards is 
encouraged via the annual Industry and Innovation Days where suppliers 
and vendors have an opportunity to provide input on new or improved 
products. ICGS to date has placed orders with more than 600 suppliers 
representing more than 41 states and maintains an active database of 
over 3,000 potential suppliers from which it draws to host annual 
supplier Industry and Innovation Days.
    Proposals from affiliated companies are judged no differently than 
other proposals. For example, the Unmanned Air Vehicle subcontract was 
awarded to Bell Textron, not Northrop Grumman, and the Maritime Patrol 
Aircraft went to CASA, not Lockheed Martin. Recently, the Coast Guard 
has changed the FRC acquisition strategy to include two paths: FRC-A 
and FRC-B. The ICGS FRC-B team will recommend to the Coast Guard a 
candidate design from a competitive field of worldwide patrol boat 
providers and is expected to enter concept design later this year. 
Northrop Grumman will not submit its own FRC-B design proposal.
    Through December 31, 2006, Lockheed Martin and Northrop Grumman 
awarded 73 subcontracts with values above the FAR threshold (which 
recently changed from $550k to $650k). The cumulative value of the 73 
awards is $788M. Of the 73 awards, 81 percent were awarded either 
competitively or in accordance with a FAR exception to competition. In 
terms of dollars, of the $788M, 85 percent was awarded either 
competitively or in accordance with the FAR exceptions to competition. 
Of the 1,335 purchase orders issued since program inception, 32 were 
made to Northrop Grumman affiliates comprising 11.5 percent of the 
total subcontracted dollars.

    Question 4. I understand that engineers often disagree about 
specifics of a given design, but can you please explain why Northrop 
Grumman continues to believe that the NSC meets the requirements of the 
contract--despite the findings to the contrary of the Coast Guard's own 
experts and three independent studies conducted by well respected naval 
engineers?
    Answer. Northrop Grumman continues to believe that the NSC meets 
the contract requirements. The issues that have been raised between the 
engineers relate primarily to an extra-contractual matter: fatigue-
life. Both the Coast Guard and Northrop Grumman agree that there is no 
safety issue related to ship structure (also see the related testimony 
on Page 78). Nor are there any operational restrictions associated with 
the current NSC design. The NSC structural design meets the 30-year 
service life requirements of the contract and has been independently 
certified by ABS.
    The question currently being addressed by Northrop Grumman and the 
Coast Guard involves the fatigue-life of the NSC over its 30-year 
service life. Fatigue-life and service-life are two different concepts. 
Fatigue-life refers to the amount of time prior to the onset of cracks 
in structurally significant elements in the vessel. When cracking 
occurs, appropriate repairs are performed. While some degree of 
cracking is expected during the life of a vessel, determining the 
length of time between ship delivery and the onset of cracking is not 
an exact science. Service life, in contrast, is the amount of time in 
which repairs of cracks and other conditions in the vessel remain 
economically viable to perform in order to keep the ship in service.
    Northrop Grumman and Navy Carderock have used a relatively new 
method to model the predicted NSC fatigue-life by applying different 
approaches to existing ship designs, operational characteristics and 
hull form. The difference in the two approaches relates to whether the 
model is benchmarked using historical data from ships that have 
operated in a known or defined sea state. The Navy Carderock performed 
their fatigue analysis by assuming that the NSC would spend 100 percent 
of the time in specific locations known for very bad weather 
conditions. Based upon ``real-world'' operational experiences with 
naval vessels, the NSC will encounter a variety of sea states, as 
defined in the Contract.
    Many of the structural issues raised by the Coast Guard during the 
design phase have been resolved as part of the design process. For 
example, Northrop Grumman has made enhancements to address Coast Guard 
structural concerns with the design of the ship bottom. Northrop 
Grumman has added structural enhancements to the ship superstructure 
and superstructure re-entrant design in response to Coast Guard 
concerns, and has further addressed structural issues raised by the 
Coast Guard by using reduced penetrations in the deck stringer plates 
and reinforced those that were still required using Navy fatigue 
guidance criteria. The structural changes have been incorporated into 
the NSC 1, the BERTHOLF, and are part of the baseline design.
    To the extent the ongoing discussions with the Coast Guard result 
in the Coast Guard requiring fatigue-related structural enhancements, 
those enhancements will be provided consistent with Coast Guard 
requirements.

    Question 5. Isn't it the case that ICGS proposed the ``230 underway 
days'' standard as part of its winning Deepwater solution that was 
accepted by the Coast Guard? Why is there any confusion about this 
standard now?
    Answer. There should be no confusion about the ``days underway'' 
requirement for the NSC. ICGS did not propose a standard that the NSC 
be ``underway'' for 230 days a year. The performance specification and 
concept of operations documents proposed by ICGS stated that the ship 
must be capable of ``230 Days Away From Homeport.'' This translates to 
185 days at sea (165 mission days and 20 average transit days) and 45 
in port logistics days away from homeport.
    In particular, the NSC operational profile is contained in the NSC 
performance specification and includes approximately four, 60 day 
patrols per year. These encompass 230 days away from homeport each 
year. After every 9-12 patrolling days, a mid-patrol break of three to 
4 days is scheduled for crew rest. Brief stops for fuel of a single day 
or less may be taken according to operational needs and proximity to a 
fueling location. These rest and reprovisioning standards are scheduled 
to balance out the breaks during the patrol, optimizing stores levels 
with operational needs. The 60 day patrols contemplate eight transit 
days, 12 in-port logistics days and 40 operational mission days, for a 
total of 185 underway days per year.
    The Coast Guard and Northrop Grumman are in agreement on this 
issue. Commandant Allen stated in his testimony before this 
Subcommittee: ``But, by the contract, it is 230 days away from home 
port, 185 days on station, conducting mission, and that is the 
parameters by which the models are applied for how long the sea stay 
[sic, state] would act on the hull for the purpose of determining the 
fatigue-life.''

    Question 6. Didn't the contract state that the 30-year life of the 
ship was based on an assumption of 230 days underway?
    Answer. As discussed above, the 30-year service life of the ship 
was based on an assumption of 230 days away from homeport, not days 
underway. The ``30-year life'' requirement does not pertain to fatigue-
life. As discussed above, fatigue-life refers to the amount of time 
prior to the onset of cracks in structurally significant elements in 
the vessel, while service life is the amount of time in which repairs 
of cracks and other conditions in the vessel remain economically viable 
to perform in order to keep the ship in service.
    In determining fatigue-life, the controlling assumption is the 
amount of time the vessel spends in extreme sea states, not total days 
underway. This assumption forms the basis for the differing engineering 
predictions of fatigue-life.

    Question 7. Do you believe that the National Security Cutter meets 
the requirements of the contract?
    Answer. Yes. As stated previously, the NSC was designed in 
accordance with contract specifications. We have worked and will 
continue to work with the Coast Guard to resolve the open issues, and 
we continue to stand behind the design and construction of the NSC and 
its ability to meet service life and operational performance 
requirements of the contract.

    Question 8. Why do Northrop Grumman and the Coast Guard disagree on 
whether the design meets even the lower performance requirement of 170-
180 days underway?
    Answer. As stated previously, the requirement for 185 days at sea 
is not a ``lower'' or ``relaxed'' performance requirement. The Coast 
Guard and Northrop Grumman have no difference of opinion on the service 
life of the NSC. Indeed, in his January 30, 2007 testimony before the 
House Subcommittee on Coast Guard and Maritime Transportation, 
Commandant Allen explained, ``the issue here . . . is a question of 
fatigue-life over the course of the cutter's 30-year service life.'' 
The disagreement regarding fatigue-life revolves around assumption of 
sea state conditions, not days underway.
    When the model is calibrated in accordance with Navy fatigue-life 
guidance instructions, and realistic real-world sea state conditions, 
the NSC fatigue-life is predicted to be nearly 54 years. We will 
continue to work and resolve this issue with the Coast Guard.

    Question 9. Although your testimony indicates that the NSC was 
built to Navy specifications, the Coast Guard is not the Navy, and has 
different operating needs. Did you take that into consideration when 
designing the NSC?
    Answer. Yes. The NSC was designed and built to meet Coast Guard, 
not Navy, mission needs. In the RFP, the Coast Guard included 
performance specification requirements for the NSC that reflected 
existing operational needs. The Coast Guard performance specifications 
required Northrop Grumman to design and construct the NSC in accordance 
with the Cutter Specific Certification Matrix (CSCM). The NSC CSCM did 
not impose any new or additional operational requirements, but provided 
the standards for verification that the performance requirements are 
met.
    The CSCM contained Design Data Sheets, which are widely accepted 
within the shipbuilding industry as the ``traditional approach'' to 
design and build ships. For decades, the Design Data Sheet approach has 
produced successful designs over a wide range of vessels. This approach 
implies an acceptable fatigue-life and long-term ship performance based 
on a reasonable level of maintenance. Northrop Grumman has used the 
Data Design Sheet approach in the design of numerous Navy vessels. 
Although the Data Design Sheets are commonly used for Navy vessels, 
they are not ``Navy-only specifications.'' Nor do they substitute Navy 
operational requirements for Coast Guard operational requirements.

