[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
                   WHAT WILL IT COST? PROTECTING THE
                     TAXPAYER FROM AN UNACHIEVABLE
                    COAST GUARD ACQUISITION PROGRAM

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

                                (112-53)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                COAST GUARD AND MARITIME TRANSPORTATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 4, 2011

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure


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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                    JOHN L. MICA, Florida, Chairman
DON YOUNG, Alaska                    NICK J. RAHALL II, West Virginia
THOMAS E. PETRI, Wisconsin           PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of 
FRANK A. LoBIONDO, New Jersey            Columbia
GARY G. MILLER, California           JERROLD NADLER, New York
TIMOTHY V. JOHNSON, Illinois         CORRINE BROWN, Florida
SAM GRAVES, Missouri                 BOB FILNER, California
BILL SHUSTER, Pennsylvania           EDDIE BERNICE JOHNSON, Texas
SHELLEY MOORE CAPITO, West Virginia  ELIJAH E. CUMMINGS, Maryland
JEAN SCHMIDT, Ohio                   LEONARD L. BOSWELL, Iowa
CANDICE S. MILLER, Michigan          TIM HOLDEN, Pennsylvania
DUNCAN HUNTER, California            RICK LARSEN, Washington
ANDY HARRIS, Maryland                MICHAEL E. CAPUANO, Massachusetts
ERIC A. ``RICK'' CRAWFORD, Arkansas  TIMOTHY H. BISHOP, New York
JAIME HERRERA BEUTLER, Washington    MICHAEL H. MICHAUD, Maine
FRANK C. GUINTA, New Hampshire       RUSS CARNAHAN, Missouri
RANDY HULTGREN, Illinois             GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania           DANIEL LIPINSKI, Illinois
CHIP CRAVAACK, Minnesota             MAZIE K. HIRONO, Hawaii
BLAKE FARENTHOLD, Texas              JASON ALTMIRE, Pennsylvania
LARRY BUCSHON, Indiana               TIMOTHY J. WALZ, Minnesota
BILLY LONG, Missouri                 HEATH SHULER, North Carolina
BOB GIBBS, Ohio                      STEVE COHEN, Tennessee
PATRICK MEEHAN, Pennsylvania         LAURA RICHARDSON, California
RICHARD L. HANNA, New York           ALBIO SIRES, New Jersey
JEFFREY M. LANDRY, Louisiana         DONNA F. EDWARDS, Maryland
STEVE SOUTHERLAND II, Florida
JEFF DENHAM, California
JAMES LANKFORD, Oklahoma
REID J. RIBBLE, Wisconsin
CHARLES J. ``CHUCK'' FLEISCHMANN, 
    Tennessee
                                ------                                7

        Subcommittee on Coast Guard and Maritime Transportation

                FRANK A. LoBIONDO, New Jersey, Chairman
DON YOUNG, Alaska                    RICK LARSEN, Washington
HOWARD COBLE, North Carolina         ELIJAH E. CUMMINGS, Maryland
ANDY HARRIS, Maryland                CORRINE BROWN, Florida
FRANK C. GUINTA, New Hampshire       TIMOTHY H. BISHOP, New York
CHIP CRAVAACK, Minnesota             MAZIE K. HIRONO, Hawaii
BLAKE FARENTHOLD, Texas              MICHAEL H. MICHAUD, Maine
JEFFREY M. LANDRY, Louisiana,        NICK J. RAHALL II, West Virginia
  Vice Chair                           (Ex Officio)
JOHN L. MICA, Florida (Ex Officio)


                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    iv

                               TESTIMONY
                               Panel One

Hutton, John P., Director, Acquisition and Sourcing Management, 
  Government Accountability Office...............................     4

                               Panel Two

Papp, Admiral Robert J., Jr., Commandant, United States Coast 
  Guard..........................................................    11

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Hutton, John P...................................................    23
Papp, Admiral Robert J., Jr......................................    36

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[GRAPHIC] [TIFF OMITTED] T0554.003

