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








                 THE CHALLENGES THAT MAINTAINING LEGACY
                     ASSETS POSES TO UNITED STATES
                    COAST GUARD MISSION PERFORMANCE

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

                               (112-105)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                COAST GUARD AND MARITIME TRANSPORTATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 20, 2012

                               __________

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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
RANDY HULTGREN, Illinois             RUSS CARNAHAN, Missouri
LOU BARLETTA, Pennsylvania           GRACE F. NAPOLITANO, California
CHIP CRAVAACK, Minnesota             DANIEL LIPINSKI, Illinois
BLAKE FARENTHOLD, Texas              MAZIE K. HIRONO, Hawaii
LARRY BUCSHON, Indiana               JASON ALTMIRE, Pennsylvania
BILLY LONG, Missouri                 TIMOTHY J. WALZ, Minnesota
BOB GIBBS, Ohio                      HEATH SHULER, North Carolina
PATRICK MEEHAN, Pennsylvania         STEVE COHEN, Tennessee
RICHARD L. HANNA, New York           LAURA RICHARDSON, California
JEFFREY M. LANDRY, Louisiana         ALBIO SIRES, New Jersey
STEVE SOUTHERLAND II, Florida        DONNA F. EDWARDS, Maryland
JEFF DENHAM, California
JAMES LANKFORD, Oklahoma
REID J. RIBBLE, Wisconsin
CHARLES J. ``CHUCK'' FLEISCHMANN, 
    Tennessee
VACANCY
                                ------                                

        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
CHIP CRAVAACK, Minnesota             TIMOTHY H. BISHOP, New York
BLAKE FARENTHOLD, Texas              MAZIE K. HIRONO, Hawaii
JEFFREY M. LANDRY, Louisiana,        MICHAEL H. MICHAUD, Maine
  Vice Chair                         NICK J. RAHALL II, West Virginia
JOHN L. MICA, Florida (Ex Officio)     (Ex Officio)
VACANCY



















                                CONTENTS

                                                                   Page

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

                               TESTIMONY

Rear Admiral Ronald J. Rabago, Assistant Commandant for 
  Engineering and Logistics, United States Coast Guard...........     3
Stephen L. Caldwell, Director, Homeland Security and Justice 
  Issues, Government Accountability Office.......................     3

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Rear Admiral Ronald J. Rabago....................................    16
Stephen L. Caldwell..............................................    20

                       SUBMISSIONS FOR THE RECORD

United States Coast Guard, inserts for the record:

    Response to request for information from Hon. Rick Larsen, a 
      Representative in Congress from the State of Washington, on 
      the impact of sequestration on the Coast Guard's ability to 
      maintain its legacy assets, and how the Coast Guard would 
      distribute cuts that would come from sequestration.........    11
    Response to request for information from Hon. Howard Coble, a 
      Representative in Congress from the State of North 
      Carolina, on the findings of the Ship Structure and 
      Machinery Evaluation Board review of the Coast Guard's 
      Medium Endurance Cutter fleet..............................    12





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                    THE CHALLENGES THAT MAINTAINING
                  LEGACY ASSETS POSES TO UNITED STATES
                    COAST GUARD MISSION PERFORMANCE

