[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE STATUS OF COAST GUARD CUTTER ACQUISITION PROGRAMS
=======================================================================
(114-32)
HEARING
BEFORE THE
SUBCOMMITTEE ON
COAST GUARD AND MARITIME TRANSPORTATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 3, 2016
__________
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
BILL SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska PETER A. DeFAZIO, Oregon
JOHN J. DUNCAN, Jr., Tennessee, ELEANOR HOLMES NORTON, District of
Vice Chair Columbia
JOHN L. MICA, Florida JERROLD NADLER, New York
FRANK A. LoBIONDO, New Jersey CORRINE BROWN, Florida
SAM GRAVES, Missouri EDDIE BERNICE JOHNSON, Texas
CANDICE S. MILLER, Michigan ELIJAH E. CUMMINGS, Maryland
DUNCAN HUNTER, California RICK LARSEN, Washington
ERIC A. ``RICK'' CRAWFORD, Arkansas MICHAEL E. CAPUANO, Massachusetts
LOU BARLETTA, Pennsylvania GRACE F. NAPOLITANO, California
BLAKE FARENTHOLD, Texas DANIEL LIPINSKI, Illinois
BOB GIBBS, Ohio STEVE COHEN, Tennessee
RICHARD L. HANNA, New York ALBIO SIRES, New Jersey
DANIEL WEBSTER, Florida DONNA F. EDWARDS, Maryland
JEFF DENHAM, California JOHN GARAMENDI, California
REID J. RIBBLE, Wisconsin ANDRE CARSON, Indiana
THOMAS MASSIE, Kentucky JANICE HAHN, California
MARK MEADOWS, North Carolina RICHARD M. NOLAN, Minnesota
SCOTT PERRY, Pennsylvania ANN KIRKPATRICK, Arizona
RODNEY DAVIS, Illinois DINA TITUS, Nevada
MARK SANFORD, South Carolina SEAN PATRICK MALONEY, New York
ROB WOODALL, Georgia ELIZABETH H. ESTY, Connecticut
TODD ROKITA, Indiana LOIS FRANKEL, Florida
JOHN KATKO, New York CHERI BUSTOS, Illinois
BRIAN BABIN, Texas JARED HUFFMAN, California
CRESENT HARDY, Nevada JULIA BROWNLEY, California
RYAN A. COSTELLO, Pennsylvania
GARRET GRAVES, Louisiana
MIMI WALTERS, California
BARBARA COMSTOCK, Virginia
CARLOS CURBELO, Florida
DAVID ROUZER, North Carolina
LEE M. ZELDIN, New York
VACANCY
------
Subcommittee on Coast Guard and Maritime Transportation
DUNCAN HUNTER, California, Chairman
DON YOUNG, Alaska JOHN GARAMENDI, California
FRANK A. LoBIONDO, New Jersey ELIJAH E. CUMMINGS, Maryland
BOB GIBBS, Ohio CORRINE BROWN, Florida
MARK SANFORD, South Carolina JANICE HAHN, California
GARRET GRAVES, Louisiana LOIS FRANKEL, Florida
CARLOS CURBELO, Florida JULIA BROWNLEY, California
DAVID ROUZER, North Carolina PETER A. DeFAZIO, Oregon (Ex
LEE M. ZELDIN, New York Officio)
BILL SHUSTER, Pennsylvania (Ex
Officio)
CONTENTS
Page
Summary of Subject Matter........................................ iv
TESTIMONY
Rear Admiral Joseph M. Vojvodich, Assistant Commandant for
Acquisition and Chief Acquisition Officer, U.S. Coast Guard.... 3
Michele Mackin, Director, Acquisition and Sourcing Management,
U.S. Government Accountability Office.......................... 3
Ronald O'Rourke, Specialist in Naval Affairs, Congressional
Research Service............................................... 3
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Hon. John Garamendi of California................................ 33
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Rear Admiral Joseph M. Vojvodich................................. 36
Michele Mackin................................................... 43
Ronald O'Rourke.................................................. 65
SUBMISSIONS FOR THE RECORD
Rear Admiral Joseph M. Vojvodich, Assistant Commandant for
Acquisition and Chief Acquisition Officer, U.S. Coast Guard,
post-hearing responses to requests for information from the
following Representatives:
Hon. Bob Gibbs of Ohio referenced instances of cracked diesel
engine cylinder heads among National Security Cutters and
asked if the repairs were covered under contract or
warranty, or paid by the U.S. Coast Guard or other entity.. 12
Hon. Garret Graves of Louisiana requested an explanation of
efforts by the U.S. Coast Guard to work with the Maritime