[GRAPHIC] [TIFF OMITTED] T0554.004

[GRAPHIC] [TIFF OMITTED] T0554.005



 WHAT WILL IT COST? PROTECTING THE TAXPAYER FROM AN UNACHIEVABLE COAST 
                       GUARD ACQUISITION PROGRAM

                              ----------                              


                        TUESDAY, OCTOBER 4, 2011

                  House of Representatives,
          Subcommittee on Coast Guard and Maritime 
                                    Transportation,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:30 a.m. in 
room 2167, Rayburn House Office Building, Hon. Frank LoBiondo 
(Chairman of the subcommittee) presiding.
    Mr. LoBiondo. Good morning. The subcommittee will come to 
order. The subcommittee is meeting this morning to examine the 
status of the Coast Guard's major acquisition program, and hear 
from the commandant on what his plans are to restore public 
faith in the program.
    Though the subcommittee previously held an acquisition 
hearing in April, we promised to revisit the issue often to 
ensure that the Coast Guard's major acquisition programs 
continue to improve by addressing valid concerns over rising 
costs, schedule delays, and capability shortfalls.
    As part of our oversight effort, the committee asked the 
Government Accountability Office to review the current program 
to determine whether it is still on track, and to make 
recommendations to ensure its success. The GAO is here today to 
present those findings and recommendations.
    In 2002 the Coast Guard signed the contract to begin the 
acquisition program formally known as Integrated Deepwater 
System. Deepwater was supposed to provide a complete 
recapitalization and modernization of the Service's larger 
aging assets, as well as its outdated communications and 
information systems over a 20-year period. Now nearly a decade 
later, the subcommittee is concerned that the Service has less 
to show for the investment of over $7 billion in taxpayer money 
than it should.
    The GAO found that the 2007 rebaseline for Deepwater 
programs is no longer viable. Using that rebaseline as a guide 
of the Coast Guard's 17 large acquisition programs, 10 are over 
budget, 8 are behind schedule, and 6 are both over budget and 
behind schedule. I hope that the commandant will address this 
issue and update the subcommittee on his efforts to provide a 
more realistic appraisal of total acquisition costs and 
timelines.
    The GAO also questioned the Service's assertions that new 
assets are providing increased capability. It noted that some 
new assets are not performing at full capability, while others 
still need to go through operational tests and evaluation to 
assure they do perform as required. Take, for example, the 
National Security Cutter. Despite an investment of over $3 
billion, the GAO and inspector general have both reported that 
the National Security Cutter is currently not performing at its 
planned capability. The subcommittee is very concerned, and I 
don't know how to underscore that enough; they are very 
concerned that the Coast Guard has not yet taken steps to 
address those capability gaps.
    The Service needs to develop a plan to provide air 
surveillance support for the NSC and achieve 225 days away from 
home port. The Service also needs to expedite the acquisition 
small boats for the NSC.
    The Transportation and Infrastructure Committee felt strong 
enough about these issues to include proscriptive language on 
the National Security Cutter in the Coast Guard and Maritime 
Transportation Act of 2011. The National Security Cutter is a 
critically needed asset. The Service must identify ways to 
mitigate the shortcomings in the near term, and fully rectify 
them in the long term.
    I know I speak for many, if not all of my colleagues, when 
I say that I cannot support an acquisition program that spends 
billions of dollars on so-called state-of-the-art assets, only 
to find out they are not performing as promised. I understand 
the Service has made several strides lately, and I want to 
applaud the Coast Guard for taking those steps. However, since 
precious time and money was wasted under the old Deepwater 
program, I feel that we are now at a critical point where the 
rate of decline and legacy assets has overtaken the rate of 
progress in bringing new assets online.
    I am very concerned that, unless the Coast Guard can get 
this program back on track, the Service will not be able to 
perform its critical missions. I know that the Service is 
working hard to ensure that doesn't happen. I look forward to 
hearing from the commandant on how these acquisitions are a 
good investment for the taxpayer, and how we are going to get 
the results that we were promised.
    I want to thank the witnesses for being here today, and now 
I will turn to Mr. Larsen.
    Mr. Larsen. Mr. Chairman, thank you for convening this 
morning's hearing to discuss the latest in a series of reports 
released by the Government Accountability Office concern the 
U.S. Coast Guard's major acquisition programs.
    I appreciate the opportunity to hear once again from the 
GAO and the Coast Guard on the progress that has been made to 
recapitalize the Coast Guard's surface and air assets, and, 
more importantly, to discuss the challenges that remain 
outstanding since the subcommittee last visited this topic in 
April.
    In general, I want to commend Admiral Papp and the Coast 
Guard for continuing their efforts to implement internal 
reforms to improve the efficiency, transparency, and 
accountability of its recapitalization program. As a sign the 
Coast Guard has turned the corner, the Coast Guard reports 
since April it has awarded four contracts totaling 
approximately $728 million for major system acquisitions. These 
contracts, which will provide hundreds of high-paying jobs for 
U.S. shipbuilders will allow the Coast Guard to acquire a new 
National Security Cutter and a new Maritime Patrol Aircraft to 
provide enhanced capabilities for surveillance, interdiction, 
and fisheries enforcement operations.
    Additionally, these contracts will allow the construction 
of 4 additional Fast Response Cutters, and 10 new Medium 
Response Boats, which will improve the Coast Guard's marine 
operations along the 95,000 nautical miles of U.S. coastline, 
and strengthen the Coast Guard's capabilities to secure our 
ports and our harbors.
    In addition, the Coast Guard reports progress on several 
other important capital initiatives. The third National 
Security Cutter, the Stratton, was delivered when the Coast 
Guard launched two new Fast Response Cutters. Also, vital 
sustainment programs were completed for two legacy Medium 
Endurance Cutters, which will improve their operational 
effectiveness.
    Additionally, the Coast Guard maintained its efforts to 
upgrade its H-60 and H-65 helicopters, and expanded its 
deployment of the rest of the 21 emergency response system to 4 
additional sectors around the Great Lakes and in southern 
California. Each of these accomplishments is a positive 
development.
    Notwithstanding this demonstrable progress, however, the 
recent GAO report finds that several substantial challenges 
remain with the Coast Guard's recapitalization program. These 
challenges raise a legitimate question: Does the approved 
program of record remain achievable?
    When the Coast Guard began its recap program in 1996, 
everyone recognized that the scale and complexity of replacing 
or modernizing its aging fleet of over 90 cutters and some 200 
aircraft was an unprecedented event in the Coast Guard's long 
history. But as no less than 18 GAO reports and numerous 
subcommittee oversight hearings in this and prior Congresses 
has made clear, the Coast Guard's past oversight and management 
of its major system acquisitions, especially of the $24.5 
billion Deepwater program was ineffective. Moreover, this 
deficiency has led to substantial cost overruns, shifting 
baselines, design flaws, and delays in the delivery of new 
assets.
    I want to commend the former chairman of this subcommittee, 
Congressman Elijah Cummings, for his determined efforts in past 
Congresses to instill greater accountability and transparency 
to this initiative, which is of critical importance to our 
maritime security. GAO reports that the absence of baseline 
estimates for several assets might drive up the overall cost 
for major system acquisitions to over $29 billion. New 
baselines, especially for the Offshore Patrol Cutter, could 
push this estimate even higher.
    The GAO also asserts that cost estimates and schedules 
developed by the Coast Guard may be unreliable because the 
Coast Guard has not adhered consistently with its own best 
management practices. Additionally, the GAO raises concerns 
about the viability of achieving a system-of-systems 
capability, noting complications and false starts with the 
development of command and control and communication 
technologies generally known as C4ISR.
    Also important: GAO states that the Service has failed to 
conduct adequate operational testing and evaluation for the 
assets that have been delivered. These findings raise valid 
questions about achieving the long-term concept envisioned by 
the former Deepwater program.
    I look forward to hearing this morning from John Hutton, 
GAO's director for acquisitions and management, to further 
discuss these issues and other concerns contained in the new 
report. I am also interested in hearing from Admiral Papp on 
his views regarding the Coast Guard's progress in implementing 
their internal reforms and what, if anything, the Coast Guard 
intends to do to adjust its capital investment plan to better 
correspond with what the Coast Guard can reasonably expect the 
Congress to provide in appropriations.
    Mr. Chairman, acquisition policy is not just a function of 
a process. Our policies also are reflected in the budgetary 
resources we devote to programs and in the attention we give to 
emerging demands, such as the Coast Guard's need for new heavy 
and medium polar ice-breakers in the Arctic. But before the 
Congress appropriates any funds, agencies in the executive 
branch must provide us with timely, accurate, and reliable 
budget estimates. I share your frustration when the 
administration does not make such information available.
    Everyone in this room wants the Coast Guard to succeed. The 
Coast Guard deserves the best vessels and aircraft that modern 
technology can provide. The American public certainly expects 
no less. If we hope to achieve the Coast Guard's approved 
program of record for Deepwater, we must engage each other as 
genuine partners and determine a common path forward. I hope 
that this morning's hearing moves us in that direction.
    Mr. LoBiondo. Thank you, Mr. Larsen. Our first witness 
today is Mr. John Hutton, director of acquisition and sourcing 
management for the GAO. Mr. Hutton, we welcome you and look 
forward to your testimony.