                              ----------                              


                      THURSDAY, SEPTEMBER 20, 2012

                  House of Representatives,
                    Subcommittee on Coast Guard and
                           Maritime Transportation,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:21 p.m. in 
Room 2167, Rayburn House Office Building, Hon. Frank LoBiondo 
(Chairman of the subcommittee) presiding.
    Mr. LoBiondo. The subcommittee will come to order. Mr. 
Larsen is on his way, and he gave us, in light of the delay 
because of the votes, the green light to get started with the 
committee. So I will start with my statement.
    The subcommittee is meeting this afternoon to review the 
challenges the Coast Guard faces maintaining its legacy assets 
and examine how those challenges impact the Service's mission 
and performance.
    Findings by GAO and others over the years have accurately 
shown the rapid decline of legacy assets that is causing the 
Coast Guard to fall short of its operational targets, forcing 
the Service to spend too much of its tight budget on 
maintenance and undermining the success of its critical safety 
and security missions. This is a very serious problem that has 
me and, I believe, many others very deeply concerned.
    Rather than alleviate my concerns, the President-proposed 
fiscal year 2013 budget for the Coast Guard only makes the 
situation that much worse. The budget request would exacerbate 
the growing patrol boat mission hour gap by ending High-Tempo-
High-Maintenance operations, and retiring vessels before their 
replacements arrive. The budget request would also slash 
funding for the critically needed replacement assets by $272 
million, or 19 percent below the current level. Clearly 
unacceptable.
    This would significantly delay the acquisition of the 
critically needed replacement assets, including Fast Response 
Cutters, National Security Cutters, Maritime Patrol Aircraft, 
and Long Range Surveillance Aircraft. It also proposes to put 
off important upgrades to the Jayhawk helicopter fleet, and 
delay sustainment projects on Buoy Tenders. Fortunately, our 
colleagues on the Appropriation Committee have found the 
dollars to reverse these very draconian cuts.
    However, the problem remains that as we are forced to pour 
more money into maintaining rapidly failing legacy assets, 
there is less available for replacement assets. And as we put 
off acquisition of new assets, we only increase the strain of 
legacy assets. Admiral Allen used to call this the death 
spiral.
    While the Coast Guard has taken steps to improve the 
conditions of its legacy fleet and the efficiency of its 
maintenance command, more needs to be done. There are many 
questions that need to be answered as a result of GAO's latest 
study. The ballooning costs of scheduled and unscheduled 
maintenance are a major problem that needs to be addressed. So 
we are growing operational gaps in the legacy fleet.
    The Coast Guard continues to operate tens--and in some 
cases hundreds of thousands--of hours short of its operational 
targets. This means assets are not there for the Service to 
conduct drug and migrant interdiction, protect our environment, 
secure our ports, and ensure the safety of our waterways. I 
hope that Admiral Rabago can tell us what the plan is to get 
out of this death spiral and ensure mission performance.
    I also look forward to hearing Mr. Caldwell's insight into 
some of the key findings from the GAO report.
    I thank both of you for coming this afternoon. And with 
that I would like to yield to Mr. Larsen.
    Mr. Larsen. Thank you, Mr. Chairman. And I appreciate that 
you found time before the House adjourns to reschedule this 
afternoon's hearing regarding the status of the Coast Guard 
legacy assets.
    Throughout the course of this Congress I have stressed that 
we cannot expect the Coast Guard to do more with less at this 
time. The GAO's new report of the crumbling condition of the 
Coast Guard's legacy fleet provides perhaps the most conclusive 
evidence we have yet received that, in fact, the Coast Guard is 
being forced to do less with less.
    The GAO's analysis highlights the dilemma that the Coast 
Guard now finds itself in as it struggles with insufficient 
budgets. On the one hand, the Coast Guard is struggling to 
overcome billions of dollars in cost overruns and years of 
scheduled delays in its effort to recapitalize its entire fleet 
of offshore cutters and patrol boats. Yet the very steep cost 
of recapitalization, along with the time table that has been 
pushed out far to the right by more than a decade, forces the 
Coast Guard to rely on its legacy assets which grow less 
reliable and more costly to maintain and operate yearly.
    Under the present circumstances, much of which the Coast 
Guard brought upon itself due to its failed deepwater program, 
the Coast Guard is caught between the proverbial rock and a 
hard place. For example, the GAO reports that the condition of 
each class of legacy assets is poor and generally declining, 
and that each class failed to meet key physical condition 
targets for the period between fiscal years 2005 and 2011.
    Additionally, depot-level maintenance expenditures for the 
legacy fleet have increased, and the prospect is that these 
costs will continue to increase as these vessels are pushed 
further and further past their life expectancies.
    Worst of all, due to the declining condition of its legacy 
assets, the GAO concludes that the Coast Guard's present 
operational capacity targets are unrealistic. In effect, the 
GAO is simply paraphrasing what I have been saying all along: 
the Coast Guard will be doing less with less.
    The Coast Guard is now forced to choose between two vital 
needs, either funding the construction of a new modern fleet of 
offshore vessels, or maintaining its aged and unreliable legacy 
assets. The end result will be diminished maritime security 
presence.
    Considering the gravity of the situation, I do want to 
commend the Coast Guard for the steps it has taken already to 
partially address these circumstances, especially its 
reorganization of its command structure and its timely 
implementation of a mission effectiveness project, or MEP, for 
the Medium Endurance Cutters and 110-foot patrol boats.
    Yet knowing what we know now, I find it troubling the Coast 
Guard has still failed to develop new budget proposals for 
additional MEPs or for the service life extension projects to 
bolster the operational capacity of its legacy assets for the 
next 10 to 15 years. I hope Admiral Rabago will address exactly 
where the Coast Guard is in this process to develop a budget 
proposal.
    The unfortunate truth is that we can no longer ignore the 
reality that the GAO has laid before us in the report. We can 
choose to devote additional resources to ensure the Coast Guard 
maintains its operational readiness throughout its lengthy 
transition to a new fleet, or we can continue the current path 
of budget cuts, which we know will risk the operational 
readiness of a Coast Guard--of the Coast Guard now, and well 
into the future.
    Present constraints leave us little choice but to examine 
carefully the assets and resources we devote to the Coast 
Guard. And certainly I am no advocate of blindly throwing money 
to solve the problem. We clearly are confronting a budget 
situation that means the Coast Guard might be less effective in 
drug interdiction at sea or might not respond as quickly to 
mariners in distress, or to communities devastated by natural 
disaster. I am suggesting that we can no longer continue to cut 
the Coast Guard's budget as if it had no effect. We need to set 
aside differences to find a way to provide the Coast Guard with 
the resources it needs. And without that effort, we cannot 
expect the Coast Guard to maintain the same excellent services 
they now give our Nation.
    With that, I yield back.
    Mr. LoBiondo. Thank you, Mr. Larsen. Our witnesses today 
are Coast Guard Rear Admiral Ronald Rabago, assistant 
commandant for engineering and logistics, and Mr. Stephen 
Caldwell, director of GAO's homeland security and justice 
issues team.
    Admiral, you are recognized.