Administration to maintain a list of vessels for disposal.. 18
Hon. Duncan Hunter of California asked why it wasn't until
the testing of National Security Cutter No. 3 that
operational capability issues were identified yet were not
identified in Nos. 1 and 2................................. 24
Hon. Duncan Hunter of California requested the U.S. Coast
Guard's perspective on using multiyear procurement
contracting and block buy contracting...................... 30
Hon. Jim Bridenstine of Oklahoma submitted written questions
for the record............................................. 40
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THE STATUS OF COAST GUARD CUTTER ACQUISITION PROGRAMS
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WEDNESDAY, FEBRUARY 3, 2016
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 a.m., in
room 2167, Rayburn House Office Building, Hon. Duncan Hunter
(Chairman of the subcommittee) presiding.
Mr. Hunter. Good morning. The subcommittee will come to
order.
The subcommittee is meeting today to discuss the status of
Coast Guard cutter acquisition programs.
The Government Accountability Office issued a report on
January 12th entitled ``National Security Cutter: Enhanced
Oversight Needed to Ensure Problems Discovered During Testing
and Operations Are Addressed.'' It raises concerns with the
timing of testing during production, the guidance available to
guide production, testing and oversight of corrected actions,
and the additional costs to address the deficiencies and
operational issues.
An important discussion I would like to have today is how
we ensure the end assets operate as intended and are what the
taxpayers paid for. What lessons have we learned during the
National Security Cutter and Fast Response Cutter acquisition
programs that can be applied to the OPC [Offshore Patrol
Cutter] program to minimize, if not eliminate, the same issues.
As I have said before, the Coast Guard is operating tens,
and in some cases, hundreds of hours short of its operational
targets, which puts our Nation at risk. Assets are not
available for the Service to secure our ports, protect our
environment, and ensure the safety of our waterways.
We heard in 2014 the lack of available assets resulted in
historic lows in drug interdiction rates. The lack of assets
must have affected other mission areas as well. The fact that
the new assets may not be performing as intended is a problem
that could continue to impact mission capabilities.
We have also previously discussed issues with the
President's annual budget requests and the Capital Investment
Plans, both of which have not supported the infrastructure
needs of the Coast Guard. According to the Coast Guard's fiscal
year 2016-2020 CIP, annual funding for acquisitions will be
roughly $1 billion less than the GAO [Government Accountability
Office] and Coast Guard officials have testified is needed on
an annual basis to keep the current acquisition program on
schedule and on budget.
The Capital Investment Plan is nothing more than a roadmap
to additional acquisition delays, increased costs for
taxpayers, and ongoing mission performance failures.
The President's budget requests have followed the poorly
designed roadmap provided in the Capital Investment Plan. The
fiscal year 2016 request cut funding needed to acquire
critically needed replacement assets by 17 percent.
The budget request also failed to guarantee the funding
needed to begin detailed design for the OPC, and failure to
move into detailed design on the OPC by the end of fiscal year
2016 could result in significantly higher costs and substantial
acquisition delays.
Moving this, and other, acquisitions further to the right
will only further degrade Coast Guard mission performance.
As we move into reviewing the fiscal year 2017 budget, it
would be a welcome change to see the President's budget support
funding for the Coast Guard's acquisition programs.