TESTIMONY OF JOHN P. HUTTON, DIRECTOR, ACQUISITION AND SOURCING 
          MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Hutton. Thank you, Mr. Chairman. Chairman LoBiondo, 
Ranking Member Larsen, and members of the subcommittee, thank 
you for inviting me to discuss our July 2011 report, ``Action 
Needed as Approved Deepwater Program Remains Unachievable.'' 
This is our latest in a series of reports over the past decade 
where we have informed Congress and others not only of the 
problems and uncertainties related to this large, complex 
acquisition, but also of the many positive steps the Coast 
Guard has taken to strengthen its acquisition management 
capabilities as it assumed the systems-integrator role.
    Today, I would like to focus my remarks by simply posing 
three questions that we believe, if answered by the Coast Guard 
and DHS, should help improve the overall recapitalization 
efforts. First, what is the true cost of the current 
recapitalization effort? Second, what are the assets and 
capabilities the Coast Guard needs while considering fiscal 
constraints? And, third, how can the Coast Guard manage its 
recapitalization effort, given its expected funding levels over 
the next several years?
    With respect to cost, there are several factors that 
preclude a solid understanding of the true cost of the program. 
Over the years, we have reported on cost growth and as of May 
2011, the total Deepwater program could cost as much as $29.3 
billion, about a 20-percent increase over the past 4 years.
    But further cost growth is looming because the Coast 
Guard's current plans do not reflect all known updated costs. 
This contributes to the approved 2007 baseline no longer being 
achievable. For example, the Coast Guard has not developed a 
revised cost estimate for the Offshore Patrol Cutter. That is 
the largest cost driver in the 2000 baseline, at $8 billion.
    Further, the approved baseline for the National Security 
Cutter, which was revised in 2008, reflects a total acquisition 
cost of $4.7 billion. However, our recent review of budget 
documents found that the program may cost an estimated $5.6 
billion, representing a 19-percent increase over this asset's 
2008 revised baseline.
    With respect to the second question, what assets and 
capabilities are needed, we recommended in July 2010 that the 
Coast Guard conduct a comprehensive review to clarify the mix 
of assets required to meet mission needs within fiscal 
constraints. While the Coast Guard's initial fleet mix analysis 
provided insight on the performance of fleets larger than the 
program of record, the analysis was not cost-constrained. The 
Coast Guard undertook a second analysis that considered various 
funding scenarios. However, we were told it would not assess 
any mixes smaller than the current program.
    In the meantime, DHS has conducted its own study to examine 
alternatives to the planned cutter recapitalization. We 
continue to recommend that DHS and the Coast Guard work 
together, using the information contained in the three studies, 
to help identify cost, capability, and quantity trade-offs.
    With respect to the third question, DHS and the Coast Guard 
are managing a recapitalization effort that is expected to cost 
more than what its annual budget will likely support. For 
example, Coast Guard officials said that they need up to $1.9 
billion per year to support the approved baseline. However, 
these officials expect actual funding levels to be closer to 
$1.2 billion for these assets.
    Coast Guard-wide support is required to reliably plan and 
execute an achievable recapitalization program. Thus, this year 
we recommended that the Coast Guard engage in an agency-wide 
effort to ensure that recapitalization programs are funded 
within the resource constraints. This effort should involve the 
acquisition, resource, and capabilities directorates.
    In commenting on our report recommendations, DHS stated 
that the Coast Guard already does make trade-offs as part of 
its annual budget process. However, under this budget process, 
DHS and the Coast Guard have continued to face the problem of 
approved acquisition programs not being feasible.
    In closing, fiscal realities underscore the importance of 
answering these questions so that more realistic budgets can be 
submitted to Congress and the Coast Guard can better manage the 
modernization of its ships, aircraft, and other supporting 
capabilities.
    Mr. Chairman, this completes my statement. I would be happy 
to respond to any questions you have.
    Mr. LoBiondo. Thank you very much. Your report declared 
that the acquisition of Deepwater assets is unachievable with 
the 2007 baseline. Can you tell us, or do you have any idea 
what the Coast Guard is doing to prevent acquisition costs from 
rising beyond the expected level?
    Mr. Hutton. Well, I think one of the important things that 
we pointed out in our report is that, as you gain more 
knowledge and you see that your current baselines aren't 
accurate, that you revise those as quickly as possible, get 
them approved so you have a good handle on cost, schedule, and 
other performance parameters.
    We noted in the report that there are several assets--at 
least two, in particular, the UAS and the OPC--which represent 
about 35 percent of the dollars considered under the original 
2007 baseline, and no baselines have been updated. So I think 
there are issues, as it relates to keeping all your baselines 
as accurate as the knowledge that you currently have. But also, 
as our report mentioned, you need to have good life-cycle cost 
estimates, good schedules. And I think that the best practices 
that GAO used in looking at the Coast Guard's activities for a 
couple of the assets showed that there could be some 
improvements in those areas, and we had a recommendation 
directed at that.
    Mr. LoBiondo. We have--your report states that the Service 
is not getting the full plan capability out of the National 
Security Cutters delivered to this date. Do you know if the 
Coast Guard has any performance metrics that prove that we are 
getting greater capability out of the National Security Cutter 
than the High Endurance Cutter?
    Mr. Hutton. That's a great question, and we thought a lot 
about that, just in terms of performance overall for the assets 
that they are acquiring.
    One thing we do note is that the assets have not gone 
through operational test and evaluation. That is a very key 
phase of the acquisition process. That is where you help ensure 
that when you establish your mission needs statement up front, 
when you establish your operational requirements document, when 
you establish your baselines, that you have traceability 
through all those, that you're going to test it in an 
operational situation and be able to assure yourself that what 
you are buying is actually what you thought you were buying, 
and is going to meet the mission gap that you were hoping to.
    Mr. LoBiondo. Mr. Larsen.
    Mr. Larsen. Mr. Hutton, on that point can you be more 
specific about what the implications for those assets are for 
not completing initial operating and testing?
    Mr. Hutton. Well----
    Mr. Larsen. Initial operational testing.
    Mr. Hutton. Right. They are scheduled--several assets are 
scheduled to go through initial operational testing within the 
next year or two. Those are planned. I have every reasonable 
expectation that the Coast Guard is going to follow through 
with those processes. There is a certain appropriate time when 
you do that. They are working towards that. So it's not 
necessarily that it's something they're not considering, not 
caring to do. They know they need to do it. And those are going 
to be scheduled within the next year or so.
    But again, I think that's where you get some insights. The 
Coast Guard does a lot of different kind of testing along the 
way, operational assessments and things of that nature. That's 
where they gain some insights, early insights. They try to take 
corrective actions where necessary. But I think, ultimately, 
you would like to see the results of the initial operational 
test.
    Mr. Larsen. Does the Coast Guard have a separate 
operational test and evaluation units, much like the Department 
of Defense does, or is it tied in with their acquisition?
    Mr. Hutton. Under the process, they have officials that are 
involved in developing the test and evaluation plan. But I 
think what's also important is that the Department of Homeland 
Security, over the last couple of years, has really stepped up 
and refined their departmental processes. They have submitted a 
new directive on test and evaluation probably a couple years 
ago, and I would suspect that the Coast Guard's plans are going 
to be reviewed by the Department as another set of eyes, to 
make sure that they are testing the things that they should be 
testing, and that the way they're conducting the tests you can 
expect a reasonable answer to the questions that you have.
    Mr. Larsen. Now, we know on this committee from previous 
hearings--not just this year, but over the last several years--
this--the Deepwater program, this acquisition program, has been 
under a lot of scrutiny. We have put it under a lot of 
scrutiny. We have actually changed how the Coast Guard is 
organized to implement this. You know, we went from an outside 
integrator and acquisition oversight to inside.
    How much of that do you think that--how much of this change 
do you think is contributing to this cost growth? In other 
words, is this a hiccup, but a big hiccup, in the steps to get 
to where we have wanted to go with the acquisition process in 
the Coast Guard?
    Mr. Hutton. Well, I personally have been tracking this over 
the last 5, 6 years. I have seen what was going on while they 
were part of the systems integrator. And then I was also here 
when the Coast Guard decided to pull away and start beginning 
to manage their assets on an asset-by-asset basis.
    We have commented in past reports how the Coast Guard, in 
fact, had taken some steps to realign their directorates. They 
had a blueprint for acquisition improvement, which had a lot of 
key steps. That was based on a GAO framework for, basically, a 
best practice of an acquisition organization. So, we saw that 
they were taking a lot of good steps.
    Two points, though. One, it is hard to say for sure, but 
what you're seeing now is, on one level, a result of the fact 
that they now are looking at these systems on an asset-by-asset 
basis. They are not relying on the contractor to do a lot of 
things. I think they are getting a lot more insight on these 
assets than they may have had 3 years ago and probably wouldn't 
have, to this day, if they were still under that model, in my 
opinion.
    So, what you're seeing is you're getting a lot more 
insights probably earlier--well, in this case maybe later, 
because----
    Mr. Larsen. Right.