    Question 10. In your opinion, is the disagreement simply a 
communications failure between Northrop and the Coast Guard?
    Answer. Certainly some of the issues associated with the Deepwater 
program are a result of communications issues. For instance many of the 
issues identified in the DHS IG report relate to poor communications 
between Coast Guard functional organizations such as the Engineering 
Logistics Center and Requirements organization and the Deepwater 
program team. Management of the ICGS contract is handled through the 
Deepwater program office and the functional organizations do not feel 
that their issues are adequately represented through the Deepwater 
program. Issues remain unresolved for long periods and, in some cases, 
even when resolved contractually (between ICGS and Coast Guard 
Deepwater program), are not accepted as resolved by the functional 
organizations.
    The recent steps announced by Admiral Allen to re-align functions 
within the Coast Guard to provide greater oversight and responsiveness 
to address procurement management and technical issues will certainly 
address many of the Deepwater acquisition issues. This approach will 
yield benefits and significantly enhance the ability of the Deepwater 
Program to deliver the assets and support our Nation's needs to address 
post-9/11 mission requirements.
    Several weeks ago, Commandant Allen met with Northrop Grumman CEO 
Ronald Sugar and Lockheed Martin CEO Robert Stevens in the first of a 
planned series of meetings to discuss near and long-term objectives and 
goals for the Deepwater Program. As an outcome, ICGS and the Coast 
Guard recently developed a Statement of Strategic Intent to provide a 
management framework for developing the way forward on the Deepwater 
Program. In addition, the Statement of Strategic Intent is intended to 
clarify the roles the Coast Guard and ICGS in performance of the 
Deepwater mission. ICGS will be responsive to the changes requested by 
the Coast Guard.

    Question 11. Mr. Teel, the only 110-foot patrol boats to experience 
significant hull cracking, buckling and other problems that have led 
Admiral Allen to take them out of service are those that your company 
modified into 123-foot vessels. Yet, you claim that the fault lies with 
the Coast Guard and not with your company. How can that be?
    Answer. It is incorrect that only the 123s have experienced hull 
cracking and buckling that have restricted operational effectiveness. 
Hull cracking and buckling remains a recurring issue for the 110 fleet. 
By 2001, the Coast Guard recognized that hull cracking and buckling 
presented a fleet-wide problem, and identified the need to undertake a 
comprehensive Hull Sustainment Program in order to maintain existing 
operational hours. Similarly, repairs of deck cracks on the aging 110, 
vessels became commonplace. The Coast Guard SLEB report, issued in 2002 
before the eight patrol craft were converted, further recognized the 
deteriorated condition of the 110, hulls and recommended the 
comprehensive repair of hull plating to improve the readiness of the 
fleet. For example, the SLEB report identified four 110s requiring 
repairs for buckled hull plating. The Coast Guard has confined the 110s 
to restricted operations due to fleet-wide structural problems. The 
cost of this Hull Sustainment Program was estimated at approximately $7 
million per vessel. The Deepwater proposal to convert the 110 fleet at 
$8 million per vessel involved a similar hull plating replacement 
approach, but also included a new deck house, stern launch boat ramp, 
improved berthing quarters, and a fully integrated C\4\ISR system.
    A Coast Guard memorandum dated March 14, 2003 also noted the 
deteriorated condition of the 110, hulls. Based on the SLEB Report and 
a continued pattern of emergent casualties, the memorandum requested 
that the Deepwater Program Executive Office develop a plan to address 
hull sustainment deficiencies.
    In short, the 123s are not the only vessels to experience hull 
buckling and cracking. Moreover, Northrop Grumman does not ``claim that 
the fault lies with the Coast Guard'' for the 123s. Northrop Grumman is 
working collaboratively with the Coast Guard to identify and resolve 
the cause(s) of the cracking/buckling. Until this work is completed, it 
would be premature to judge or assign fault.

    Question 12. Didn't Northrop have an opportunity to inspect the 
110-foot cutters before it presented the solution of extending these to 
123 feet?
    Answer. While no opportunity to examine the 110, vessels was 
offered by the Coast Guard prior to contract award, Bollinger was 
permitted to inspect the 110, cutter FARALLON after contract award. 
This inspection did not call into question the viability of the 
conversion approach, but instead confirmed the approach. The SLEB 
Report prepared by the Coast Guard involved a complete review of the 
110 fleet, confirmed the belief that the 110, structural deficiencies 
could be addressed by renewing corroded plating and structure. In fact, 
the SLEB Report made reference to the upcoming 123, conversion effort, 
which would utilize the hull repair approach recommended by the SLEB.

    Question 13. After the first converted boat, the MATAGORDA, 
developed a major hull crack, did Northrop conduct a thorough 
structural review of the other seven 110, cutters before it modified 
them?
    Answer. As discussed above, following the buckling of the 
MATAGORDA, an engineering tiger team was formed consisting of Coast 
Guard and Northrop Grumman personnel. This team was dispatched to 
investigate the problem and discovered that the MATAGORDA had a legacy 
workmanship issue in an unwelded 110, deck stringer that existed prior 
to the conversion and contributed to the hull buckling.
    The MATAGORDA issue arose in September 2004, after all 8 hulls had 
entered the conversion program and the first 4 hulls had been 
delivered. All 123s, including delivered vessels and vessels undergoing 
conversion, were examined, and an 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. This 
indicated that the structural integrity of the 123, hull was 
satisfactory and that the primary cause of the MATAGORDA buckling was a 
110, legacy workmanship issue unrelated to the structural design.
    Although the MATAGORDA buckling was believed to be a pre-conversion 
workmanship issue, Northrop Grumman and the Coast Guard proactively 
evaluated methods to enhance the 123, structure. To further improve the 
structural integrity of the 123s, Northrop Grumman (working with 
Bollinger) and the Coast Guard installed three stiffener bands on all 
eight ships; 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 expected 
operating range of the 123s, these additional stiffeners were 
considered to provide an added margin of strength. The three stiffener 
bands were added to all the 123s and both Northrop Grumman and the 
Coast Guard believed that any structural issues would be overcome by 
the additional structural reinforcement.

    Question 14. Why did Northrop Grumman award itself the design for 
the Fast Response Cutter? GAO found that Northrop did not have any 
significant experience in designing such a cutter. Is that accurate?
    Answer. Northrop Grumman did not ``award itself the design'' for 
the FRC. The ICGS proposal selected by the Coast Guard identified 
Bollinger as the designer and builder of the FRC. With the advent of 
new post-9/11 mission requirements and the acceleration of the FRC 
acquisition by 10 years, the original proposed FRC design approach was 
modified (with Coast Guard approval) from a steel to composite hull. 
The composite hull was then proposed following a business case 
analysis, which showed substantial savings resulting from not having to 
replace the hull for 35-40 years.
    Unlike other domestic shipyards, Northrop Grumman has both prior 
composite shipbuilding experience and experience in the design and 
construction of vessels comparable to the FRC. During the mid-1990s, 
Northrop Grumman constructed four composite 188-foot U.S. Navy mine-
hunting vessels at its Gulfport Facility, where the composite FRC 
vessels were to be constructed.
    Northrop Grumman also has designed and built composite products for 
marine applications. The Navy mine hunters were constructed of 
composite materials and built to very demanding specifications. The 
Navy vessels were shock rated and incorporated special features to meet 
stringent noise criteria requirements. The vessels are still in the 
U.S. Navy fleet today. In addition, the Advanced Enclosed Monitoring/
Sensing (AEM/S) System constructed by Northrop Grumman and installed on 
the USS RADFORD involved composite materials for weight reduction, 
reduced signatures and an overall decrease in maintenance requirements. 
The AEM/S led to the development of the large composite mast for the 
LPD class ships currently under construction by Northrop Grumman. 
Moreover, Office of Naval Research (ONR) programs performed by Northrop 
Grumman, such as the Composite Helo Hangar, helped develop design and 
construction techniques for numerous applications, including the all-
composite DDG 1000 topside structure and the CVN 77 composite mast. The 
Composite High Speed Vessel (CHSV) program, sponsored by ONR, 
demonstrated readiness and acceptability of an all-composite high-speed 
naval vessel.
    In short, Northrop Grumman possesses considerable expertise in the 
design and construction of composite vessels similar to that proposed 
for the FRC and has thoroughly validated the use of composite 
technology for marine vessels.

    Question 15. You seem to attribute the problems with the Fast 
Response Cutter to the Coast Guard demanding too many capabilities, but 
wasn't Northrop responsible for the design?
    Answer. Northrop Grumman is responsible for designing the FRC in 
accordance with the requirements established by the Coast Guard. An 
updated and new set of Coast Guard post-9/11 capabilities combined with 
a design-to-cost cap resulted in a non-traditional hull form outside 
customary hull dimensions in legacy patrol boats. An independent 
analysis of the FRC preliminary design confirmed that the 
nontraditional hull form was driven by post-9/11 requirements, 
including enhanced stability, a 3,000 hour annual OPTEMPO, a 50 square 
foot/person gross area, a 25 percent Search and Rescue and Operations 
fuel margin, and a 30 percent electric power margin for future growth.
    A series of business case analyses, total ownership cost studies 
and preliminary design efforts showed the benefits of using a composite 
hull design to meet this demanding set of requirements with a potential 
to save over $1B in lifecycle costs.
    An independent third-party analysis also confirmed that Northrop 
Grumman's FRC design appears to meet or is capable of meeting all of 
its design and performance requirements. Northrop Grumman does not 
believe that FRC design is invalid because the Coast Guard has 
``demand[ed] too many capabilities.'' Rather, the nature and extent of 
the post-9/11 requirements exceeded typical patrol boat practice for 
ship size and displacement and led to a non-traditional ship design. 
Northrop Grumman believes the FRC design, while non-traditional, is 
sound and meets Coast Guard requirements.