     TESTIMONY OF REAR ADMIRAL RONALD J. RABAGO, ASSISTANT 
 COMMANDANT FOR ENGINEERING AND LOGISTICS, UNITED STATES COAST 
GUARD; AND STEPHEN L. CALDWELL, DIRECTOR, HOMELAND SECURITY AND 
        JUSTICE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE

    Admiral Rabago. Good afternoon, Chairman LoBiondo, Ranking 
Member Larsen, and other distinguished members of the 
subcommittee. I am privileged to appear before you today in my 
capacity as the Coast Guard's chief engineer to address the 
many challenges of maintaining our aging assets--in particular, 
our service fleet. I also thank you for your continued strong 
advocacy for the men and women of the Coast Guard, and for your 
oversight.
    I would like to acknowledge the work of Mr. Stephen 
Caldwell and his team at GAO, who recently completed this 
comprehensive study highlighting the difficulties associated 
with sustaining operational availability of the Coast Guard's 
cutter fleet. The external perspective provided by the GAO 
report not only underscores the challenges that our cutter 
crews and shoreside maintenance personnel face on a daily 
basis, but it also provides actionable recommendations to 
improve our cost estimating processes.
    The Coast Guard has taken these recommendations, and has 
begun a review of our vessel repair estimating procedures. 
Along other management improvements, which I will discuss in a 
moment, standardization of cost estimating will further 
strengthen our ability to deal with the highly unpredictable 
nature of maintaining an aging fleet.
    The Coast Guard is operating a fleet of cutters that are 
approaching or are beyond their designed service life. Periodic 
and substantial investments like our mission effectiveness 
project are critical to sustaining an aging fleet. The in-
service vessel sustainment project and our capital investment 
plan will also enable us to institutionalize this strategic 
approach across multiple cutter classes in the coming years.
    However, despite periodic investments and the dedicated 
cutter crews, there is a point when it becomes too costly to 
repair aging cutters and/or to retrofit their particular 
systems. A good example of this is our 378-foot High Endurance 
Cutters, which were constructed in the 1960s. These cutters 
frequently deploy in a degraded state of mission readiness. 
Their obsolescences also contributes to increased repair times, 
while critical parts are repaired or even remanufactured 
because they are no longer available from suppliers. 
Obsolescence is also prevalent on our 140-foot ice breaking 
types, navigation fleets, and other cutter classes, which are 
fast approaching or well beyond their design service lives.
    Despite the declining condition of several classes of our 
fleet, our cutter crews somehow continue to overcome these 
significant challenges and remarkably respond when our Nation 
calls. In the recent weeks, inland navigation cutters the 
Saginaw and the Hatchet, average age 40-plus years, responded 
in the wake of Hurricane Isaac and helped restore vital 
commercial traffic on impacted waterways within days of the 
storm's passage.
    As I noted earlier, over the last 3 years we have 
fundamentally reorganized the way we manage our surface fleet 
maintenance programs. We have centralized resources and 
governance to streamline and standardize support. We have 
established the surface logistics center to consolidate 
functions that were previously executed among three separate 
commands.
    Our regional industrial capabilities, including the Coast 
Guard yard in Baltimore, were brought under centralized 
programmatic oversight. We continue to make substantial 
progress working with the Department of Homeland Security to 
improve our financial audit position. All of this has 
significantly enhanced our ability to manage costs and respond 
to operational priorities across the entire enterprise, 
including efficient management of our newest ships, the 
National Security Cutters and the Fast Response Cutters.
    In our new maintenance organization led by product line 
managers, we have emphasized first and foremost the completion 
of critical plan maintenance, and are appreciative of Congress' 
support of our efforts to reduce deferred maintenance. This 
will improve the resiliency of our fleet and has enabled us to 
better support the operational commander's requirements and 
ensure good stewardship of the resources that are entrusted to 
us.
    Maturation of our support network extends beyond the 
lifelines of the Coast Guard. We have expanded partnerships 
with the Navy's Naval Sea Systems Command and the American 
Bureau of Shipping. Agreements with the Navy have enabled us to 
tap into their expertise for technical analysis, design, and 
peer review. We also regularly consult with ABS on a variety of 
technical areas that enable us to take advantage of their 
expertise and experience.
    Under our commandant's leadership, we are carefully 
balancing resources to both sustain our aging fleet and to 
acquire much-needed new assets, thereby ensuring the Coast 
Guard can effectively execute its missions today and long into 
the future.
    Finally, there are no routine in-port periods for our aging 
fleet. The moment a cutter returns to home port from an 
operational mission, the crew begins extensive maintenance and 
repair efforts to ensure they are ready to sail for the next 
mission. Without the many dedicated and talented men and women 
working very long hours, our fleet would not sail. I could not 
be more proud of our cutter crews and shoreside maintenance 
professionals who work through these significant challenges to 
ensure your Coast Guard is always ready to perform its many 
missions.
    Thank you for the opportunity to testify before you today. 
I look forward to answering your questions.
    Mr. LoBiondo. Thank you, Admiral.
    Mr. Caldwell?
    Mr. Caldwell. Chairman LoBiondo and Ranking Member Larsen, 
thank you for asking GAO to be here to talk about the legacy 