Another component of the recapitalization is the Coast
Guard's mission need statement. It is used to inform us and
everybody the evolution of the Coast Guard's Capital Investment
Plan. Up until last month, the Coast Guard was working on a
mission need statement from 2004. So it only took them about 11
years to update it.
On January 8th the Coast Guard released a new mission need
statement, as required by this committee, the Appropriations
Committee, and our Senate counterparts.
The Howard Coble Coast Guard and Maritime Transportation
Act of 2014 required an updated mission need statement to
include information on current and projected gaps in Coast
Guard mission capabilities and how major acquisition programs
would address those gaps.
However, that is what it was supposed to do. What the Coast
Guard released on January 8th actually states this: ``This
document does not seek to identify a material solution to meet
future mission needs, but rather to identify the enduring,
high-level capabilities required for the Coast Guard to execute
its broad statutory authorities effectively and efficiently.''
So it took the Coast Guard 11 years to do an updated
mission need statement, and in that mission need statement,
they said they are not going to do a future mission need
statement.
While having an updated mission need statement is better
than working off one developed over a decade ago, if it does
not provide information on what assets are needed to perform
certain missions, does it properly inform the evolution of the
Capital Investment Plan and subsequently the President's budget
request for Coast Guard assets?
Those are questions we have today. I look forward to
discussing all of the issues before us today, including any
lessons learned from the NSC [National Security Cutter] and the
Fast Response Cutter acquisition programs so they could be
applied to the Offshore Patrol Cutter acquisition program.
In the end, the American public deserves assets that
perform as intended and expected. We do not need missions to be
continually compromised due to the limitations of old vessels
and flaws in new ones.
With that I yield to Ranking Member Garamendi.
Mr. Garamendi. Thank you, Mr. Chairman.
I am listening carefully to your opening statement, and I
am thinking, ``What could I add?'' Maybe welcome and good
morning. I look forward to your testimony.
This chairman has laid out a series of issues. My opening
statement repeats much of what he has already covered, and
actually covered much more than my opening statement.
So I am just going to submit my statement for the record,
and we will just get into it and go from there.
One thing that the chairman did not cover was our favorite
subject, icebreakers. Maybe you did. Did you discuss that?
Mr. Hunter. No, I did not.
Mr. Garamendi. Come on.
Mr. Hunter. This one day, you got me.
Mr. Garamendi. So we want to talk about icebreakers a
little bit to see where we are with that, but everything else
that is in my opening statement he has already talked about. I
could repeat it, but welcome, and I will submit it for the
record.
Mr. Hunter. One reason this is important this morning is
because your National Security Cutters are almost done. You
only have a block of what, 40 or 50 ships, FRCs [Fast Response
Cutters] and OPCs, coming up, and then you are not going to
have any acquisition for quite a while. This is it.
So we kind of get one shot at this to do it right and to do
it as efficiently and as effectively as possible. So hopefully
we hear this morning on how we are going to do that.
And with that, on the first panel for today's hearing we
will start with Rear Admiral Joseph Vojvodich, boom, right
there, the Coast Guard's Assistant Commandant for Acquisition
and Chief Acquisition Officer.
Rear Admiral, you are recognized to make your statement.
TESTIMONY OF REAR ADMIRAL JOSEPH M. VOJVODICH, ASSISTANT
COMMANDANT FOR ACQUISITION AND CHIEF ACQUISITION OFFICER, U.S.
COAST GUARD; MICHELE MACKIN, DIRECTOR, ACQUISITION AND SOURCING
MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND RONALD
O'ROURKE, SPECIALIST IN NAVAL AFFAIRS, CONGRESSIONAL RESEARCH
SERVICE
Admiral Vojvodich. Chairman Hunter, Ranking Member
Garamendi, members of the subcommittee, good morning.
Thank you for the opportunity to speak about the Coast
Guard's ongoing activities to recapitalize the surface fleet.