    Question 16. The Commandant has now made a decision to compete the 
design and the build of the Fast Response Cutter--but only years after 
your company set out to design it yourself. What exact steps did you 
take to consider the merits of competing either the design or the 
construction of this vessel?
    Answer. To our knowledge, the Coast Guard has not decided to 
compete the design and construction of every type FRC that it may 
procure. Rather, the Coast Guard has decided only to conduct a 
competition for a limited number of FRC-B vessels which will function 
as an interim measure until the fully capable FRC (FRC-A) can be 
fielded. The FRC-B, which will be based upon an existing patrol boat 
and based upon Coast Guard and industry surveys, will not satisfy many 
of the Coast Guard's requirements.
    As stated previously, Northrop Grumman did not intend or originally 
propose to design the FRC itself. Northrop Grumman originally proposed 
that Bollinger would design and construct the FRC with a steel hull. 
The Coast Guard accelerated FRC design and construction by 10 years. 
The expanded post-9/11 requirements produced a set of required 
capabilities that exceeded the existing roles filled by the 110s and 
123s and other worldwide patrol boat fleets, and led to the 
consideration of a new design based upon a composite hull design. 
Having marine composite experience, Northrop Grumman proposed and the 
Coast Guard agreed to proceed with a composite vessel.
    The current patrol boat acquisition strategy includes two paths to 
address the patrol boat mission hour gap in light of the acceleration 
of the FRC. In the near term, FRC-B (interim) will be awarded through a 
competitive acquisition process. Northrop Grumman will not be competing 
for the FRC-B design work and the Coast Guard will approve the ultimate 
source selection decision. In the long term, the Coast Guard will 
decide whether and when to issue a Delivery Task Order to procure a 
fully capable FRC-A.

    Question 17. How does Northrop decide whether to go with an 
originally-planned asset or look for alternatives that might lead to a 
competition?
    Answer. By way of relevant background, ICGS submitted a proposal in 
the initial and current phase in competition against other industry 
teams. Our proposal contained discrete CLINS (Contract Line Items) for 
assets and services, the execution of which were proposed with a 
schedule and a cost. The Coast Guard converted the proposal to a 
contract which contained a schedule and costed CLINS for these assets. 
Work under the CLINS could be (and has been) ordered by the Coast Guard 
through their issuance of Delivery Task Orders to ICGS. Thus, the Coast 
Guard selected ICGS's competitive solution. Further, the Coast Guard, 
not Northrop Grumman, makes all decisions about whether to execute 
Delivery Task Orders or to consider other alternatives. For example, in 
the case of the FRC, the Coast Guard accelerated the delivery schedule 
by 10 years and imposed a significantly different set of requirements. 
As there was not a ``proposed solution'' in the contract which fit the 
Coast Guard's new requirements, Northrop Grumman looked both internally 
and externally for appropriate solutions and then presented a solution 
to the Coast Guard for consideration.
    Northrop Grumman has in place a detailed set of procedures 
governing ``make-or-buy'' decisions, and strictly follows these 
procedures under the Deepwater program. The ``make-or-buy'' procedures 
require consideration of, among other things, the effect upon price, 
quality, delivery and performance of the prime contract, competency, 
expertise and capability available within other firms, requirements for 
enhancing competition by broadening the base of potential competitors, 
and the opportunity for small business and small business concerns to 
compete for subcontracts. As Admiral Allen said in his January 30, 2007 
testimony before the House Subcommittee on Coast Guard and Maritime 
Transportation, ``They [ICGS] deal with hundreds of vendors around the 
country and we'd be glad to make that available for the record, sir, 
including what work was directed to either Lockheed or Northrop 
Grumman. That is all transparent, sir.''

    Question 18. You have testified that the Fast Response Cutter did 
not fail a ``tank test'' that was conducted. But this is not the only 
design problem found by the Coast Guard and an independent review. Do 
you still think the Fast Response Cutter design that Northrop supplied 
is the right design for the Coast Guard?
    Answer. As stated previously, Northrop Grumman believes that the 
FRC design provides the most cost effective means to meet the 
requirements imposed on the vessel following 9/11 and contract award. 
The ``design problems'' largely center on the fact that the hull form 
of the FRC is outside typical patrol boat parameters. This non-
traditional design was necessary to address the post-9/11 requirements 
that no existing patrol craft design was capable of satisfying. In 
particular, the FRC design contains a wide beam, which is driven 
primarily by demanding stability requirements subsequently relaxed for 
FRC-B. In addition, the FRC designed by Northrop Grumman includes a 
four engine propulsion plant, which was necessary to meet speed 
requirements while remaining within applicable design to cost 
constraints.
    The Coast Guard is reviewing FRC-B requirements based on an 
assessment by Alion-JJMA Science and Technology. We will support the 
Coast Guard's ultimate decisions in this regard.
    We agree with the independent third-party analysis by John J. 
McMullen and Associates regarding Northrop's proposed FRC design: ``The 
review team believes that the FRC does appear to meet or is capable of 
meeting the requirements'' and acknowledges that ``[t]he FRC 
preliminary design represents a design solution to a challenging set of 
requirements.''
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                             Philip A. Teel
    Question 1. The Department of Homeland Security's Inspector General 
concluded that the current design of the National Security Cutter will 
not meet contractual performance requirements. The modernization plan 
for the 110-foot patrol boats has resulted in eight ships that are now 
out of service, and Northrop Grumman has not produced a functional 
design for the Fast Response Cutter yet. Why has it been so difficult 
to deliver the assets that you outlined in your original proposal?
    Answer. Northrop Grumman is wholly dedicated to the Deepwater 
Program and takes very seriously its contractual obligations to the 
Coast Guard. There is no single common factor associated with the 
aforementioned Deepwater issues. The issues associated with the 123s, 
Fast Response Cutter and National Security Cutter are addressed below 
in more detail.
National Security Cutter

    The contract contains a 30-year service life requirement for the 
NSC and the vessel as designed will meet this requirement. As required 
by the contract, Northrop Grumman designed the NSC in accordance with 
proven U.S. Navy Design Data Sheets. In fact, the NSC design is 
structurally more sound than required under these Navy standards.
    The DHS IG's conclusions were not based upon the most current 
program and design information. The Coast Guard and Northrop Grumman 
agree that there is no safety issue or operational restrictions 
associated with the current NSC design. In his January 30, 2007 
testimony before the House Subcommittee on Coast Guard and Maritime 
Transportation, Commandant Allen stated, ``There has never been a 
question of safety related to the ship's structure, nor have we ever 
anticipated any operational restrictions related to its design.'' In 
addition, the American Bureau of Shipbuilding (ABS) has certified the 
structural design drawings of the NSC.
    The discussions between Coast Guard and Northrop Grumman engineers 
on the NSC relate to fatigue-life. Fatigue-life and service life are 
two different concepts. Fatigue-life refers to the amount of time prior 
to the onset of cracks in structurally significant elements in the 
vessel. When cracking occurs, appropriate repairs are performed. While 
some degree of cracking is expected during the life of a vessel, 
determining the length of time between ship delivery and the onset of 
cracking is not an exact science. Service life, in contrast, is the 
amount of time in which repairs of cracks and other conditions in the 
vessel remain economically viable to perform in order to keep the ship 
in service. Unlike service life, fatigue-life is not a contract 
requirement. The Naval Surface Warfare Center, Carderock Division (Navy 
Carderock) performed an analysis of the predicted fatigue-life of the 
NSC using a model which was not benchmarked using valid historical data 
and realistic operating conditions. When properly benchmarked, a 53.8 
year fatigue-life is predicted for the NSC design. The differing 
fatigue-life analyses have resulted in a dialogue between engineers 
which will lead to a final determination on the need for any 
enhancements to further extend fatigue-life.
    Although not required by contract, Northrop Grumman has undertaken 
the responsibility for working with the Coast Guard and Navy Carderock 
to achieve consensus on the predicted and desired fatigue-life of the 
NSC. Northrop Grumman has been involved in extensive analyses and 
dialogue with government engineers to resolve these issues to the 
satisfaction of the Coast Guard.
123 Conversion