fleet. My written statement summarizes our July report, and it 
focused on the condition, cost, and performance of these legacy 
vessels.
    As noted, the key issue here is that the recapitalization 
program, formally known as Deepwater, experienced schedule 
delays that have required the Coast Guard to depend longer on 
the legacy fleet. And the recapitalization program has also 
experienced major cost escalation from the original estimates 
of $17 billion to current estimates of roughly $29 billion, 
which puts pressure on the Coast Guard's overall budget and its 
ability to maintain and potentially upgrade the increasingly 
unreliable legacy fleet.
    The overall result of this situation factor is that the 
performance is dropping from the legacy fleet, which is 
degrading the Coast Guard's ability to do its overall mission. 
Further, continued instability in the plans for the 
recapitalization fleet create additional uncertainties 
regarding mission performance.
    For example, more than 10 years into the Deepwater 
recapitalization, there is still some uncertainty over the size 
of the new fleet, in terms of both the NSCs and the OPCs, and 
there is uncertainty over the Coast Guard's commitment to use 
multiple crews to achieve 230 days away from home port for the 
new vessels.
    In preparing for this testimony, I looked through GAO's 
many reports over the years on the Coast Guard's fleet, both 
old and new, and I would like to share an overall observation. 
In general, the Coast Guard has been overly optimistic in its 
assumptions about its bridging strategies, and how well they 
will work to bridge the gap between the old and the new fleet. 
These assumptions have not proven valid in the face of time and 
budget realities. I would like to cite a few examples.
    In 2008 we reported on lost operational hours caused by the 
failed attempt to upgrade existing patrol boats to 123 feet. As 
part of its bridging strategy, the Coast Guard planned to use 
multiple crews in a High-Tempo-High-Maintenance, or HTHM, 
program, to increase operational hours from 1,800 to 4,000 
hours per year for each of eight patrol boats. In doing our 
work in 2012 we learned the Coast Guard operational hours were 
as low as 1,200 hours for some vessels in some years, and only 
one boat had achieved or exceeded the 4,000 hours in 1 year 
during the several years of the HTHM program.
    As another example, in 2009 we reported delays in fielding 
the NSCs, and that the new vessels were being fielded without 
several of the originally planned capabilities. When asked how 
they planned to maintain performance in this situation, the 
Coast Guard at that time told us that they planned a major 
sustainment program for the legacy High Endurance Cutters, and 
that they would carefully manage the mix of these cutters and 
the NSCs to maintain a total of 12 major cutters until all the 
NSCs were fielded. During our 2012 report, and getting the 
update from the Coast Guard, we learned that the High Endurance 
Cutter sustainment program was never funded, nor are there 
plans at this time to do so. And now the Coast Guard has 
accelerated the decommissioning of the High Endurance Cutters.
    In 2012, the most recent report, we noted that the Coast 
Guard has expended considerable time and money to carefully 
pick which cutters of the Medium Endurance fleet it wants to 
upgrade through the MEP program and what order it wants to do 
so. Coast Guard was optimistic in that these medium cutters 
could provide several more years of service. Yet some of these 
vessels, such as the Northland, experienced multiple major 
system failures soon after they went through the MEP program.
    Because of delays in the acquisition of the OPCs, the 
operational gap that is of most concern is that of these Medium 
Endurance Cutters. And as shown on our July report on page 38, 
the gap is exacerbated by uncertainty as to whether the MEP 
will provide an additional 5, 10, or 15 years of service.
    My final example of Coast Guard optimistic assumptions 
relate to the current capital investment plan. As you know, 
this plan is subject to change every year, but the most recent 
plan in the President's budget shows the NSC class acquisition 
stopping at six vessels. The Coast Guard continues to support 
the program of record of eight NSCs. But, as we know, there is 
a shortage of at least $1 billion in the capital investment 
program needed for those two additional vessels.
    In closing, I would like to say that lower expectations are 
probably in order here. As the Coast Guard continues its 
transition from the old to the new fleet, it is not likely to 
achieve the same performance that Congress may be expecting. I 
think that is already clear, based on your comments so far.
    And as Congress continues to deal with budget deficits 
through appropriations, Coast Guard is not likely to receive 
all the vessels with all the capabilities that it may be 
expecting.
    With that, I am happy to respond to any questions.
    Mr. LoBiondo. All right. Thank you, Mr. Caldwell. Admiral, 
I got to say before I actually get into the questions, I find 
it stunning and very disappointing that you chose not to 
address the GAO report in your remarks. I don't know how we 
don't get into this at some point.
    The GAO recommends that the Coast Guard set an annual 
operational performance target based on actual capacity, actual 
capacity, of legacy vessels available to carry out their 
missions. The Coast Guard sets those targets based on the 
assumption that available assets operate 100 percent of the 
planned operating time, which, obviously, they don't.
    It is clear that the aging High Endurance Cutters and the 
Medium Endurance Cutters and patrol boats will never meet that 
target. The Service adjusts its mission-performance targets 
annually, but does not adjust legacy vessel operational hour 
targets annually. Setting such targets annually would allow the 