On behalf of the Commandant and the men and the women of the
United States Coast Guard, I want to express my appreciation
for your oversight and continued support of our Service.
I also want to note the Service's thanks for including
several Coast Guard priorities in the recently passed
authorization bill. These new authorities will allow the
Service to improve command structure and overall performance.
Our internal efforts to achieve continuous improvement are
complemented by the valuable oversight performed by this
subcommittee and the organizations represented by my
distinguished fellow panel members today.
We continue to have a very effective working relationship
with the Government Accountability Office, Ms. Mackin, and her
team. This was evident during GAO's recent review of the
National Security Cutter operational test and evaluation
activities, which concluded with recommendations that are
consistent with our plans to achieve OT&E.
We likewise benefit from the research and knowledge of Mr.
O'Rourke and the Congressional Research Service. I am honored
to have the opportunity to jointly testify with these committed
professionals.
As the chief acquisition officer, I have the distinct
pleasure to lead a talented team in delivering assets and
capabilities needed to accomplish the Service's many missions.
The importance of this work is reflected by the efforts put
forward by this subcommittee and your colleagues to fully
support the Coast Guard acquisition priorities in fiscal year
2016. We are fully prepared to execute these funds in an
effective and efficient manner.
I can say this because we have made investment to mature
our acquisition enterprise. We continue to grow a deep and
talented acquisition workforce capable of performing critical
program management, contract and support functions. We are
actively applying lessons learned from each program to improve
decisionmaking across the portfolio.
From cutter to cutter, program to program, we are approving
our processes in a quality of delivered assets. In the end we
are providing more capable products to our end users: the men
and women in the field who are responsible for executing the
missions.
We continue full rate production of the National Security
Cutter and the Fast Response Cutter, and we are working hard on
designing and delivering an affordable and capable Offshore
Patrol Cutter. We recently completed preliminary and contract
design phase of the OPC, and we are on schedule to award a
follow-on contract for detail design before the end of this
fiscal year.
At the same time, we are acting on the President's
direction to accelerate the acquisition of a heavy icebreaker
and begin planning construction of additional icebreakers. We
recently completed the operational requirements document and
released a draft technical package late last month, which
outlines key requirements for a heavy icebreaker to advance our
industry outreach strategy.
Additionally, we started a preservation and material
condition assessment of Polar Star, and we anticipate having
results later this summer.
The Commandant continues to make fleet recapitalization one
of the Service's highest priorities, and we recognize the need
to achieve affordability in everything that we do.
Thank you for your support of the Coast Guard's effort to
provide our men and women in uniform with the mission
capability they need in the 21st century.
I appreciate the opportunity to testify, and I look forward
to the questions that you may have.
Mr. Hunter. Thanks, Admiral.
Our next witness is Ms. Michele Mackin, Director of
Acquisition and Sourcing Management for the U.S. Government
Accountability Office.
Ms. Mackin, you are recognized.
Ms. Mackin. Thank you, Mr. Chairman.
Good morning, Ranking Member Garamendi, members of the
subcommittee. Thank you for having me here this morning to
discuss the Coast Guard's cutter acquisitions, in particular,
issues identified in the National Security Cutter's testing and
in ongoing operations.
As was noted, we reported on these issues last month at the
request of the subcommittee.
I will also share some observations on lessons learned from
the NSC and from our work on commercial best practices as the
Coast Guard moves forward with the Offshore Patrol Cutter.
By all accounts, the NSC is a more capable vessel than the
High Endurance Cutters it is replacing. For example, it has
increased range and a larger flight deck.
The NSC had an important event in the spring of 2014, its
initial operational test and evaluation conducted by the Navy's
test agent. This kind of operational testing is the only way to
ensure that an asset is ready to meet its missions.
At the time of the testing, seven of eight NSCs were either
delivered or under contract, and three were operational. The
test was done on the third NSC, the Stratton.
The Navy determined that the NSC is operationally
effective, meaning capable of performing its missions, and
operationally suitable, meaning it can sustain operations in
terms of availability and reliability.