    Mr. Hutton [continuing]. Of the way it worked out. But 
they're getting insights now that they didn't have before. But 
the key always comes down to, if you have better knowledge--and 
you want knowledge as you're going along the acquisition 
process--the key is what are the individual decisions you're 
making as you're going along, and are you putting the 
acquisition program and the acquisition directorate on the best 
footing to have success, by making sure that you have resources 
that match what you're trying to do.
    Mr. Larsen. Yes. Judging from the criticism of the handling 
of the fleet mix analysis, and the optimistic funding 
projections in the Coast Guard's capital investment plan, in 
your estimation is the Coast Guard's acquisition directorate 
adhering to its own policies establishing their blueprint for 
acquisition reform?
    Mr. Hutton. Well, that is an acquisition directorate 
blueprint. And what we noted in our report is that while they 
laid out something that we thought made a lot of sense, such as 
looking at what the needs are and the funding requirements, the 
acquisition directorate needs then to interact with the 
resources people and the capabilities people.
    And that's what we were trying to do, that they better 
connect or better yet, make decisions about what trade-offs 
have to be made, given the available funding. Once that 
decision is made, then plan realistically in future budgets, so 
that you don't have a lot of churn over time. If you will 
notice, in their 5-year capital investment plan, where we 
looked at it over a series of years, you could see where one 
year they wanted to spend their money a certain way, but each 
year that mix of what they're going to put on aviation assets 
versus surface assets changed, mainly because of some of the 
things they had to deal with.
    So, it wasn't really going to help them have a smooth 
acquisition, because they were planning for more money than 
what they really were going to reasonably get.
    Mr. Larsen. And finally, if that's the case, you know, as 
recently as, you know, a couple of years ago we were expecting 
a $24.5 billion program over a period of years. And you are now 
estimating, at a minimum--you are seeing, at a minimum, $29 
billion, based on what happens with Offshore Patrol Cutter.
    This program seems--at least right now, without some 
changes--seems to be headed towards spending up to a certain 
amount until the money is gone, but the Coast Guard still 
hasn't built out everything they wanted. That's where this 
seems to be going.
    Mr. Hutton. Yes. And I think, in part, that is why our 
title was stated that way. I think there is an issue that they 
need to address, as it relates to here is what we have said 
we're going to buy, recognizing that even the current baseline 
may not fully represent what we think ultimately we're going to 
need to carry out this program.
    And our concern is that you need to basically make those 
priority trade-offs now. And then make sure that your budget 
submissions are representative and linked to what they think 
they can buy.
    I do want to mention, though, the thing that's hard for us 
to get behind is the relationship between when a Coast Guard 
budget goes to the Department, when the Department sends the 
budget to OMB, when it goes to you all on the Hill, the ins and 
outs. We don't have good visibility into that. So I will be 
open for that.
    Mr. Larsen. What was the original estimate on this program?
    Mr. Hutton. Well, I think it depends. The pre-9/11 
estimate----
    Mr. Larsen. All right.
    Mr. Hutton [continuing]. I think was in the $14 billion 
range. Is that right? Seventeen billion. I stand corrected.
    Mr. Larsen. Pre-September 11, 2001.
    Mr. Hutton. Yes, and I think even if you go back in the 
late 1990s, you might find another estimate in a GAO report--
but, of course, you know, a lot has changed.
    Mr. Larsen. Right.
    Mr. Hutton. Missions and requirements. But it was less than 
that.
    Mr. Larsen. And I think generally--not--I don't want to 
speak for all of Congress, but generally, when we looked at the 
program inflating up to $24 billion, it was obviously an eye-
opener, a bit of a shock, but there was some understanding and 
some give-and-take between the Coast Guard and Congress about, 
well, we understand what the mission requirement is, post-9/11.
    But at some point now we are getting--we are looking at 
north of $29 billion, and we are back to scratching our heads. 
And it's not a place we would like to get back to.
    Mr. Hutton. Well, again, I would like to just say, if I 
could, the key is do you have good information to make good 
decisions. And I think, up until now, we are seeing them get 
more insights into what they are actually buying. But as our 
report notes, there are still some areas that we are going to 
be interested in seeing, what the new estimates are going to 
look like. And then, to what extent there are going to be any 
trade-offs. Because, as our report mentioned----
    Mr. Larsen. Right.
    Mr. Hutton [continuing]. There are several studies that we 
understand are to be used to consider those trade-offs. But 
it's early; we haven't seen what those are.
    Mr. Larsen. Yes, good. Thank you, Mr. Chairman.
    Mr. LoBiondo. Master Chief Coble.
    Mr. Coble. Thank you, Mr. Chairman. Mr. Hutton, it's good 
to have you with us.
    Mr. Hutton. Thank you.
    Mr. Coble. I was going to put this question to the 
commandant, but I will run it by you, as well. During previous 
testimony by Secretary Napolitano, she emphasized her 
commitment to building eight National Security Cutters. The 
fiscal year 2012 budget, you will recall, request included a 
projected $77 million to complete the fifth National Security 
Cutter. But the ship was funded in its entirety, I'm told, in 
fiscal year 2011.
    Since that ship's funding has been secured, what are the 
Coast Guard's plans, if you know, during the fiscal year 2012 
for National Security Cutters 6, 7, and 8?
    Mr. Hutton. I believe, as the budget is going through the 
process, your characterization is the way I understand it. 
Unless Congress were to put some money in the budget that the 
Coast Guard might not have asked for, I don't expect you would 
see anything for 2012 if the bills pass the way they are 
currently being considered.
    I also think you are asking about buying the eight NSCs. 
And I think what I find interesting is when you look out at the 
2012 through 2016 range, you will see in 2015, in their capital 
improvement plan--investment plan, you will see that there is 
money in there to buy three surface ships, three classes: the 
OPC, NSC, and the FRC. And we point that out because that is 
the first time you will see three major surface ships being put 
into the budget for the same year. And what I think is in that 
particular year is a little over $2 billion.
    Mr. Coble. I thank you, sir. No further questions. Thank 
you, Mr. Chairman.
    Mr. LoBiondo. OK. Rick, do you have anything else?
    Mr. Larsen. Thank you, Mr. Chairman. Just with regard to 
the system of systems and your thoughts on that, how far is the 
Coast Guard from achieving this concept than it was originally 
proposed? And is it possible for the Coast Guard to deliver 
that capability within these budget constraints?
    Mr. Hutton. Well, that's a great question. As the report 
points out, there are a lot of questions we still have on the 
system of systems, Mr. Larsen. We noted in our report that some 
of the newer assets like the NSC, the MPA, and the HC-130 right 
now are not in a position to fully share data.
    One thing that we do point out, is this is a very complex, 
integrated-type system. When they decided to go in-house with 
the acquisition, one of their biggest challenges was to get 
insights into what the prior systems lead integrator was doing, 
what software and technical data they had, to gain a good 
understanding of where they were headed.
    But there are still some major decisions to be made. For 
example, there is an approved baseline. I think it was February 
2011. But even when that was approved by the Department, it's 
our understanding that it was essentially out of date, 
particularly because of some questions about the life-cycle 
cost estimate.
    So I just think there is a lot of open questions. That is 
one area that we got into a little heavier this past year than 
we have in the past. And I would expect that, in doing any 
future work, we would continue to look at that issue. Because, 
as you know, that was the key piece to integrate all the 
assets, surface and air and land, that's going to allow you to 
get maybe a better outcome, leverage all the collective 
capabilities and get more. And that's where some of the trade-
off comes in with the assets, as well, the quantity of assets.
    Mr. Larsen. OK. You're right in pointing out that's exactly 
why you do these kinds of things with the--on the 
communications side, the technology side. You integrate them, 
and you basically multiply----
    Mr. Hutton. You have a multiplier.
    Mr. Larsen. You multiply your capability, as opposed to 
just having a few ships out there, a few boats out there, a few 
fixed-wing or rotor aircraft in the air.
    So, I would look forward to your continuing to look at that 
aspect of this a little more in-depth.
    Mr. Hutton. Thank you.
    Mr. Larsen. Thanks. Thanks, Mr. Chairman.
    Mr. LoBiondo. Well, Mr. Hutton, I want to thank you very 
much, and I also want to thank your team for helping us better 
understand how this is coming together or not coming together, 
and what we need to focus on. I know you have spent an enormous 
amount of time and energy and years on this, and we just want 
to tell you how very much we appreciate it.
    So, we thank you very much and----
    Mr. Hutton. Thank you, Mr. Chairman.
    Mr. LoBiondo. And we will now switch over to our second 
panel, which will be Admiral Robert Papp.
    Admiral Papp, I want to thank you for being here today. We 
also want to thank you for your leadership on this issue. Very 
challenging issue. I want to assure you that the subcommittee 
supports the acquisition goals of the Service. Nothing we would 
love to see more than to have this all completed.
    Legislation that I introduced was recently reported from 
the transportation committee, authorizing funding for the Coast 
Guard's acquisition at a level that is significantly higher 
than was requested by the President or provided by the 
appropriators. We did so because we understand the critical 
importance of recapitalization, the program, and we want it to 
succeed.
    We are looking to you to continue the progress made by the 
previous commandant to get the ship on the right course, 
address remaining concerns, and move forward effectively and 
efficiently. And once again, I want to thank you for being 
here. And you are recognized.