Coast Guard to conduct more realistic planning, and allow 
Congress to more fully understand the impact of delaying both 
the maintenance and replacement of those assets. And that is 
key so that we, Mr. Larsen and I, can convince our colleagues 
that this is a very real problem. I am not sure the Coast Guard 
is presenting this the way they should.
    And, of course, we know it is a high priority of the Coast 
Guard to provide Congress with the most accurate, easily 
understood, transparent information regarding how it meets 
mission-performance targets. So can you shed some light on why 
does the Coast Guard oppose providing realistic mission target 
objectives by setting legacy operational hour targets annually?
    Admiral Rabago. Yes, sir. The Coast Guard sets those 
operational targets based on the resources that are provided 
for the vessels. It is true that, in the aggregate, our fleet 
is not achieving those objectives, those targets. However, 
individual vessels, and in particular geographic areas, we are 
able to achieve that. We are able to achieve those targets. And 
we use those targets as a goal to decide where we want to put 
the resources.
    The operational commanders can express their prerogative to 
emphasize and apply resources or direct the maintenance manager 
to keep certain vessels in particular areas up to a higher 
level. In fact, they do that, and we have allocated resources, 
and some of our vessels do in fact achieve those targets in 
particular areas. However, as an aggregate, it is a true 
statement, sir, that we are not meeting the current targets.
    In our MEP program, mission effectiveness program, which 
has been effective in terms of improving the reliability--and 
we get a third-party analysis of the results, and we have shown 
that the operational availability of that fleet has in some 
cases doubled, especially for the 110-foot. But also it showed 
up in the 210- and 270-foot vessels. So that project has, in 
fact, increased the operational--and now we are working to our 
targets.
    Where we achieve that, sir, we are battling the aging 
fleet. These vessels, as you know, sir, are 40 and some 
approaching 50 years old, and that is a continuing challenge. 
But the targets themselves represent something we are striving 
towards, and something that we follow the operational 
commander's direction. And we can prioritize and achieve those 
targets, at least geographically, or within particular 
missions, if so directed by the operational commander. But not 
for the whole fleet. We are not doing that, as you mentioned, 
sir.
    Mr. LoBiondo. Admiral, in 2010 Congress changed the law to 
require the Coast Guard's newly acquired vessels to be classed 
by the American Bureau of Shipping, a standard all commercial 
vessels must meet. Classification ensures that vessel designs 
are safe, that vessels are built to the latest marine 
engineering standards, and reduces the likelihood of structural 
problems when the vessels are ultimately delivered.
    Once the Coast Guard takes delivery of the Fast Response 
Cutter and the Offshore Patrol Cutter, does the Service intend 
to maintain these vessels in class? And, if not, why not?
    Admiral Rabago. We see great value in the classification at 
delivery. The standards that ABS has set for commercial 
vessels, some of which are directly transferable to Coast Guard 
cutters, have been very valuable in setting standards that we 
have designed our ships to. Certainly we have seen that with 
the FRC, which was delivered in class, as one of its contract 
requirements. And we are proceeding with that with the Offshore 
Patrol Cutter with the naval vessel rules classification 
standard. And, in fact, that vessel will be classed at 
delivery.
    The Coast Guard is--has a number of initiatives with ABS, 
where we use their expertise and experience after the vessels 
have been delivered. We have done this for many years, and we 
continue to value that. Whether we will keep the vessel in 
class or not is--we have tried that in the past. We have tried 
it with our 175 and our 225 vessels for a period of time, and 
at least for those vessels at that time it was not a--we didn't 
get the reliability or additional value out of it for the 
expenditure of funds, and also for the hours and the people 
that were involved in the process of keeping it within class.
    So right now we do not anticipate keeping them in class. 
However, we continue to work with ABS to get a lot of value out 
of the things that they do provide us, which are areas of 
structure and other things which ABS sets the standards for, 
which we do conform to, because they are good maritime 
standards.
    Mr. LoBiondo. Admiral, many vessels in the Medium Endurance 
Cutter fleet have exceeded their service lives, while others 
are fast approaching the end of their service life. The MEC 
replacement, the Offshore Patrol Cutter, has yet to be 
designed, and will not be fully fielded until the mid-2030s, at 
the earlier. The Coast Guard is expected to complete its 
mission effectiveness project on the Medium Security Cutter 
fleet in fiscal year 2014. In previous testimony before the 
subcommittee, the Service indicated this would be the last 
overhaul needed by the MECs before the OPCs come in online.
    Is it still the belief of the Coast Guard that these Medium 
Endurance Cutters will last another 10, 15, maybe even 20 years 
past their life expectancy without another overhaul?
    Admiral Rabago. Sir, as we complete the mission 
effectiveness project, we are going to be taking those vessels 
through a process called the Ship Structure and Machinery 
Evaluation Board. This is an evaluation process that we have 
used for many years. It puts out very, very good information. 
And it will tell us what the expected life of the particular 
systems and also the structure of the ship.
    When we complete that, we will be able to project whether 
or not we need to have another mid-life or some sort of a life 