    ICGS proposed the 123, conversion as an appropriate means to 
provide the Coast Guard with the necessary capability to meet its 
mission objectives while remaining within the confines of the program 
funding requirements. During the initial Deepwater competition, 
offerors were required to propose a set of specific solutions 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 those annual funding limitations. An interim solution was 
proposed. This interim solution was a modification to some of the Coast 
Guard's existing 110-foot vessels to 123-foot vessels with stern launch 
capability to satisfy many of the patrol boat requirements until a new 
design could be fielded.
    Our proposal to convert the 110, vessels was based on information 
then available and known to us. Prior to proposal submission, 
Bollinger, our subcontractor and original builder of the 110s, reviewed 
Coast Guard surveys of major structural repairs performed on the 110, 
fleet. These surveys indicated that 110, structural deficiencies, when 
present, were the result of corrosion and could be addressed by 
identifying and renewing corroded plating and structure. This 
information was consistent with a Coast Guard report, dated March 8, 
2002, prepared by the 110, WPB Emergency Service Life Evaluation Board 
(SLEB Report). The SLEB Report stated that the 110, hulls were in 
deteriorated condition but that the periodic repair of hull plating 
would improve the readiness of the fleet. Consistent with the SLEB 
Report and the Coast Guard surveys, ICGS determined that replacement of 
thin hull plating would be sufficient to overcome the deteriorated 
condition of the 110s.
    Following contract award, but before any conversion work began, the 
Coast Guard, ICGS, Northrop Grumman, and Bollinger conducted a 
Preliminary Design Review, Critical Design Review, and Production 
Readiness Review of the 123, design and proposed conversion scope of 
work. During these reviews, ICGS and Northrop Grumman presented to the 
Coast Guard the engineering analyses and design approach for the 123, 
conversion effort.
    Unfortunately, the 110, vessels delivered for conversion were in 
worse condition than anticipated. While the worse than expected 
condition of the ships would require more replacement of hull plating, 
the Coast Guard, Northrop Grumman, and Bollinger did not believe that 
the viability of the conversion approach was in question.
    Following the buckling on the MATAGORDA, a joint Coast Guard and 
Northrop Grumman tiger team discovered that the vessel had a pre-
existing 110 workmanship issue at the location of the hull buckling. 
Specifically, a hidden, unwelded aluminum deck stringer was discovered 
immediately beneath the area where the failure occurred. All eight 123s 
were examined, and an unwelded stringer was found on one additional 
hull undergoing conversion. When modeled using finite element analysis, 
the stresses in the panels which failed on the MATAGORDA were 
significantly higher than the stresses shown when the model was run 
with this stringer intact. Based on this finding, the ICGS and Coast 
Guard believed this to be the primary cause of the buckling on 
MATAGORDA, and repairs were made accordingly.
    In an effort to further improve the structural integrity of 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 expected operating range of the 123s, these 
additional stiffeners were considered to provide an added margin of 
strength. The three stiffener bands were added to all the 123s.
    Northrop Grumman has been committed to and remains committed to 
identifying the root causes of the 123, structural issues. After 
learning of the MATAGORDA buckling in mid-September 2004, Northrop 
Grumman immediately began a review of all available information and 
reports on the incident. Northrop Grumman formed a Tiger Team with the 
Coast Guard Engineering Logistics Center (ELC), Bollinger Shipyards, 
and ICGS to investigate the cracking and buckling problems that had 
occurred on this vessel during its transit run away from Hurricane 
Ivan. The Tiger Team investigation occurred between September 2004 and 
January 2005.
    As part of the Tiger Team effort, Downey Engineering performed 
finite element analyses of the 123,, which modeled the converted hull. 
In addition to these analyses, Northrop Grumman performed hull girder 
section modulus calculations and longitudinal strength calculations. 
Despite these extensive analyses and calculations, the Tiger Team was 
not able to correlate the problems actually experienced on the vessel 
based on the reported sea states. Northrop Grumman also retained Stress 
Engineering Services, Inc. to conduct metallurgical testing between 
August 2006 and February 2007. This testing revealed an issue on the 
main deck that exists on the 123s and across the entire legacy 110, 
fleet. Northrop Grumman also collected data 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 stern-launch system, are being reexamined and 
validated.
    The Coast Guard ELC commissioned its own finite element analysis, 
which at the time was not shared with Northrop Grumman. In February 
2006, NGSS offered to perform a comprehensive engineering assessment at 
no cost to the Coast Guard. The Coast Guard declined the offer with the 
exception of some metallurgical testing. In early 2006, the Coast Guard 
ELC conducted additional testing and analysis on the 123s. Northrop 
Grumman was not provided an opportunity to participate in this testing. 
In fact, it was not until January 2007, that the Coast Guard began to 
share the test results with Northrop Grumman. Since that time, however, 
the Coast Guard is now sharing their test data with Northrop Grumman so 
it can be analyzed in conjunction with all of the other test data.
    In summary, Northrop Grumman has assumed responsibility for working 
with the Coast Guard to understand the structural issues experienced on 
the 123s, and has devoted, and will continue to devote, significant 
resources to this effort well beyond our contractual obligations.
Fast Response Cutter

    ICGS and Northrop Grumman originally proposed a Fast Response 
Cutter (FRC) with a steel hull design. Following contract award, 
substantial post-9/11 changes in the Coast Guard's mission and 
requirements resulted in a set of required capabilities that exceeded 
traditional patrol boat functions. As a consequence, the steel design 
originally proposed by ICGS and Northrop Grumman did not satisfy the 
new and expanded requirements of the Coast Guard. In addition, the 
Coast Guard accelerated the delivery requirement for the FRC by 10 
years.
    To meet the expanded post-9/11 requirements and accelerated 
schedule, Northrop Grumman conducted trade studies, the results of 
which indicated that a composite hull would best serve the Coast 
Guard's new post-9/11 mission requirements. One major consideration was 
that the composite FRC would result in approximately $1B in life cycle 
cost savings. The Coast Guard then elected to pursue the composite 
approach with a design-to-cost limit. This design-to-cost approach 
became a ``production cost cap'' but no requirements trade-offs were 
accepted by the Coast Guard. These performance requirements coupled 
with the cost cap resulted in a shortened vessel length (increasing 
length increases cost) and wider beam (to accommodate requirements) 
than traditional patrol boat hull dimensions. A worldwide survey proved 
that no existing patrol boat could satisfy the full set of 
requirements.
    The Coast Guard and industry each conducted analyses of the FRC 
design and the best value approach for meeting Coast Guard operational 
requirements. Northrop Grumman is not aware of any Coast Guard 
determination that the FRC design is ``unsuited'' for its post-9/11 
mission requirements. To the contrary, an independent study hired by 
the Coast Guard has confirmed the ability of the proposed FRC design to 
meet the challenging Coast Guard operational requirements.
    Currently, the Coast Guard is sponsoring an independent business 
case analysis to determine if a steel or composite hull design is most 
cost effective. Northrop Grumman analysis has shown that the service 
life of a composite hull will be considerably longer than a traditional 
steel hull. While Northrop Grumman stands behind its FRC design, it 
will support the Coast Guard's ultimate decision in this matter.

    Question 2. Do you believe the current contract is working? Are 
there aspects that you believe should be changed to ensure the Coast 
Guard receives state-of-the-art assets that meet the performance 
requirements of the Coast Guard, at a reasonable cost?
    Answer. The Deepwater Program is working and has delivered value to 
the Coast Guard which includes HH-65 engine upgrades, legacy cutter 
communication suite upgrades, C-130J missionization, and other 
enhancements that have markedly improved Coast Guard operations. It 
cannot be forgotten that the program began before 9/11, and that the 
events of 9/11 have caused the Coast Guard to substantially change its 
mission requirements and the requirements for assets associated with 
carrying out these new and substantially increased mission 
requirements. Further, the Coast Guard is now part of the Department of 
Homeland Security. Such changes have stressed an infrastructure not 
originally designed for the post-9/11 world. In a post-9/11 world that 
must now move at a vastly increased pace, the Coast Guard, ICGS, 
Northrop Grumman, Lockheed Martin and many other contractors which 
support our Government's post-9/11 mission needs are and will encounter 
organizational changes and operational changes to achieve the demands 
of this new environment. The answer to such requirements is an even 
greater need to work collaboratively and to develop the contract and 
organizational structures necessary to support this collaboration.
    The recent steps announced by Admiral Allen to re-align functions 
within the Coast Guard to provide greater oversight and responsiveness 
to address procurement management and technical issues will certainly 
address many of the Deepwater acquisition issues. This approach will 
yield benefits and significantly enhance the ability of the Deepwater 
Program to deliver the assets and support our Nation's needs to address 
post-9/11 mission requirements.
    Several weeks ago, Commandant Allen met with Northrop Grumman CEO 
Ronald Sugar and Lockheed Martin CEO Robert Stevens in the first of a 
planned series of meetings to discuss near and long-term objectives and 
goals for the Deepwater Program. As an outcome, ICGS and the Coast 
Guard recently developed a Statement of Strategic Intent to provide a 
management framework for developing the way forward on the Deepwater 
Program. In addition, the Statement of Strategic Intent is intended to 
clarify the roles the Coast Guard and ICGS in performance of the 
Deepwater mission.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Trent Lott to 
                             Philip A. Teel
    Question 1. Please explain the difference between the Naval Surface 
Warfare Center--Carderock Division's (NSWC-CD) fatigue-life analysis 
method and inputs used for the National Security Cutter (NSC) and the 
ship design methods and calculations traditionally used to design Navy 
combatants and Coast Guard cutters. How does the NSWC-CD fatigue-life 
prediction for the NSC compare to proven hulls using the same model and 
inputs?
    Answer. The Coast Guard performance specifications required 
Northrop Grumman to design and construct the NSC in accordance with the 
Cutter Specific Certification Matrix (CSCM). The NSC CSCM did not 
impose any new or additional operational requirements, but provided the 
standards for verification that the performance requirements are met.
    The CSCM incorporated Design Data Sheets, which are widely accepted 
within the shipbuilding industry as the ``traditional approach'' to 
design and build ships. For decades, the Design Data Sheet approach has 
produced successful designs over a wide range of vessels. This approach 
implies an acceptable fatigue-life and long-term ship performance based 
on a reasonable level of maintenance. Northrop Grumman has used the 
Data Design Sheet approach in the design of numerous Navy vessels and 
the NSC design is structurally more sound than required under these 
Navy standards.
    The contract contains a 30-year service life requirement for the 
NSC and the vessel as designed will meet this requirement. The Coast 
Guard and Northrop Grumman agree that there are no safety or structural 
issues nor are there any operational restrictions associated with the 
current NSC design. In his January 30, 2007 testimony before the House 
Subcommittee on Coast Guard and Maritime Transportation, Commandant 
Allen stated, ``There has never been a question of safety related to 
the ship's structure, nor have we ever anticipated any operational 
restrictions related to its design.'' In addition, in a March 2007 
article in the U.S. Naval Institute's Proceedings magazine, Admiral 
Blore was quoted as stating that ``there is not a structural issue with 
the National Security Cutter. It's a great robust design'' . . . and 
there is no ``safety issue.'' In addition, the American Bureau of 
Shipbuilding (ABS) has certified the structural design drawings of the 
NSC.
    The discussions between Coast Guard and Northrop Grumman engineers 
on the NSC relate to fatigue-life. Unlike service life, fatigue-life is 
not a contract performance requirement. The Naval Surface Warfare 
Center, Carderock Division (Navy Carderock) performed an analysis of 
the predicted fatigue-life of the NSC using a model not benchmarked or 
based upon valid historical data and realistic operating conditions. 
Applying the Carderock model to a proven hull such as the 40-year-old 
Hamilton class, yields a fatigue-life prediction of three to 7 years. 
The same analysis model run on the 30-year-old DDG-2 predicted a 
fatigue-life of approximately 5 years, demonstrating the insufficient 
benchmarking of the model.
    When properly benchmarked, the NSC fatigue-life is predicted to be 
nearly 54 years. The differing fatigue-life analyses have resulted in a 
dialogue between engineers which will lead to a final determination on 
the need for any enhancements to further extend fatigue-life.
    Although not required by contract, Northrop Grumman has been 
involved in extensive analyses and dialogue with government engineers 
to resolve these issues to the satisfaction of the Coast Guard.