 TESTIMONY OF ADMIRAL ROBERT J. PAPP, JR., COMMANDANT, UNITED 
                       STATES COAST GUARD

    Admiral Papp. Thank you, Mr. Chairman, for welcoming me 
here. It is great to be back here. Ranking Member Larsen, thank 
you, sir, as well. And distinguished members of the 
subcommittee, it's an honor to appear before you today to 
discuss the Coast Guard's top priority: recapitalizing our 
fleet of cutters and aircraft.
    I welcome the opportunity to update you on our acquisition 
efforts and discuss the GAO's report. But more importantly, I 
want to speak to you about how the ships and aircraft we buy 
today will not just take shape, but in large part will define 
the Coast Guard's next 50 years of capability, and to discuss 
their value to America.
    Let me begin by expressing my complete understanding and 
full appreciation for the historic times that we are in, and 
for the challenges both you and the President face. Without 
question, the Nation faces fiscal challenges that are causing 
us, all of us, to confront some of the toughest choices that we 
faced in our respective public Service roles. In my case, these 
are some of the toughest choices I have confronted in nearly 
four decades of Coast Guard service.
    But I must admit I was a bit discouraged by the title of 
the hearing: ``Protecting the Taxpayer from an Unachievable 
Coast Guard Acquisition Program.'' I want to assure you, Mr. 
Chairman, that every Coast Guardsman, including our acquisition 
professionals, knows that protecting Americans from maritime 
threats is job number one.
    But our Coast Guardsmen cannot fulfill this duty without 
the tools they need to do the job. So I welcome the opportunity 
to discuss our acquisition program, a portfolio of projects 
designed to protect Americans from maritime threats, and to 
discuss why and how this project is not only achievable, but 
necessary.
    As a Service chief, it is my responsibility and duty to 
convey my best military advice. For the Coast Guard, this 
subcommittee serves as our de facto House Armed Services 
Committee. Just as my fellow Service chiefs report to the HASC, 
it is my job to advise you on what my Service needs in order to 
provide security and protection that our taxpayers deserve. We 
have been fortunate throughout the years to have members of 
this subcommittee who understand this and have given us their 
full support.
    In the midst of an economic crisis in the 1930s, the 
President and the Congress chose to invest in America's Coast 
Guard, building a class of seven new major Coast Guard cutters. 
Why? Because America needed capable multimission ships to meet 
both its known maritime challenges, as well as its unknown 
future challenges.
    These seven major cutters carried out missions never 
imagined in their original concept of operations, such as World 
War II convoy patrol, combat operations, and weather stations. 
They were able to do this because leaders foresaw that capable 
ships with speed, endurance, and versatility were a sound 
investment against an uncertain and what proved to be a 
menacing half-century to come.
    The last of these cutters was decommissioned in the mid-
1980s at over 50 years of age. Then, as now, building 
multimission cutters was not merely a budget decision, it was a 
leadership decision, a leadership decision that required 
vision, fortitude, and courage.
    The current class of High Endurance Cutters, the 378s, were 
built in the late 1960s. When introduced, they were capable 
ships with space, endurance, and speed. They too were used for 
missions barely imagined, such as combat missions in Vietnam, 
and transitioning from ocean station program duty to prosecute 
the new threats of maritime drug trafficking and illegal 
migration. But this fleet is now well in excess of 40 years 
old. It is antiquated, expensive to maintain, and unreliable to 
operate.
    What my shipmates and this country desperately need is a 
modern, reliable fleet of vessels, and aircraft equipped with 
effective command and control and communications systems to 
ably perform our expanding maritime missions. And that, members 
of the subcommittee, is why recapitalizing this fleet is my 
number one priority. And I reaffirm that the Coast Guard 
requires at least 8 National Security Cutters and 25 Offshore 
Patrol Cutters, the approved project baseline.
    This subcommittee's oversight continues to play a vital 
role in our recapitalization. So do the GAO's thoughtful 
insights. The GAO report notes that we have already instituted 
reforms, and we continue to make significant progress. As our 
response to the GAO report confirms, we take its 
recommendations seriously. And I am personally committed to the 
continued improvement of our acquisition processes and program 
management.
    But it is also important to note that the GAO's report 
analyzed data that was collected over a year ago. So today I 
want to focus not where we were, but where we are. And I am 
proud to report to you that we are making real progress.
    On September 2nd, we accepted the on-time delivery of the 
cutter Stratton, the third National Security Cutter. The 
fabrication of the cutter Hamilton, NSC number 4, started in 
August. And we awarded a fixed-price contract for the cutter 
James, NSC number 5, just this last month. These successes 
reflect benefits we have realized from stable requirements, 
rigorous adherence to our acquisition processes.
    Of note, the recently awarded NSC number 5 costs almost 
exactly the same as NSC number 4, which is remarkable, when you 
consider the enormous inflation in material costs between the 
award periods. This demonstrates that the NSC program has 
turned the learning curve, and has tremendous positive 
momentum, momentum that must be sustained.
    The NSCs Bertholf and Waesche are both now operational. 
Initial mission results are impressive. During Bertholf's first 
Alaska patrol this spring, she demonstrated superior sea-
keeping ability while launching her boats, recovering her 
helicopters, and conducting over 40 fishery boardings in the 
treacherous Bering Sea. Last year, her enhanced C4ISR 
capabilities were instrumental in interdicting a drug-smuggling 
vessel carrying a multiton load of cocaine.
    In April and August, the first two Fast Response Cutters, 
the replacement for the venerable Island-class patrol boat, 
were launched. Production of hulls 3 through 8 are underway, 
and we just exercised a fixed-price contract for the production 
of hulls 9 through 12. We have also delivered 12 of 36 HC-144 
Maritime Patrol Aircraft, and we have 3 more on order. And I 
could go on and on about the successes of these ships and those 
aircraft.
    Are there challenges we must overcome to deliver the full 
set of capabilities and mission results that the President, the 
Congress, and the American public rightly demands of our Coast 
Guard? Certainly. But our dedicated and professional 
acquisition directorate has made great strikes in identifying 
and correcting gaps between projected and realized capability.
    But it is also clear America needs these capabilities. 
These ships, boats, and aircraft will assist our crews in 
defending our homeland against maritime threats for the next 
half-century. Can we attain the program of record? I submit to 
you that this is the very least the Americans will demand of 
us.
    Unachievable? I think not. We have stable prices and 
requirements. We simply need the courage, foresight, and 
conviction to move forward in recapitalizing our Coast Guard in 
order to protect our vital maritime interests, interests which 
impact every American.
    I want to thank this subcommittee for the rigorous 
oversight that you have given us throughout the years on this 
project. I don't deny errors, mistakes, trying to climb a very 
steep learning curve in executing this project. But I want to 
reconfirm our commitment for doing this right. And while I 
respect and admire everybody's responsibilities, whether it is 
GAO holding us accountable for proper practices, the Congress 
giving us its proper oversight, it is my job to come up here as 
the leader of the Coast Guard and give you my best military 
advice on what we need to carry out our missions for the 
country.
    So, thank you for the opportunity, sir, and I am ready to 
answer your questions.
    Mr. LoBiondo. Well, thank you, Admiral Papp. I mean there 
is no daylight between what you would like to see and your 
vision, and what we would like to see for the men and women of 
the Coast Guard. But some of these findings require a little 
probing, a little asking, a little clarification as we move 
through this.