extension, or another mission effectiveness project for 
particular systems for those vessels. And once we learn that 
information, I will be able to answer that question more fully. 
It is a number of years until the OPCs will replace the current 
MEC fleet. But we will evaluate. We conduct these SSMEBs 
periodically to assess the fleet, because we realize that 
things change, especially on older vessels. So we do this to 
gain a good baseline, and then project whether we need to make 
other investments, including follow-ons to the mission 
effectiveness project.
    Mr. LoBiondo. Mr. Caldwell, I have a couple questions for 
you, but I would like now to turn to Mr. Larsen, and then I 
will come back to you.
    Rick?
    Mr. Larsen. Mr. Chairman. And actually, I will start with 
Mr. Caldwell.
    You assert in your written statement the operational 
percentage time free of major casualties for the Coast Guard 
legacy assets are well below target levels, and that looming in 
the immediate future is a growing gap in the Coast Guard's 
operational capacity. Concerning that finding, and the 
increasing trend in the difference between target levels and 
actual performance as expressed in figure 10 of your report, is 
it reasonable to assume that gap will continue to increase in 
the absence of any acceleration in the delivery of new assets 
or substantial new increase in the Coast Guard's maintenance 
budget for its legacy assets?
    Mr. Caldwell. The biggest gap that we see right now is 
maybe 10 or 12 years out. That is when the medium-endurance 
fleet--which is the furthest out in terms of replacement--will 
have the biggest problems. That is when those ships are going 
to be the oldest, and the OPCs will be coming in at a rate of 
maybe two a year, but potentially far behind the rate that MECs 
may have to be decommissioned. And those still in service are 
certainly going to be operating at lower than optimum rates.
    We have a chart in our report that shows this period of 
2024 to 2033 may be the peak of that gap. So we are not there 
yet, but it is going to get worse.
    Mr. Larsen. Well, and that gets to the point. Do you assume 
a certain--a constant rate of--I won't say ``failure,'' that is 
a strong word, but a constant rate of maintenance, as opposed 
to an acceleration rate, acceleration rate of maintenance 
necessary for the MEC?
    Mr. Caldwell. The assumption that we made in our report is 
that the current MEP will provide either 5, 10, or 15 years of 
additional life to those vessels. In some cases, you know, you 
may get lucky, and a ship has good systems and will work, and 
in some cases a ship won't. And those ships won't perform well 
and will have to be decommissioned earlier.
    I am not an engineer, I don't quite understand this, but 
the surprising thing for me in doing this review is that once 
you get to an older ship, there is a great deal of imprecision 
in determining how long a major repair will last. So we went to 
the Coast Guard with various estimates and settled on using 
those three assumptions, 5, 10, and 15 years. But it would be 
based on the current MEP. We have no assumption of a new MEP, 
because there is not a new MEP in the budget.
    Mr. Larsen. Sure. So I was a little surprised to read in 
your statement that the Department of Homeland Security 
objected to your recommendation that the Coast Guard adjust 
legacy vessel fleet operational hour targets to reflect actual 
capacity, as appropriate by class. Can you explain the DHS's 
concern with your recommendation to address operational hour 
targets?
    Mr. Caldwell. It is somewhat convoluted. What we and the 
Coast Guard agree upon is that the Coast Guard has been unable 
to meet these operational targets, and we also agree that while 
collectively not meeting these targets, some of the individual 
vessels do meet those targets.
    In our discussions with Coast Guard and DHS, there was a 
concern that by lowering those targets, the Coast Guard was 
lowering the expectations of what are statutory required 
missions. We would not object to them having an ``objective'' 
target of what levels they would want those operational hours 
to be. And if they do adjust those operational hours to show 
the reality of recent years and recent history, they could 
certainly ramp those back up to that desired level as 
appropriate.
    When facing the losses that frequently number in the tens 
of thousands of hours on an annual basis, the exceptional 
output of some individual vessels is not a good reason for 
holding to what are unrealistic and unachievable targets. By 
adjusting those hours annually to reflect the capacity as 
evidenced by the historic and actual performance, as opposed to 
the desired capacity of the ships, the Coast Guard would more 
realistically be setting its annual targets, and even those for 
individual vessels and commands that are in charge of those 
vessels.
    Mr. Larsen. Admiral, a little change of subject. And it has 
to do with sequestration. Based on my review of the OMB report 
that was released last week, the Coast Guard is facing about a 
$430 million cut to line items. I won't go into the details, 
but it is about that amount. A lot of focus around here has 
been on the Defense Department, but obviously there is a lot 
going on on the domestic side, which you all fall into, in some 
respects.
    So, can you talk about the impact of sequestration on the 
Coast Guard's ability, then, to maintain its legacy assets? And 
how--is there discussion about how the Coast Guard would 
distribute cuts that would come from sequestration?
    Admiral Rabago. Sir, I am not prepared to talk about how we 
would distribute across our entire Coast Guard budget. We can 
certainly provide that information for the record, sir.
    Mr. Larsen. Please do so.
    Admiral Rabago. I will let our budget folks provide that.
    Mr. Larsen. I am sure they will enjoy providing that 
information.
    [United States Coast Guard insert for the record follows:]