At the same time, however, the Navy identified 10 major
deficiencies that could affect the ship's operations. In
addition, 7 of the 19 key performance parameters were not fully
met. Some areas of concern pertain to the combat systems suite.
Others pertain to the sea state requirements for the cutter
boats that launch from the NSC.
Of note, the unmanned aerial system, key to the NSC's
planned capabilities, could not be tested because the Coast
Guard has not yet acquired a UAS [unmanned aircraft system].
The Coast Guard has plans to address most of the identified
issues, and the items will be assessed again during follow-on
operational testing, which is expected to start later this year
and continue into 2017 or longer, at which point at least six
NSCs will have been delivered.
In addition to the testing issues, the Coast Guard will
need to replace certain equipment after all NSCs have been
built. Examples include the gantry crane, which was not
designed for a maritime environment and is experiencing
significant corrosion, and the single point davit which cannot
be operated in high seas as intended. These and other retrofits
will cost over $200 million.
Further, we identified problems that have arisen during the
5 years the NSCs have been operational. Some of the problems
are proving difficult to fix. Key areas of concern are high
engine temperatures, which limit the speed of the NSC in
certain conditions; cracked cylinder heads, which are occurring
at a rate higher than expected; and overheating generator
bearings, which have caused at least one patrol to be cut
short.
Until corrective actions are identified and implemented,
the Coast Guard faces increased costs and the potential for NSC
missions to be limited.
Finally, regarding lessons learned from the NSC, one
element is competition. Our work on commercial shipbuilding
best practices has found that competition can save money. The
NSC procurement was sole-sourced under the Deepwater program,
and the Coast Guard is taking steps to inject competition into
the OPC acquisition.
Another observation is that the Coast Guard plans to
conduct initial operational test and evaluation when one of the
25 OPCs is operational as compared to 3 of the 8 NSCs.
A third area is warranty provisions. Who pays for the
defects and retrofits? In the case of the NSC, the Coast Guard
generally will pay. The planned OPC warranty, which according
to the Coast Guard will be similar to that of the Fast Response
Cutter, would have stronger provisions that should be more
effective in protecting taxpayer dollars.
And finally, the Coast Guard has opportunities to
incorporate best practices in terms of ensuring that the OPC
design is solidified and stable before construction begins, and
that quality assurance at the shipyard is robust.
Mr. Chairman, Ranking Member Garamendi, members of the
subcommittee, this concludes my prepared remarks.
Thank you.
Mr. Hunter. Thank you, Ms. Mackin.
Our last witness is Mr. Ronald O'Rourke, a specialist in
naval affairs for the CRS [Congressional Research Service].
Mr. O'Rourke, you are recognized.
Mr. O'Rourke. Chairman Hunter, Ranking Member Garamendi,
distinguished members of the subcommittee, thank you for the
opportunity to appear before you today to discuss Coast Guard
cutter acquisition programs.
Mr. Chairman, with your permission I would like to submit
my written statement for the record and summarize it here
briefly.
As requested, my testimony focuses on how multiyear
procurement and block buy contracting could reduce acquisition
costs for new Coast Guard cutters. I have seven points I would
like to make.
The first is that multiyear procurement can reduce
acquisition costs by roughly 10 percent compared to costs under
annual contracting, and that block buy contracting can reduce
acquisition costs by comparable amounts if the authority
granted for using block buy contracting includes authority for
making economic order quantity purchases of components.
The second point is that the Navy has used multiyear
procurement and block buy contracting extensively in recent
years in its shipbuilding and aircraft acquisition programs,
and as a result estimates that it has saved billions of dollars
in acquisition costs. That is billions with a ``B.''
Among other things, using multiyear procurement helped the
Navy and Congress to convert a 9-ship buy of DDG-51 destroyers
into a 10-ship buy and to convert a 9-ship buy of Virginia-
class attack submarines into a 10-ship buy.