    One of the things I want to focus on a little bit is where 
we're bouncing around with these numbers. There was a GAO 
report that noted an annual appropriation level of about $1.2 
billion. There is an assumption that maybe to do the program we 
need $1.9 billion. Or maybe it's $1.7 billion. The legislation, 
as I mentioned before, that I introduced, is $1.5 billion for 
the next 3 fiscal years, because the highest level of 
appropriations thus provided for the program, and I felt that 
it was the most robust and realistic number that was achievable 
in the current budget climate, which I don't have to remind you 
is pretty tough.
    Can you tell me what the current value of the Coast Guard's 
capital assets are: cutters, small boats, aircraft, et cetera?
    Admiral Papp. Yes, sir, I can, because, as you know, we 
have also, at the same time as improving our acquisition 
programs, we have also been improving our audit programs, as 
well, as we are being held to new rules.
    We have done a full capital review of the entire Coast 
Guard. And when I say our capital assets come out roughly $30 
billion, having learned a little bit about this, that also 
reflects depreciation. In other words, that doesn't reflect the 
replacement value of the ship's aircraft and everything that we 
have. It's just that the current evaluation of all our capital 
assets is about $30 billion. Obviously, it would cost much more 
to replace all those ships and aircraft.
    Mr. LoBiondo. Can you give us your take on what percentage 
of value must be invested each year to maintain current levels 
of effort, and to allow the Coast Guard to fully carry out its 
missions?
    Admiral Papp. I think I can, Mr. Chairman. Actually, in 
discussions and looking at our budget--and I will give you 
rough numbers here--what we do now is we have to live within 
the constraints of--we have been averaging about $1.4 billion 
in acquisition money each year.
    If you look at our complete portfolio, the things that we 
would like to do, when you look at the shore infrastructure 
that needs to be taken care of, when you look at renovating our 
smaller ice breakers and other ships and aircraft that we have, 
we have done some rough estimates that it would really take 
closer to about $2.5 billion a year, if we were to do all the 
things that we would like to do to sustain our capital plan.
    So, I am just like any other head of any other agency here. 
At the end of the day we are given a top line, and we have to 
make choices and trade-offs. And basically my trade-offs boil 
down to sustaining frontline operations, balancing that with 
trying to recapitalize the Coast Guard. And there is where the 
break is, and where we have to define our spending.
    Mr. LoBiondo. One of the things that we are trying to 
understand--and it is challenging to sort of get our arms 
around what the accurate information is--but what level of 
mission execution would the Coast Guard be able to carry out if 
the appropriation were, say, $1.2 billion versus $1.9 billion.
    Because we are obviously the authorizers, the 
appropriators, have to have a case made. We have a concern 
that, based on some of the things they have seen, they may try 
to slice and dice a little bit harder than they have. So this--
the question is posed to try to be able to frame an argument 
for mission execution that is necessary.
    Admiral Papp. Well, I can tell you, sir, that right now, 
for the fiscal year 2012 budget, the President's budget 
requests approximately $1.4 billion. It was very tough for us 
this year, as we analyzed our budget, and we tried to strike 
that balance between mission execution--in other words, 
maintaining frontline operations--and still continuing on our 
acquisition project baselines.
    And we are able to keep our frontline operations going 
within the budget, but we had to make some very challenging 
choices in terms of distribution of resources within our 
acquisition accounts. In other words, in some of the projects 
we might have to choose only the minimum order quantity. 
Obviously, if you can order the maximum order quantity for any 
given year, you gain the benefits of economies of scale by 
ordering more in an individual year.
    So, it's just a balancing act within that acquisition 
appropriation, in terms of numbers of ships, numbers of 
aircraft. And those are the tough decisions that we are having 
to make trade-offs on.
    Mr. Larsen. Thank you, Admiral, for coming today. The 
current baseline is at $24.2 billion, and then--but the GAO 
report, as you know, has a new overall baseline in its view 
of--estimated at about $29 billion. And I think, from our 
testimony and the report, that doesn't include the Offshore 
Patrol Cutter, so maybe it would be north of there.
    Can you talk about some of the factors that have 
contributed to that--about 20-percent cost increase in the last 
4 years?
    Admiral Papp. Yes, sir. Part of what has contributed to 
that cost increase is we are doing our job better now. I will 
be the first to admit that in the late 1990s we had reached a 
point where we had depleted most of our acquisition 
professionals within the Coast Guard. We didn't have a lot of 
large projects going on. We had a very small acquisition 
budget. We had been working for years to start what was then 
called the Deepwater project.
    September 11, 2001, changed that equation. And all of a 
sudden the money started coming in. And people talk about 
analogies of trying to build an aircraft while you're flying, 
or trying to build a ship while you're sailing. That's exactly 
what we were doing within our acquisition community inside the 
Coast Guard. In part, that's what necessitated having a lead 
systems integrator, basically hiring people to run the project 
for us as we tried to build up the capacity within the Coast 
Guard.
    Mr. Larsen. Right.
    Admiral Papp. So, when it became evident that we should 
take on the role of leading this, as I think Mr. Hutton 
described, we started our blueprint for acquisition reform. 
That was approximately 5 years ago.
    I am intimately familiar with that, because I was chief of 
staff of the Coast Guard at the time. And then Rear Admiral 
Currier was the chief of acquisitions. And he did an 
outstanding job in leading that effort to build up our 
acquisition workforce. And that continues today. He is now on 
the job as the deputy commandant for mission support, and is 
supervising--continuing to supervise our acquisition reform.
    We got about the business of hiring good people, some 
people we hired away from the Navy to bring them in, to give us 
an increase in expertise within our acquisition community. And 
then we set about coming up with training programs for our 
people. And what I would say is our people are good now, and 
they know how to take very rigorous reviews of costs, take into 
account all the costs that are out there. And what we have 
found is there were some costs that we didn't account for.
    There were other things that complicated, such as Hurricane 
Katrina, which basically shut down the shipyard in Pascagoula 
for a time, delayed deliveries. There was our own changes to 
requirements that occurred after September 11, 2001, that added 
to the cost, as well, culminating in a 2007 review which showed 
the initial increase. And what I would say is we are working 
very hard to make sure that we have revised APBs and costs. We 
are working them with the administration right now.
    And I fully recognize that the OPC, the Offshore Patrol 
Cutter, is going to be a major contributor. But when I came in 
as commandant, one of the first things we did was we took 
another review of the requirements on that ship, and we 
redirected our philosophy to say that the number one driving 
factor is going to be affordability. And we have, in fact, even 
reduced some of our threshold requirements, getting them where 
they're still acceptable for carrying out Coast Guard 
operations, but keeping into account that that ship is going to 
have to be affordable.
    So, I can't sit here today and tell you that's not going to 
increase. Obviously, we are working very hard to stay within 
the numbers where we can. But I will be completely forthright 
and honest with you, as we determine what those numbers are 
going to be.
    Mr. Larsen. Would you say on the OPC that GAO is in the 
ballpark, in terms of its contribution to driving----
    Admiral Papp. Well, I--yes, sir. I think they are 
definitely within the ballpark, and I think that it's always a 
challenge. We are basing things on conditions as they exist 
right now. So you can pick a figure and, if it's reasonable, 
it's in the ballpark. But what conditions are going to change 