        The Coast Guard does not have a specific plan on how 
        reductions would be distributed under the potential 
        sequestration, or identify which programs, projects or 
        activities would be impacted, and to what degree. 
        Overall, the strategy would be to allocate available 
        resources in a manner that prevents disruptions to our 
        workforce; preserves the most essential operations, 
        activities, and services; and prevents long-term 
        detrimental impacts to the Service, including the 
        ability to maintain our legacy assets.

    Admiral Rabago. The--with regards to the budget that I have 
today to take care of the fleet of today, as well as the new 
ships that are coming on, I am not yet satisfied that I am 
able--I am obviously not reaching the targets that we would 
like to reach for all of the vessels. Our newer ships are, and 
we use those targets for our newer ships. And after--certainly 
we have seen the results of what MEP is providing, in terms of 
increased reliability of the systems, which is what the essence 
of MEP was.
    But for us, we--the money that we have today, it is my 
charge to make sure that I spend it very wisely with the 
existing assets that we have. The changes that we made to our 
maintenance organization, which I did talk about in my opening 
statement, or my written statement, is ways to make sure that--
number one is that we know exactly what--where every dollar is 
going, in terms of how it applies to maintenance, and how that 
maintenance translates into operations.
    We have recently strengthened a new metric in the last two 
or so years, which is our cost to operate, where I can provide 
information to the operational commander. And again, this 
becomes a decision process and the prerogative of the 
operational commander, where I can say what things actually 
cost, what is the cost of operating that 210, that 270, that 
110, and provide that operational commander information to make 
good decisions about how to allocate the operational resources 
based on cost. And we are continuing to improve that. It was 
mentioned in the GAO report. It is one of our key metrics. And 
it allows, I think, operational commanders to make good 
decisions.
    So, regardless of where our budget ends up in the future 
years, or with some form of sequestration or whatever may come, 
we are best positioned to give the operational commanders the 
choices they need to choose what assets that they want to run, 
what the costs are going to be, in order to achieve the 
operational effect that is required to execute our missions.
    Mr. Larsen. Well, just one more question. The chairman was 
trying to touch on this--why haven't you revised mission 
performance targets to account for the current legacy fleet? 
Because, you know, from where we sit, it looks like you are 
trying to paper over a problem when it is pretty clear you've 
got plenty of paper that tells us there is a problem.
    Admiral Rabago. Sir, right now we are keeping operational 
targets where they are. We certainly read the information in 
the report and recognizing that we are not achieving those 
targets. Those targets, over time, and the changes to what the 
Nation may require of us still are valid targets and what the 
Nation should expect out of those ships, in terms of--as 
capital assets that we make investments in.
    Challenging us, of course, is the age of those ships and 
their capabilities that they have, that if we don't 
recapitalize them they get more and more expensive. And 
therefore, we are allocating money to maintenance activities 
that we would just as soon spend to do other things that 
produce more operational capabilities. But that is a 
consequence of an aging fleet.
    In the end, the best choice is to recapitalize particular 
assets when they reach a certain age.
    Mr. Larsen. Thank you.
    Mr. LoBiondo. Just before I got to Mr. Coble, with all due 
respect, Admiral, if it is what the Nation expects, but it is 
not what is happening, and the cost--we know we need to 
recapitalize, but we are not matching up our needs versus our 
cost and what, realistically, we are doing and how we are doing 
it.
    So I mean I have got to agree with Mr. Larsen that I think 
that the Coast Guard has got to be more realistic about this, 
and we are going to have to get our heads together, since 
obviously high brass at the Coast Guard doesn't think so.
    Master Chief Coble?
    Mr. Coble. Thank you, Mr. Chairman, appreciate it. Admiral, 
good to have you all with us today. Admiral, I am told that 4 
years ago the Coast Guard assured the subcommittee it was 
conducting a condition survey of the HEC fleet. Was such a 
survey ever, in fact, conducted?
    Admiral Rabago. Yes, we have conducted the SSMEB, which is 
a Ship Structure and Machinery Evaluation Board, on that fleet. 
We determined the exact condition of it. We have actually made 
some modest amount of work to keep those ships operating. But 
we have not made a large investment, nor do we intend to.
    Mr. Coble. Well, has the subcommittee received the copy of 
the report, of the survey?
    Admiral Rabago. I don't know, sir. I will find out and make 
sure that you have it.
    [United States Coast Guard insert for the record follows:]