    Question 2. Please describe the modifications made to the original 
NSC design to accommodate Coast Guard concerns with the cutter's 
structural strength. To the extent that these modifications will be 
different between NSCs 1-2 and NSC 3 and beyond, please describe these 
differences.
    Answer. Many of the structural items raised by the Coast Guard have 
been addressed and incorporated in the BERTHOLF and WAESCHE (NSC 1 and 
2) during the design phase. These changes are now in the baseline 
design for all NSC ships. For example, upgraded steel, thicker steel, 
modifications to Fashion Plates and Re-entrant Corners, and the 
addition of two longitudinal Hovgaard bulkheads to provide increased 
stiffness at the stern were incorporated into the design. Northrop 
Grumman also has made enhancements to address Coast Guard structural 
concerns with the design of the ship bottom. Northrop Grumman has 
further addressed structural issues raised by the Coast Guard by using 
reduced penetrations in the deck stringer plates and reinforcing those 
that were still required using Navy fatigue guidance criteria.
    These enhancements coupled with the post-9/11 mission requirements 
have added approximately 1,000 tons to the displacement, including a 
one-third increase in electrical power systems, a tripling of air 
conditioning and ventilation capacity, the addition of 25 antennas and 
a 26 percent growth in the size of the berthing spaces. These changes 
were necessary to address the heightened operational requirements of 
the Coast Guard. None of these changes are related to the fatigue-life 
issue.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                             Philip A. Teel
    Question 1. The DHS OIG contends the National Security Cutter as 
currently designed, will fail to live up to Coast Guard mission 
requirement of 185 days underway over its 30-year life span. The Coast 
Guard expresses similar concerns. However, ICGS does not appear to 
agree with this conclusion. If NSC 1 was put into service without any 
of structural modifications the Coast Guard now says are necessary, 
would it meet the contractual performance requirements of a 30-year 
fatigue-life assuming 185 underway days per year?
    Answer. Northrop Grumman continues to believe that the NSC meets 
the contract requirements for a 30-year service life. There is no 
contract requirement for a 30-year fatigue-life. Both the Coast Guard 
and Northrop Grumman agree that there are no safety or structural 
issues related to the ship's design. Nor are there any operational 
restrictions associated with the current NSC design. The NSC structural 
design meets the 30-year service life requirements of the contract and 
ABS, the certifying authority for NSC structural standards, has 
independently certified compliance with these structural standards.
    The issues that have been raised between the engineers relate 
primarily to fatigue-life, an extra-contractual matter. The question 
currently being addressed by Northrop Grumman and the Coast Guard 
involves the fatigue-life of the NSC over its 30-year service life. 
Fatigue-life and service life are two different concepts. Fatigue-life 
refers to the amount of time prior to the onset of cracks in 
structurally significant elements in the vessel. When cracking occurs, 
appropriate repairs are performed. While some degree of cracking is 
expected during the life of a vessel, determining the length of time 
between ship delivery and the onset of cracking is not an exact 
science. Service life, in contrast, is the amount of time in which 
repairs of cracks and other conditions in the vessel remain 
economically viable to perform in order to keep the ship in service.
    The 30-year service life of the ship was based on an assumption of 
230 days away from homeport, a number that includes 45 days in port for 
logistics and 185 days away from port and underway. The ``30-year 
life'' requirement does not pertain to fatigue-life. In determining 
fatigue-life, the controlling assumption is the amount of time the 
vessel spends in extreme sea states, not total days underway. This 
assumption forms the basis for the differing engineering predictions of 
fatigue-life. Applying the Navy Carderock model to a proven hull such 
as the 40-year-old Hamilton class, yields a fatigue-life prediction of 
three to 7 years. The same analysis model run on the 30-year-old DDG-2 
predicted a fatigue-life of approximately 5 years, demonstrating the 
insufficient benchmarking of the model. When the model is calibrated in 
accordance with Navy fatigue-life guidance instructions, and realistic 
real-world sea state conditions, the NSC fatigue-life is predicted to 
be nearly 54 years. We will continue to work with the Coast Guard to 
define the level of structural enhancement they desire.

    Question 1a. Are the National Security Cutter design changes and 
structural enhancements requested by the Coast Guard needed to meet the 
Deepwater contract performance specifications? Please explain your 
reasoning.
    Answer. No. As discussed above, the NSC as designed meets the 
contract performance requirements. However, the Coast Guard has 
requested structural enhancements based on a concern regarding the 
calculated prediction of fatigue-life. Northrop Grumman and Navy 
Carderock have used a relatively new method to model the predicted NSC 
fatigue-life by applying different approaches to existing ship designs, 
operational characteristics and hull form. The difference in the two 
approaches relates to whether the model is benchmarked using historical 
data from ships that have operated in similar environments for long 
periods of time. The Navy Carderock performed their fatigue analysis by 
assuming that the NSC would spend 100 percent of the time in specific 
locations known for very bad weather conditions. Based upon ``real-
world'' operational experiences with naval vessels, the NSC will 
encounter a variety of sea states. As discussed above, when the 
analysis assumes realistic real-world sea state conditions, the NSC 
fatigue-life is predicted to be nearly 54 years.
    To the extent the ongoing discussions with the Coast Guard result 
in the Coast Guard requiring fatigue-related structural enhancements, 
those enhancements will be provided consistent with Coast Guard 
requirements.

    Question 1b. In your written testimony you mention that there has 
been an extraordinary degree of transparency in the Deepwater program, 
but the DHS IG reports that it was refused access to personnel and 
information during its investigation of the NSC . . . what is your 
explanation for this discrepancy?
    Answer. Throughout the course of the Deepwater Program, ICGS and 
Northrop Grumman have participated in a number of GAO audits and have 
supported and participated in reviews by the Defense Acquisition 
University, and the Coast Guard Program Management Team. In connection 
with these audits and reviews, ICGS and Northrop Grumman routinely 
provided support for audit team site visits to ICGS facilities, 
management and technical staff meetings with audit teams, briefings and 
updates to auditors, and support for multiple Coast Guard and 
independent data call responses. In addition, ICGS has provided access 
to and training on the ICGS electronic document system and numerous 
files and documents.
    Consistent with our participation in these audits, and consistent 
with the Generally Accepted Government Auditing Standards (GAGAS), ICGS 
and its member companies offered to facilitate the Department of 
Homeland Security, Office of Inspector General (DHS OIG) audit by 
making personnel available for interviews while respecting the rights 
of our employees. Not knowing the subject of the audit or whether the 
audit related to or focused on ICGS or its member companies, ICGS 
requested in its February 17, 2006 letter that the OIG clarify the 
purpose and scope of the audit and, depending on its nature, to allow 
management or legal representation at interviews. The OIG neither 
acknowledged these requests nor sought to discuss how ICGS might 
facilitate their audit. The DHS OIG never contacted us again. ICGS and 
Northrop Grumman remain committed to supporting the Coast Guard, this 
Subcommittee and other agencies in their Deepwater oversight efforts.

    Question 2. The DHS&G Report on the Acquisition of the National 
Security Cutter (DHS&G-07-23) states the Coast Guard allowed the 
Contractor to self-certify compliance with the standards. In the 
footnotes of the report (page 14), the Deepwater Surface Statement of 
Objectives states, ``. . . performance specification and cutter 
specific certification matrix are certified either by self-
certification or by an independent agent, except that the contractor 
shall use American Bureau of Shipping (ABS) to certify compliance with 
ABS standards.'' What are the practical differences and implications 
between ABS certification and ``self-certification'' with ABS 
certifying compliance with ABS standards?
    Answer. ICGS does not self-certify compliance with the NSC 
performance specifications, but is required to verify to the 
satisfaction of the Coast Guard that the performance specifications 
have been achieved. Verification of specification compliance is 
accomplished through testing, examination, analysis, or simulation. The 
NSC specifications further require that the vessel be designed and 
constructed in accordance with NSC Cutter Specific Certification Matrix 
(CSCM). The CSCM identifies the standards to be followed in the design 
of the NSC, and compliance with these CSCM standards must be certified. 
The NSC CSCM does not impose any new or additional operational 
requirements; but provides the standards for verification that the 
existing requirements are met. The CSCM contains line items (SORTS) 
that describe how certain systems are certified. The certification 
process culminates with attesting by report, letter or similar 
documentation that the attribute or performance of the equipment or 
system meets the applicable standards of the CSCM. Any deviations from 
these standards must be formally approved by the Coast Guard.
    Whether ICGS or ABS attests to compliance with CSCM standards, 
documentation must be provided which is verifiable. The ICGS 
verification process for the Coast Guard is similar to the verification 
and review process on Navy programs. ABS certifies to the CSCM 
standards through review of design drawings and supporting engineering 
analyses, and their efforts may include their own analytical 
verifications. ABS specifies to Northrop Grumman the design products to 
be submitted for review. ICGS develops its design in accordance with 
the CSCM using industry-accepted methods and produces associated 
documentation that is provided or available to the Coast Guard. The 
basic design along with this documentation undergoes an internal review 
process within Northrop Grumman engineering to evaluate the design 
against the requirements and assess the validity and correctness of the 
analyses and solution. In addition, the Coast Guard participates in 
design reviews during the entire development process so that they 
understand the technical decisions proposed or made by ICGS/Northrop 
Grumman and the evolution of the design. Subsequent testing and trials 
complete the assessment of performance of the design against Coast 
Guard requirements. The Coast Guard retains the right to review and 
accept or reject the work.