between now and when we start cutting steel on that project? 
What unforseen things are going to happen in the country? 
What's the price of steel going to do during that period? There 
is always going to be changes; that's the one thing I have 
learned from studying the acquisition process.
    Mr. Larsen. So then, is--at what point does the Coast Guard 
then look at realigning the budget projections in its capital 
investment plan to the level of funding that you're receiving? 
Or does this continue--does the plan continue to get pushed to 
the right on the spreadsheet?
    Admiral Papp. Well, sir, I hope it doesn't get pushed to 
the right, because the further you press it to the right, 
that's another contributing factor to costs going up.
    What we have got right now, at least for the NSC, for MPA, 
for the FRC, we have stable programs. We know what the costs 
are. We are not changing our requirements. And, really, when 
you look at standard acquisition, there is this triangle of 
cost, performance, and schedule. We are controlling the costs 
now, we know what they are. We know what the performance is 
that we want. It's the schedule that will drive any cost 
increases, because the further you drive the schedule to the 
right, the prices will increase.
    So, I am trying to make the effort to build the things we 
need as fast as we can. I fully understand there is fiscal 
constraints within our Government. But it's my job, as the 
commandant, to tell you what we need, and that the faster we 
build them, the lower our costs will be in the long run, 
because we are able to decommission aging costly assets and get 
a better price for the new assets if we build them quicker.
    Mr. Larsen. So, are you approaching, though--are you 
approaching your platform budget different than you are 
approaching your systems budget? Because your time-cost-
performance triangle might apply to the ships, the boats, the 
aircraft, but it doesn't seem to apply yet to your--the C4ISR 
systems, because the integration that the Coast Guard has 
proposed in the past doesn't seem to be even near caught up 
with where you are in building actual platforms.
    Admiral Papp. Well, I think--sir, I think we are moving 
ahead.
    Mr. Larsen. Are you moving ahead from a place that's 
behind, though?
    Admiral Papp. Well, one of the challenges I think we all 
face, if you look at--I don't know what number iPhone is out 
there today, I think we're up to number 5, and they're already 
talking about number 6.
    Mr. Larsen. Tomorrow.
    Admiral Papp. Technology just continues to evolve faster 
than the budgetary process or even the engineering processes 
that we have. The things that we envisioned 10 years ago when 
we started thinking about this system of systems, putting these 
ships linked with aircraft and shore bases, is obsolete 
technology now, as we envisioned it then. It continues to 
evolve, it continues to improve.
    On a daily basis, our technicians within the Coast Guard 
are making incremental improvements to our C4ISR systems in our 
legacy assets and in the new assets to optimize--maybe not get 
to the optimal, but to optimize what we have, what we have 
available, so that we can communicate between those assets. And 
I think we are doing a pretty good job on it, as is 
demonstrated by some of the cases we have prosecuted with our 
new AC-144, vectoring surface assets to interdict drug 
smugglers. The National Security Cutter, in its ability to 
communicate with Maritime Patrol Aircraft and other cutters, 
and its small boats--we are making those incremental 
improvements, and they are improvements. They might not be as 
fast as we would like them to do, but we are doing the best we 
can.
    Mr. LoBiondo. Master Chief Coble?
    Mr. Coble. Thank you. Thank you, Mr. Chairman. Admiral 
Papp, good to have you back on the Hill.
    Admiral Papp. Thank you, sir.
    Mr. Coble. Admiral, during the previous testimony with 
Secretary Napolitano in March, she emphasized her commitment to 
building eight National Security Cutters. The fiscal year 2012 
budget request included a projected $77 million to complete the 
fifth cutter. But the ship was funded in its entirety in fiscal 
year 2011. Since that ship's funding has been secured, what are 
the Coast Guard's plans during the fiscal year 2012 for 
national cutters 6, 7, and 8?
    Admiral Papp. Well, first of all, I need to express once 
again my appreciation to the Congress for putting the full 
funding for National Security Cutter number 5 into our fiscal 
year 2011 budget. That will get that ship out there at a better 
price and sooner, to start serving the American people.
    The challenge continues to be getting six, seven, and eight 
constructed. And right now we have--in our capital investment 
plan we have plans to put number 6 in the fiscal year 2013 
budget, 7 in the fiscal year 2014 budget, and 8 in the fiscal 
year 2015 budget. And right now we are constructing it that way 
because of OMB circular A11, which requires full funding for a 
project in any given year. It's a little different constraint 
that we are dealing with right now, and we are adjusting our 
capital investment plan to be able to accommodate that.
    Mr. Coble. Thank you, Admiral. Admiral, OMB is insisting 
that the Coast Guard comply with full funding requirements 
under OMB circular A-11 for the National Security Cutters and 
other Service acquisition projects. This means, as I understand 
it, the Coast Guard must budget for and receive funds to cover 
the cost of long lead material, construction, and post-
construction activities prior to awarding a contract for 
production of a new asset.
    Let me put a two-part question to you, Admiral. What's the 
impact of the OMB policy on the cost of delivery schedule for 
the NSC program? And what is the impact of this policy on the 
Coast Guard's acquisition program? And will trade-offs be 
necessary?
    Admiral Papp. Well, sir, as I stated, it--the quicker you 
can spend the money, have the money available, the--it affects 
the cost of the ship.
    Generally, the cost of the ship will be less, the earlier 
you can build it. And having long lead materials allows a 
shipyard to make certain assumptions about the stability of the 
program, certain assertions that, yes, in fact, we are going to 
be building six or seven or eight, and they can plan, they have 
to make management decisions as it relates to their workforce, 
to buying supplies and long lead materials, et cetera, which, 
if they have stability in schedule, they can give you a lower 
price. And I think we have confirmed that in what we did this 
last year, in keeping number 5 at virtually the same price as 
number 4.
    We have, in the past--OMB has allowed us to spend long lead 
money, and it has generally provided--produced lower prices for 
a ship because the shipyard is able to get them, and it gets 
the ship out there faster. We had $77 million in the fiscal 
year 2012 budget, which was intended to be money to complete 
number 5, as I said earlier. We are grateful that the Congress 
decided to put all the money for NSC number 5 in the fiscal 
year 2011 budget.
    The Senate currently has a mark, or kept the $77 million in 
their mark, and designated that as long lead materials for NSC 
number 6. If that stands, and if in conference the House works 
with the Senate on that, what that does, it--I don't have 
authority to spend on long lead. I would have to go to OMB and 
get an exception to A-11 to be able to spend long lead money on 
number 6.
    Mr. Coble. Thank you, sir. Mr. Chairman, my time is about 
to expire. Can I have one more question?
    Mr. LoBiondo. For you, certainly.
    Mr. Coble. Thank you, sir. Admiral, finally, I am told that 
the Coast Guard has made several successful acquisitions since 
our hearing earlier this year in the spring--April, I think. 
What are some of these successes, A. B, were any of the 
successes achieved ahead of schedule? C, were they achieved for 
lower cost than originally expected?
    Admiral Papp. Well, I think that the biggest success, 
because it means the most in terms of value to the Coast Guard 
and value to the taxpayer, are the National Security Cutters. 
First of all, national security number 3, the Stratton, while 
it wasn't, sir, delivered ahead of schedule, it was ready to go 
early, it passed builder's ship trials and acceptance ship 
trials with flying colors. And this is not just a biased Coast 
Guardsman saying this. We bring Navy people on board to 
evaluate the ships. And as you might imagine, sir, as a 
Coastie, the Navy guys don't cut us any slack.
    Mr. Coble. Yes.
    Admiral Papp. So, they were astounded, though, at the 