        The Coast Guard completed a Ship Structure and 
        Machinery Evaluation Board (SSMEB) review of the 378-
        foot Medium Endurance Cutter (WHEC) fleet and held a 
        WHEC Sustainment Conference in 2008 resulting in 
        findings of the SSMEB in 2009.

        During the sustainment conference, it was determined 
        that the Coast Guard needed to conduct a comprehensive 
        hull assessment and structural survey to better assess 
        the true condition of the fleet. The Naval Surface 
        Warfare Center performed hull corrosion and piping 
        system surveys from 2009 through 2010 report. This 
        effort indentified numerous structural and engineering 
        system deficiencies that require extensive repairs and 
        further validated the Coast Guard's on-going strategy 
        to replace these aging assets with National Security 
        Cutters.

    Mr. Coble. I thank you for that.
    Admiral Rabago. Yes, sir.
    Mr. Coble. Admiral, let me ask you this. How many days away 
from port are NSC 1, 2, and 3 currently achieving?
    Admiral Rabago. NSCs 1 and 2 have exceeded 200 days away 
from home port, and our goal is to continue to increase that 
number until we reach the 230, which is the designed days away 
from home port for that class of ships.
    Mr. Coble. Thank you. Thank you both for being with us. I 
yield back, Mr. Chairman.
    Mr. LoBiondo. OK. Thank you there, Master Chief.
    Mr. Coble. Yes, sir.
    Mr. LoBiondo. Mr. Caldwell, the Coast Guard is nearing 
completion of the mission effectiveness project for the MECs 
and the patrol boats which began in fiscal year 2005 and cost 
$450 million. Was the mission effectiveness project a wise 
investment, given that we will not fully bridge the MEC and OPC 
delivery, and there is no guarantee regarding how long the 
mission effectiveness project will extend these vessels' 
service lives?
    Mr. Caldwell. Whether it could have been cheaper another 
way or whether that money maybe should have gone into moving 
the newer assets up sooner, I can't answer that question. But I 
think the situation probably would have been worse if we didn't 
have that MEP. In terms of the patrol boats, those boats are 
going through a much larger overhaul, so the reliability you 
would get out of them may be better spent.
    With the MECs, it is more difficult, because they are just 
replacing the most distressed elements or systems within those 
vessels. So it is much less predictable, as to what we are 
getting out of those particular vessels in the medium to long 
term.
    But as I said, the Medium Endurance Cutter gap is the worst 
one we are facing right now. So we are between a rock and a 
hard place, sir.
    Mr. LoBiondo. For future mission performance, the GAO 
report notes that the problems with maintaining the legacy 
vessel fleet is only expected to worsen in the future, and will 
have consequences on mission performance. Could you identify 
for us the Coast Guard's greatest challenge regarding 
sustaining the legacy fleet and meeting mission requirements?
    Mr. Caldwell. They are having to rob Peter to pay Paul with 
the resources they have. The challenges are, making those 
decisions in terms of which missions they are going to pursue, 
and at what locations. For example, you have got very rough 
seas off Alaska, the Bering Sea, only certain vessels are 
actually capable of doing missions there. They would be pulling 
vessels from, say, the Caribbean and drug missions and other 
missions there, which is reducing the effectiveness and 
performance in the Caribbean.
    And then other missions are falling by the wayside, or 
being ignored, at least in the short term, because of those 
other priorities. These missions might include the fisheries 
enforcements and the other missions where life and limb are not 
at risk.
    Mr. LoBiondo. Thank you. Mr. Larsen?
    Mr. Larsen. Admiral, can you cover for us a little bit more 
about how you see the positives of the command maintenance 
structure, since it has been in place now for a couple of years 
and you have some experience? Give us some feedback on that.
    Admiral Rabago. Yes, sir. Thank you for the question. Our 
maintenance organization previously was an east-west 
maintenance organization. So decisions were sometimes different 
between the two coasts, and even in the same fleet of vessels. 
By consolidating in 2009 and setting up our surface forces 
logistics center, we were able to be able to approach the fleet 
as a single enterprise. It allowed us to make tradeoffs, in 
terms of where the priorities are. It allowed us to create a 
concept called the product line manager, which is a single 
point of accountability for a particular asset class, and have 
a conversation with the operational commander about priorities.
    Additionally, what it did is we had those three commands I 
mentioned in my opening statement. We separated supply away 
from maintenance. In the new organization, a single point of 
accountability, the product line manager oversees all 
maintenance and supplies. So decisions that are made with 
maintenance that do have an impact on what spare parts you have 
and the system that you want to support and how you want to 
support it can all be made holistically.
    And again, we no longer have an east-west, we have a one 
Coast Guard approach to taking care of our fleet. That has 
allowed us to do a couple of things. One is it is the most 
effective and efficient way to use the dollars we are given, in 
the sense that we can make sure that they are applied with the 
priorities we get from the operational commander.
    Secondly, it allows us to gather data that is--we can use 
to make good decisions about the priorities. And those are some 
of the new metrics, the cost-to-operate metric, which we could 
not have gotten before, now allows us to decide and provide 
options to Coast Guard leadership, and particularly the 
operational commander, as to exactly where they want us to put 
our resources when it comes to maintenance. And again, that can 
vary based on geography, or it can be based on mission. 
Whatever the operational commander decides is the highest 
priority, we are able to leverage those resources into those 
assets to answer that and that particular requirement.
    Additionally, the other efficiencies in the sense of 
overseeing our entire industrial enterprise previously, that 
was done very geographic, very local. By standardizing our 
business process across the way, we were able to actually 
redistribute resources across the enterprise to provide a much 
more even support so that we have--we don't have haves and 
have-nots when it comes to taking care of our fleet. We want to 
take care of all of our ships with intent and purpose, and we 
want to do it with a data-driven methodology.
    Mr. Larsen. That is fine. Thank you.
    Mr. LoBiondo. Admiral, thank you very much. Mr. Caldwell, 
thank you very much. The subcommittee stands adjourned.
    [Whereupon, at 3:05 p.m., the subcommittee was adjourned.]




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