    Question 2a. Did Northrop Grumman Ship Systems or ICGS ``self-
certify'' compliance with the design standards of the National Security 
Cutter as reported in the DHS&G Report on the Acquisition of the 
National Security Cutter (DHS OIG-07-23)?
    Answer. Northrop Grumman does not self-certify compliance with the 
NSC structural requirements of the contract. Rather, the Contract 
specifically requires the contractor to verify its work through 
inspection and testing. As such, Northrop Grumman does not have the 
final say as to whether an asset it provides meets all contract 
requirements. Instead, the Coast Guard has the final word contractually 
as the Coast Guard has retained the right to review and accept or 
reject work. The NSC, similar to the naval vessels Northrop Grumman 
designs and builds, is subject to a comprehensive external 
certification process. For the NSC, the American Bureau of Shipbuilding 
(ABS) certified 14 Systems Level drawings, including structural design 
drawings. ABS will also certify 35 ship systems during this acceptance 
process. These include Command and Control Systems, Propulsion Plant, 
Machinery Monitoring and Control, Fuel Systems, Anchoring Systems, and 
Steering Systems. Prior to or in conjunction with the delivery of the 
NSC BERTHOLF, there will be a total of 46 independent third-party 
certifications. These independent certifications include Final Aircraft 
Facilities, Flight Deck Status and Signaling, Navigation Systems, 
Interior Communications Systems, Guns and Ammunition Weapons System 
Safety, DOD Information Security and Accreditation, and TEMPEST. The 
U.S. Navy Board of Inspection and Survey (INSURV) will conduct the Ship 
Acceptance Trials (AT) when the cutter gets underway later this year.
    The NSC CSCM provided to ICGS by the Coast Guard permits ``self-
certification'' of design standards only in instances ``where neither 
ABS nor other 3rd Party certification is required.'' However, any self-
certification must be supported by documentation, such as Independent 
Inspection Reports (IIRs), Test Inspection Reports (TIRs), and 
Compartment Completion Inspection Reports (CCIR). Even in such 
instances, the Coast Guard retains the right to review and accept or 
reject such reports. As such, it is ultimately the Coast Guard, not 
ICGS or Northrop Grumman, which has the final say, contractually, as to 
whether the Coast Guard-provided standards have been met.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. David Vitter to 
                             Philip A. Teel
    Question 1. Your testimony refers to the 2002 decision of the Coast 
Guard's Service Life Extension Board that determined that systematic 
hull repairs on the 110, vessels was the solution to deterioration 
problems. Do you believe that the conversion complied with these 
recommendations?
    Answer. The 123, conversion was consistent with the recommendations 
contained in the 2002 110, WPB Emergency Service Life Extension Board 
Report (SLEB Report). The Coast Guard SLEB Report, issued before the 
eight patrol craft were converted, recognized the deteriorated 
condition of the 110, hulls, and concluded that the periodic repair of 
hull plating, when necessary, would improve the readiness of the fleet.
    In fact, the SLEB Report made reference to the upcoming 123, 
conversion effort, which would utilize the hull repair approach 
recommended by the SLEB. Under the 123, conversion plan, Bollinger, our 
subcontractor, conducted an ultrasonic examination of the hull plating 
on each inducted 110, and replaced any plating that was less than 90 
percent of its required thickness. Consistent with the SLEB Report and 
the Coast Guard surveys of the 110s, ICGS believed that replacement of 
thin hull plating would be sufficient to overcome the deteriorated 
condition of the patrol boats. In this manner, the SLEB Report 
confirmed the belief that the 110, structural deficiencies could be 
addressed by renewing corroded plating and structure during conversion.

    Question 2. Can you describe the role of the American Bureau of 
Shipping in the approval of the hulls on the MATAGORDA?
    Answer. The performance specifications require that the 123, 
conversion be designed and constructed in accordance with the 123, 
Cutter Specific Certification Matrix (CSCM). The CSCM identifies the 
standards to be followed in the design and conversion to the 123,. The 
123, CSCM does not impose any new or additional operational 
requirements, but provides the standards for verification that the 
existing requirements are met. The CSCM contains line items (SORTS) 
that describe how certain systems are certified, and the 123, is 
designed to be compliant with the applicable CSCM standards. Any 
deviations from these standards must be formally approved by the Coast 
Guard.
    SORT 109, General Requirements for Hull Structure, and SORT 113, 
Shell Plating, in the CSCM address the structural design requirements 
for the 123, hull extension. The areas addressed by these SORTS include 
the general requirements for hull structure and requirements for shell 
plating, respectively. SORTS 109 and 113 adopt the 1997 American Bureau 
of Shipping (ABS) Guide for Building and Classing High Speed Craft. The 
general requirements of SORT 109 were applicable to new or modified 
structure rather than the entire legacy 110, hull. The method of 
verification of compliance with the ABS standard is through examination 
by ABS.
    During the period from August 25, 2003 to April 7, 2004, ABS 
examined the 123, structural design and reviewed drawings for 
compliance with structural design SORTS 109 and 113. Periodic visits 
were made by ABS during the course of the conversion to verify that the 
work was being accomplished in accordance with the approved drawings. 
On April 7, 2004, ABS issued a Report of Survey number MC510848-A, 
certifying that their inspectors examined the design and construction 
of the 123, for compliance with the approved design. The report 
specified the areas examined, including those covered by SORTS 109 and 
113, and certified that the 123, hull extension design complied with 
contractual ABS requirements. This certification applies to all 123, 
hulls, including the MATAGORDA.

    Question 3. Could you comment on the plan to provide a composite 
hull for the FRC? Is this the right solution, and is it cost effective?
    Answer. The ICGS proposal selected by the Coast Guard in 2002 
identified Bollinger as the designer and builder of the FRC. The 
proposal also contemplated the FRC would not be awarded until 2018. The 
advent of new post-9/11 mission requirements coupled with the Coast 
Guard's desire to obtain a vessel now and not years later to meet the 
post-9/11 mission requirements resulted in the FRC being accelerated by 
10 years. To meet the new post-9/11 mission requirements and to address 
a longer service life for the new FRC, Northrop Grumman conducted a 
business case analysis and, as a result, proposed a low maintenance, 
long life composite hull. The composite hull that was then proposed 
showed substantial savings (over $1B in life cycle cost) resulting from 
not having to replace the hull for 35-40 years.
    An independent third-party analysis also confirmed that Northrop 
Grumman's FRC design appeared to meet or is capable of meeting all of 
its design and performance requirements. Northrop Grumman believes the 
FRC design, while non-traditional, is sound and meets Coast Guard 
requirements.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                           Dr. Leo S. Mackay
    Question 1. ICGS is responsible for developing the assets needed 
for the Coast Guard's performance requirements. The DHS IG found that 
the Coast Guard retained very little authority over technical 
decisions. If that is true, and a design ends up being flawed, isn't it 
the responsibility of ICGS?
    Answer. A design could be determined to have flaws for a number of 
reasons. The basic requirements from which the design was developed 
could be flawed or there could be errors made in the design process. An 
analysis must be performed to determine the nature and characteristics 
of a suspected design flaw as well as the root cause. It is important 
to note how the Deepwater technical approval process operates. As a 
design matures, it goes through a full set of formal technical review 
steps--preliminary design review (PDR), critical design review (CDR), 
test readiness review (TRR), and production readiness review (PRR) are 
the main features of the process. At each of these reviews a full 
complement of government and industry representatives is present. ICGS 
makes recommendations to the Coast Guard and presents data that 
confirms how the design achieves all conditions for current step in the 
process and how it is ready to progress to the next step in the 
process. The Coast Guard decides and approves or disapproves 
progressing to the next step in the process. This process has been in 
place since inception of the program and enables the Coast Guard to 
decide the technical maturity of all designs.

    Question 2. Do you know of any examples in which ICGS, Lockheed 
Martin, or Northrop Grumman used the awarding of Deepwater subcontracts 
to industry partners as a means to leverage other potential deals or 
contracts for Lockheed Martin or Northrop Grumman?
    Answer. I can answer for Lockheed Martin. There were no 
subcontracts awarded by Lockheed Martin as a means to leverage other 
potential deals or contracts for Lockheed Martin.

    Question 3. Can you please explain the advantages of using a 
systems integrator as far as interoperability and total ownership cost 
are concerned?
    Answer. Lockheed Martin is using System Engineering methodologies 
to accomplish a cost-effective approach to integration across multiple, 
geographically-dispersed platforms. This complex endeavor requires the 
application of a wide-range of engineering disciplines, synchronized to 
program timelines and objectives. In the context of Deepwater, Systems 
Integration engineering is a discipline for building complete systems 
by bringing together components from different sources so that all 
individual components together produce synergistic results not 
obtainable as stand-alone subsystems. Systematic analysis of 
organizational, technological, and operational factors using these 
systems integration techniques and tools have produced good results:

   Minimization of the cost of asset acquisition, operation and 
        maintenance; and

   Maximization of assets' ability to interoperate with each 
        other as well as with other agencies and departments.