quality of the ship, the lack of discrepancies, and the vast 
improvement that had been demonstrated by the shipyard from 
hull number 1 to hull number 3. So, delivering that on time 
within the cost designated is, I think, a very significant 
event.
    The other very significant thing is our acquisition force 
now has taken over that project. And heretofore the first three 
ships were acquired under a cost-plus contract. What we needed 
was predictability and stability in pricing, and what we did--
it was very hard, but we hammered out a fixed price contract 
for number 4. And many people were amazed, first of all, that 
we were able to do that. But then people were even more amazed 
that, within the same year, we were able to negotiate and 
execute a second fixed-price contract for hull number 5 when 
Congress gave us that money.
    So, those are the major accomplishments. But I would say 
also the Fast Response Cutter, our new patrol boat, two of them 
are in the water right now, and we are anxiously awaiting 
delivery later this year. We have hulls 3 through 8 that are 
under construction, and we have just awarded a fixed-price 
contract for three more. That's another success. And our 
Maritime Patrol Aircraft, as well, we are taking deliveries on 
them, and they are performing outstanding.
    Mr. Coble. Thank you, Admiral. Mr. Chairman, I yield back.
    Mr. LoBiondo. Frank, do you have any questions?
    Mr. Guinta. Not at this time, Mr. Chairman.
    Mr. LoBiondo. OK. Rick?
    Mr. Larsen. Admiral, with regards to the fleet mix 
analysis, will phase two include an analysis of any trade-offs, 
not just between assets within the Deepwater, but trade-offs 
among major system acquisition programs? And when can we expect 
to see that?
    Admiral Papp. The fleet mix analysis number 2 is still 
being worked through the Department, through the 
administration. And I am not sure what timeline has been 
designated for getting it up here. Obviously, I will work as 
hard as I can to get it up here as quickly as possible.
    The frustration I feel with fleet mix analysis and other 
analysis and other evaluations is none of them have refuted the 
basic assumption of the need for 8 National Security Cutters 
and 25 Offshore Patrol Cutters. All of these studies continue 
to point towards that is the right number to provide the 
services we need for our country.
    In fact, the fleet mix analysis one, which we all 
acknowledge is an unconstrained study, demonstrates, that to 
carry out all our missions, we need more ships. What I will say 
today is I am satisfied with the acquisition project baseline, 
as the commandant, that those are the numbers of ships that I 
need to carry out the missions. And we need to move forward 
smartly with that. But we will continue to provide whatever 
documentation and work that through the administration to get 
it up here to substantiate what we need for our Service.
    Mr. Larsen. The conversation about the project baseline is 
one thing, but this gets back to the crux of the intent, I 
think, of the title of the hearing, which is the project and 
the platforms are one thing, but there is a certain dollar 
amount out there today.
    Admiral Papp. Right.
    Mr. Larsen. And at what point, then, does this approved 
program of record, you know, become unachievable? That is the 
question we are trying to answer, because we have to answer 
that eventually. And you want to answer that before we answer 
it.
    Admiral Papp. Right.
    Mr. Larsen. At some point. So, can you give me a 
perspective about decisionmaking that will have to take place 
within the Coast Guard about the platforms that you want under 
Deepwater versus what dollar amount is available over time to 
accomplish that? Again, short of pushing that spreadsheet out 
to the right, and adding costs to the program as a result.
    Admiral Papp. Right. Well, Mr. Larsen, I--as I was sitting 
up last night thinking about all that could be asked today and 
really thinking deeply about this project, one of the things 
that strikes me is probably--not probably. I would say is one 
of the things we had to do when we were trying to gain the 
attention--you know, remember, this project goes back to the 
1990s. And there was a time when, in the mid-1990s, we were 
reduced by about 6,000 people. We were cutting back on 
frontline operations, and we couldn't get any money to 
recapitalize ships. The truth of the matter is 9/11 turned this 
around.
    But our strategy, the way we were marketing this--and I 
think rightly at the time--was this system of systems approach, 
which then drives the need to quantify what's the cost of this 
system. So, whenever anything changes with the system now we 
are rightly criticized for increasing costs.
    What I would suggest is we have gone in the right 
direction, we have disaggregated this thing that was called 
Deepwater, and we have discrete ship-building functions, 
aircraft functions, and others. And we are more adept now at 
identifying what the real costs of those projects are, which is 
contributing to, once again, that total acquisition project 
baseline cost. And what we really need to do is focus on the 
discreet elements of it.
    But more importantly than that, what we have done is we 
have said, ``OK, what's the cost of this thing going to be at 
the end of the 30 years, or whatever it is that it's going to 
take to recapitalize?'' And I would suggest that perhaps a 
better way to look at that is this discussion that we had up 
front, which--we are an enterprise. We have a capital plant in 
the Coast Guard that requires renewal each year. And there is 
probably some level of funding, a steady-state level of 
funding, that is required in order to do that. Is $1.4 billion 
enough to do it? Well, no. I don't think so. But at the end of 
the day, I am given a top line of what I have to fit within.
    So, it would be very easy if I, right up front, said, 
``Yeah, sure, $1.4 billion is enough.'' But it's my job to tell 
you what we need, and then it's the administration and the 
Congress that then tells me how much I have to spend. And then 
I make informed military decisions within my Service on how we 
best spend those things, which, once again, are rightly subject 
to criticism by all of you, if you don't think I'm doing that 
the right way.
    So, I think a better way of looking at it is, you know, is 
it going to be $30 billion over 30 years? Maybe. I don't know. 
But maybe perhaps another way of looking at it is when you have 
a business, an enterprise as large as the United States Coast 
Guard, there is probably some level of acquisition money that 
is required every year, just to sustain the things that we 
have. Because right now we are spending some of that 
acquisition money on sustaining our legacy fleet in order to 
keep them operational until we can start building the OPC.
    So, it's a continuum. It's not one discreet project.
    Mr. Larsen. Just finally I will just make a note. I have 
some questions about ice-breakers, but I understand we're going 
to have a hearing in November on the Arctic. I understand it's 
going to be a field hearing. Just kidding, Mr. Chairman.
    But I will save my questions, but I want you to stay up the 
night before that hearing as well, and think about your 
comments and maybe times where you said we were basically 
starting from ground zero when it comes to a presence in the 
Arctic to accomplish missions up there, and what that means for 
acquisition and capital investment, as well.
    Admiral Papp. Yes, sir.
    Mr. Larsen. Because those will be the gist of my questions.
    Admiral Papp. Thank you, sir. I welcome the opportunity.
    Mr. Larsen. Thank you.
    Mr. LoBiondo. Admiral Papp, we thank you very much. 
Appreciate your insight into this. And once again, to repeat 
and reiterate, we are completely in line with the goals that 
you have and what you want to do. It's just that some of these 
reports become disconcerting if we can't get to the bottom of 
why they're that way.
    And it had nothing to do with your leadership or the 
current leadership, but 6 or so years ago we had direct 
assurances about what was going to happen and how it was going 
to happen, and there were no problems, and just everything was 
fine, and it really wasn't. So we're trying to be cautious, but 
move forward in a positive way. I look forward to continuing to 
working with you, and thank you and your team and all the men 
and women of the Coast Guard for what they do.
    Thank you. The hearing is adjourned.
    [Whereupon, at 11:41 a.m., the subcommittee was adjourned.]
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