    The Deepwater system of systems approach is achieving performance 
that is more than the sum of individual capabilities at lower costs 
than one-for-one replacement.
    The Deepwater engineering team has also achieved a high level of 
reuse of off-the-shelf items, such that the majority of the program 
software has already been developed, tested, proven, and used by 
others. Deepwater has avoided nearly $97M of engineering and software 
development costs in addition to obviating risks of creating new 
software. In addition, with interoperability designed in, the costs of 
testing performed in a step-by-step fashion between each asset are 
precluded. This would have entailed as much as an additional $145.5M 
for the broad range of Deepwater assets being upgraded and deployed.

    Question 4. Isn't it possible to integrate assets and equipment 
with common technology without use of a systems integrator?
    Answer. We believe the Deepwater system engineering and integration 
approach described above is essential to achieve commonality and 
interoperability in an effective and efficient manner. Without a 
system-centric approach is more costly and more risky to establish 
interoperability and commonality as well as control the total ownership 
costs of systems and assets.

    Question 5. For instance, can't Lockheed work with Coast Guard to 
use the communications and other systems on all of their assets without 
managing every aspect of the procurement?
    Answer. Industry's performance has been closely supervised by the 
Coast Guard. All designs and improvements are based on trade studies, 
analyses, and technical considerations. The Coast Guard is the 
decisionmaker and contracting authority and all major acquisition 
decisions are reviewed and approved by Coast Guard senior leadership. 
The Deepwater program uses the depth of capabilities and experience of 
its industry partners to provide solutions in accordance with Coast 
Guard requirements. The results so far indicate that Deepwater has made 
a difference in the effectiveness of the Coast Guard with regard to the 
numbers of drug seizures, migrant interdictions and lives saved.

    Question 6. Dr. Mackay, the GAO has described Lockheed's ``Open 
Business Model'' as a philosophy and not a requirement for competition. 
Is that an accurate description?
    Answer. The Open Business Model is part of the Lockheed Martin 
subcontracting process that helps ensure best value throughout the 
program. It involves deferring down-select decisions as long as 
practicable to avoid guaranteed work share to a particular supplier. 
This helps facilitate thorough evaluations of the marketplace for the 
most appropriate products and services. Deepwater competition 
requirements on the program are governed by the Federal Acquisition 
Regulations 52.244-5, ``Competition in Subcontracting.''

    Question 7. How many RFPs have ICGS or the first-tier 
subcontractors (Lockheed and Northrop) issued for subcontracts under 
the Deepwater program?
    Answer. I can answer for Lockheed Martin. Lockheed Martin has 
issued approximately 2,400 Requests for Proposal and Requests for 
Quotation since the program began. This value is an empirical 
calculation based on the number of suppliers currently being used by 
Lockheed Martin in performance of the Deepwater program. There are 
presently 342 suppliers, including Lockheed Martin divisions and 
subsidiaries, for a total value of $745,392,640. The list without 
Lockheed Martin divisions and subsidiaries totals 334 suppliers for a 
total value of $688,299,176.

    Question 8. If you are a company that has an alternative product 
that has merit, what avenues exist for getting such products considered 
by ICGS?
    Answer. A supplier with an alternative product should register at 
www.teamdeepwater.com. Together with Northrop Grumman, Lockheed Martin 
has hosted six Innovation and Industry Days across the country 
resulting in an active database of more than 3,000 supplier-product 
offerings. Registering on the website is the necessary first step in 
the process. Registries are reviewed monthly and our procurement 
department takes appropriate steps to contact suppliers based on 
current and planned needs.

    Question 9. The GAO in 2004 found that 40 percent of subcontracts 
were awarded by Lockheed and Northrop to themselves. Has this 
percentage gone up, down, or stayed about the same since then?
    Answer. I can answer for Lockheed Martin. As of December 2006, the 
Lockheed Martin purchasing department had awarded subcontracts and 
interdivisional work transfers totaling $745,392,640. Subcontracts 
involve awards to firms outside of Lockheed Martin. Interdivisional 
work transfers involve ``subcontracts'' to entities within Lockheed 
Martin. The total value of $745,392,640 comprises $688,299,176 of 
subcontracts and $77,093,464 of interdivisional work transfers. Thus 
the value of subcontracts to firms outside of Lockheed Martin is 89.7 
percent of the total value of all awards.

    Question 10. In your opinion, how is the Lead Systems Integrator 
contracting approach adding value to the Coast Guard and the American 
people?
    Answer. Systems engineering and integration balances trade-offs, 
refines force configurations, and achieves demanding performance goals 
across a multiplicity of mission areas. Systems engineering and 
integration touch every facet of the Deepwater enterprise including 
human-capital management, information technology, air and surface 
platforms, integrated logistics; command, control, communications and 
computers; intelligence, surveillance, and reconnaissance; and, most 
importantly, the fleet operator.
    The systems engineering and integration discipline facilitates the 
use of off-the-shelf and fielded maritime systems to maximize 
commonality and interoperability. For example, the National Security 
Cutter (NSC) is using 75 percent of the U.S. Navy's Open Architecture 
Command and Decision System. The Medium Range Surveillance aircraft 
Command and Control System is employing over 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 
use over 70 percent of the design of the Navy's UYQ-70 Display Systems. 
The approach for missionizing the Coat Guard's six HC-130J long-range 
search aircraft will result in approximately 90 percent commonality in 
C\4\ISR systems planned for the Deepwater HC-144 medium-range 
surveillance aircraft. This is essential to commonality and 
interoperability. In addition, this approach captures the extensive 
work undertaken with the Navy to establish the best Human System 
Interface including workspace ergonomics, viewing characteristics, 
input devices and overall system architecture.
    Deepwater is already providing value to the Coast Guard and the 
American people:

   Increased drug and illegal migrant interdiction, as well as 
        increased lives saved due to the improved capabilities provided 
        by the upgraded C\4\ISR systems. ``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 database management 
        regardless of our physical location. The upgrades have proven 
        to be tough, dependable, and easily maintained.''--USCGC 
        MORGENTHAU Commanding Officer

   Increased capability in the HH-65C helicopter which has led 
        to safer missions for Coast Guard aviation personnel as well as 
        more lives saved with faster speed, twice the endurance and 
        twice the payload. The more powerful HH-65C helicopters flew 85 
        sorties and saved 305 lives following Hurricane Katrina. It was 
        not uncommon for the modernized helicopter to hoist twice the 
        number of people and remain on station for twice as long as 
        older and less-reliable Bravo models. ``It's a beautiful bird, 
        I was a co-pilot for Hurricane Katrina; we were able to carry 
        more fuel and fit into tighter landing zones with less fear of 
        losing an engine.''--HH-65C pilot Air Station Atlantic City

   Two new HC-144 Maritime Patrol Aircraft have been delivered 
        under Deepwater and are undergoing C\4\ISR mission package 
        installation to make these the most capable aircraft in the 
        Coast Guard's aviation history. The C-130J aircraft is being 
        outfitted with interoperable mission packages for long range 
        surveillance. It is undergoing extensive modifications 
        including installation of belly-mounted surface search radar, 
        nose-mounted electro-optical infrared sensor and a flight deck 
        mission operator station. The project was assigned to Deepwater 
        to ensure integration and interoperability with all new and 
        existing aviation assets, including its legacy fleet of C-130H 
        aircraft.

   Work continues to develop logistics support for the Maritime 
        Patrol Aircraft and National Security Cutter. Construction is 
        well underway on the C\4\ISR training suite at Training Center 
        Petaluma, CA, and MPA Hangar at Aviation Training Center 
        Mobile, AL.

    Question 11. Do you have any idea what the total costs above the 
original contract price are that can be attributed to change orders by 
the Coast Guard once they were locked in to a design that did not serve 
their needs?
    Answer. Changes in the technical baseline from June 2002 were the 
result of post-9/11 new mission requirements including clarifications 
of specifications to meet asset performance capabilities. As such, the 
Coast Guard presented a revised program baseline to Congress of $24B/25 
years versus the original plan of $17B/20 years to account, in large 
part, for these changes.

    Question 12. Will the logistics system that ICGS is to deliver 
under the contract be ready for the NSC 1 when it becomes operational? 
What about for all other Deepwater assets? Exactly what have you 
provided to the Coast Guard at this point on your logistics plan?
    Answer. The current contractual work to develop and deploy the 
Logistics System for NSC 1 is fully funded and being carried out 
against an approved baseline schedule. ICGS is currently on plan to 
deliver an operating Logistics System, as evidenced in various status 
reports. The Coast Guard has recently opened discussion with ICGS to 
redefine the processes of Logistics support for NSC 1, including roles 
and responsibilities for Coast Guard logistics infrastructure commands. 
Some of these discussions may result in contractual changes, but ICGS 
is committed to ensuring the best Logistics sustainment infrastructure 
is in place for NSC 1. ICGS has developed and achieved Initial 
Operational Capability of the Aftermarket Support Organization and is 
on schedule to fully support NSC 1 upon delivery.
    All other Deepwater Assets are supported under existing contracts. 
As assets come into their Logistics support phase (post DD250, the 
``Material Inspection and Receiving Report''), contracts are being let 
to cover ICGS support. Some contracts are being negotiated now to bring 
in this support. Aviation logistics support for the first three MPAs is 
an example of support to be awarded. ICGS has been supporting over 50+ 
operational CG assets for the last 12 months.
    ICGS has provided all contractual deliverables to date, in 
accordance with the program of record Integrated Master Schedule (IMS). 
Specific examples include Integrated Support Plans, Training Plans and 
curriculum, Technical Manuals for operations and maintenance, initial 
maintenance tasks, spares, and sourcing recommendations, etc. For the 
NSC, ICGS established an approved Best Value Analysis process that has 
processed 60 percent of C\4\ISR and HM&E sub-systems sustainment 
solutions. Logistics process documents, deliverables, and services have 
been carried out according to approved plans. Contracts that have been 
completed were done with full disclosure to the government via 
certificates of conformance and DD250s where required. Logistics 
support is aligned and in concert with the contracts delivery 
schedules.

                                 ______
                                 

  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                           Dr. Leo S. Mackay
    Question 1. Dr. Mackay, Lockheed Martin is quoted in a letter dated 
August 29, 2006, to Integrated Coast Guard Systems saying that testing 
each of the components of the C\4\ISR system installed aboard the 123-
foot cutters would be ``time consuming, expensive, and of limited 
value,'' and that waivers should be sought. What did Lockheed mean by 
``of limited value?''
    Answer. Off-the-shelf, ruggedized maritime systems were selected 
for the C\4\ISR system in accordance with the Coast Guard Cutter 
Certification Matrix (CCM). The CCM did not require equipment designed 
and tested to full U.S. Navy military standards and performance 
specifications (MIL-STDs and MIL-SPECs). We have a long and wide-
ranging experience in delivering and maintaining high performance 
combat systems to the U.S. Navy and allied navies. As such, we believe 
that extensive testing of off-the-shelf, ruggedized maritime equipment 
to determine the level of compliance to U.S. Navy military standards 
and performance specifications would not provide any significant 
operational benefits to the Coast Guard and would have defeated the 
benefits of off-the-shelf, ruggedized maritime systems.

    Question 2. As I asked Mr. Teel, do you believe the contract is 
working?
    Answer. We believe the contract is working. We are making good 
progress and are delivering significant new and upgraded capabilities. 
At the same time, we recognize the system level effects of networking 
are essential to achieving the level of mission performance needed by 
the Coast Guard. Lockheed Martin is accomplishing high rates of 
software reuse as well as system commonality and integration by the 
rigorous application of proven system engineering processes and 
capabilities. This is saving significant amounts of time and money. In 
addition, we are managing implementation of support systems for all 
Deepwater program domains.
    Every one of the Coast Guard's 12 high-endurance and 27 medium-
endurance cutters have received not one but two command and control 
system upgrades--giving the fleet markedly improved capability to seize 
drugs, interdict migrants and save lives. As for shore sites, there are 
a total of 12 on contract: two Communication Area Master Stations, 
eight Districts, one Sector and Headquarters.
    Two medium-range surveillance maritime patrol aircraft, the newly 
designated HC-144, have been transferred to the Coast Guard, 
missionization is underway and two crews are already in training. At 
the same time, we are working to complete re-engining and upgrading of 
HH-65 helicopters with 68 of 95 helicopters delivered to date. Lockheed 
Martin and American Eurocopter working with the Coast Guard Aircraft 
Repair and Supply Center are now producing upgraded helicopters 
(``Charlie'' models) that can fly faster, twice as far and with twice 
the payload. Six long-range surveillance C-130J aircraft are undergoing 
missionization and will be delivered with fully interoperable command, 
control and communications systems. In addition, the service contract 
for the Helicopter Interdiction Tactical Squadron based in 
Jacksonville, FL, has been renewed for a fifth year. These eight MH-68A 
helicopters are capable of Airborne Use of Force and have had a 
significant impact on illicit drug interdictions.

    Question 3. Are there aspects that you believe should be changed to 
ensure that the Coast Guard receives state-of-the-art assets that meet 
the performance requirements of the Coast Guard, at a reasonable cost?
    Answer. The terms of the overarching Deepwater contract were 
collaboratively modified between the U.S. Coast Guard and industry 
teams (Lockheed Martin and Northrop Grumman) in the months leading up 
to the release of the Award Term RFP. The changes to which we have 
fundamentally agreed will greatly simplify the negotiating process and 
will significantly strengthen the Government's ability to manage the 
Deepwater contract, particularly taking into consideration the Coast 
Guard's recently announced organizational restructuring.
    The Deepwater contract changes now in negotiation are aimed at 
clarifying the contract terms, to our mutual benefit, so that both the 
Coast Guard and the industry team have a clearer alignment of 
expectations and commitments, and streamlines some aspects of contract 
deliverables and measurement to enable the Coast Guard to better manage 
the contract and the industry team to more clearly meet and exceed 
expectations. Elements that will be impacted include contract 
deliverables, performance criteria and incentives, cost control 
criteria and competition, among others. The contract also includes 
specific reference to relevant Federal contracting regulations.

    Question 4. I understand the ICGS uses a Lockheed Martin concept 
for competition, called the ``Open Business Model.'' The GAO has 
described this as only a philosophy, and not a requirement for actually 
competing subcontracts. Can you please explain exactly what this ``Open 
Business Model'' is, and how it differs from the typical requirement 
for formal competition of subcontracts?
    Answer. The Open Business Model is part of the Lockheed Martin 
subcontracting process that helps ensure best value throughout the 
program. It involves deferring down-select decisions as long as 
practicable to avoid guaranteed work share to a particular supplier. 
This helps facilitate thorough evaluations of the marketplace for the 
most appropriate products and services. Deepwater competition 
requirements on the program are governed by the Federal Acquisition 
Regulations 52.244-5, ``Competition in Subcontracting.''

    Question 5. Do you have an explanation for the difficulty 
experienced by the Department of Homeland Security's Inspector 
General's office in gaining access to the ICGS personnel, information, 
and documentation during the course of their audit on the National 
Security Cutter?
    Answer. The Department of Homeland Security Inspector General's 
office has access to personnel, information, and documentation that may 
be required during the course of audits. We have requested that the 
Inspector General's personnel respect the rights of industry employees 
during any interviews.

                                 ______
                                 

  Response to Written Question Submitted by Hon. Olympia J. Snowe to 
                           Dr. Leo S. Mackay
    Question. In your written statement, you mention the importance of 
maintaining emphasis on C\4\ISR (Command and Control, Computers, 
Communications, Intelligence, Surveillance, and Reconnaissance). 
Further, you state Lockheed Martin is working closely with ICGS to 
ensure that electronic equipment developed and produced under the 
cognizance of the C\4\ISR domain is appropriately configured for 
installation on the ship. Yet the DHS reports that the safety of the 
123, patrol boat crews was compromised by the contractor's failure to 
utilize low smoke cabling and that the contractor knowingly installed 
C\4\ISR equipment aboard the 123, cutter and prosecutor that did not 
meet specific environmental requirements outlined in the Deepwater 
contract. With the emphasis on appropriately configured C\4\ISR 
equipment, why did the contractor fail to use low smoke cabling and 
knowingly install C\4\ISR equipment that did not meet environmental 
requirements?
    Answer. Please note that the DHS OIG Report--OIG-07-27 titled 
``110,/123, Maritime Patrol Boat Modernization Project'' did not 
conclude the safety of the 123, patrol boat crews was compromised by 
the contractor's failure to utilize low smoke cabling. This was a 
complainant's allegation to the OIG's Complaint Hotline. The results of 
the subsequent OIG review did not uphold this allegation. Although not 
all cables were low smoke cables, safety was not compromised. The Coast 
Guard has determined that no further action is required for the low 
smoke cabling.
    The IG did determine that aspects of the C\4\ISR equipment 
installed aboard the 123-foot cutters do not meet the design standards 
set forth in the Deepwater contract. This allegation was upheld and the 
Coast Guard was and is actively involved in assessing compliance of 
marine, ruggedized off-the-shelf C\4\ISR equipment with military 
specifications. The Coast Guard expressed a requirement for off-the-
shelf equipment and at the same time imposed military standards in the 
contract. The IG's resulting recommendations included the need for the 
Coast Guard to develop and implement a plan to improve the process for 
reviewing and adjudicating contractor Requests for Deviations/Waivers 
(RFD/RFW). The RFD/RFW process permits the customer to make an informed 
decision regarding cost-effectiveness and safety considerations. It is 
not a step of convenience for the contractor. It is a responsible way 
to allow the customer to make important tradeoffs subject to its own 
criteria and requirements. The IG further concluded that the plan 
should ensure that all waiver requests are resolved prior to 
implementation and that the rationale underlying these decisions is 
formally documented. It is our understanding that the Coast Guard is in 
the process of implementing appropriate contractual and program 
management oversight process improvements.

                                 ______
                                 

    Response to Written Question Submitted by Hon. David Vitter to 
                           Dr. Leo S. Mackay
    Question. Do you attribute the improvements in the Coast Guard's 
statistics on search and rescue, alien interdiction and drug 
interdiction to the Deepwater program?
    Answer. Yes, we are making good progress and are delivering 
significant new and upgraded capabilities. At the same time, we 
recognize the system level effects of networking are essential to 
achieving the level of mission performance needed by the Coast Guard. 
Lockheed Martin is accomplishing high rates of software reuse as well 
as system commonality and integration by the rigorous application of 
proven system engineering processes and capabilities. Every one of the 
Coast Guard's 12 high-endurance and 27 medium-endurance cutters have 
received not one but two command and control system upgrades--giving 
the fleet markedly improved capability to seize drugs, interdict 
migrants and save lives.
    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 
Deepwater to take advantage of the rapid changes in the commercial 
marketplace and the investments which commercial firms make in their 
best of class technologies. This will facilitate Coast Guard 
interoperability with civil and international systems, a key 
consideration given their mission mix.
    The results so far indicate that Deepwater has made a significant 
contribution to the effectiveness of the Coast Guard with regard to the 
numbers of drug seizures, migrant interdictions and lives saved. Coast 
Guard statistics show double- and triple-digit percent improvements as 
Deepwater assets and upgrades enter the fleet.

                                  
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