The third point is that although the Navy in recent years
has made extensive use of multiyear procurement and block buy
contracting to reduce acquisition costs, the Coast Guard to
date has not used multiyear procurement or block buy
contracting in its cutter acquisition programs. The Coast Guard
has used contracts with options in cutter acquisition programs.
A contract with options may look like a form of multiyear
contracting, but operates more like a series of annual
contracts.
Contracts with options do not achieve the reductions in
acquisition costs that are possible with multiyear procurement
and block buy contracting.
The fourth point is that the Offshore Patrol Cutter program
and the polar icebreaker program can be viewed as candidates
for using block buy contracting, and the Fast Response Cutter
program can be viewed as a candidate for using either multiyear
procurement or block buy contracting.
The fifth point is that from a congressional perspective
tradeoffs in making use of multiyear procurement and block buy
contracting include reduced congressional control over year-to-
year spending and tying the hands of future Congresses; reduced
flexibility for making changes in Coast Guard acquisition
programs in response to unforeseen changes in strategic and
budgetary circumstances; a potential need to shift funding from
later years to earlier years to fund economic order quantity
purchases of components; the risk of having to make penalty
payments to shipbuilders if multiyear contracts need to be
terminated due to unavailability of funds; and the risk that
materials and components purchased for ships to be procured in
future years might go to waste if those ships are not
eventually procured.
The sixth point is that using block buy contracting might
save about $1 billion in the Offshore Control Cutter program;
that using multiyear procurement or block buy contracting might
save more than $100 million in the Fast Response Cutter
program; and that using block buy contracting might save
upwards of $100 million in a two-ship polar icebreaker program.
The $1 billion in potential savings in the OPC program
would be about enough to pay for a polar icebreaker, and the
combined potential savings across all three programs of about
$1.2 billion is about equal to the average annual funding level
in the Coast Guard's acquisition, construction and improvements
account.
My seventh and final point is that in considering whether
to grant authority for using multiyear procurement or block buy
contracting, Congress may weigh the potential savings of these
contracting mechanisms against the tradeoffs I just listed.
Mr. Chairman, this concludes my remarks. Thank you again
for the opportunity to testify, and I look forward to the
subcommittee's questions.
Mr. Hunter. Thanks, Mr. O'Rourke.
I am not going to ask questions right now, but I would like
you to explain just one thing really quickly and then we will
start asking questions.
Can you just explain in layman's terms what a block buy
does and tie it into appropriations and authorizations here in
Congress and how the money is appropriated if you do a block
buy and you give money for lead materials through the
appropriations process here? How does it actually work?
Mr. O'Rourke. A block buy contract is similar to a
multiyear procurement contract. You can consider it to be the
less formal stepchild or step-sibling of a multiyear
procurement contract. Like a multiyear procurement contract, it
is one contract. It covers several years' worth of procurement,
and it gives the manufacturer, in this case the shipbuilder,
the assurance that that firm needs to make investments in its
capital plant and in its workforce to optimize the situation
for the production of the units covered under the period of the
contract. That saves money at the shipyard.
A block buy contract, if it also has written into it
authority for making economic order quantity purchases of
components, that is, batch purchases of components upfront, can
save money at the component manufacturers.
And when you add those savings together, the savings under
a block buy contract can be comparable to those of a multiyear
procurement contract, on the order of roughly 10 percent, and
this has occurred in a number of shipbuilding and aircraft
acquisition programs that the Navy and the other DOD services
have pursued in recent years.
Mr. Hunter. How was the money appropriated? So if you do a
multiyear, so say you are buying ships over 3 years, for
example. How does the appropriations process work here in the
House?
Mr. O'Rourke. The appropriations are generally the same.
You are doing annual appropriations. There is no need to fund
the entire thing upfront. So you are funding the ships in this
case one at a time.
The one change from annual contracting is that if you are
doing economic order quantity, or EOQ, purchases of
components----
Mr. Hunter. Say that again.
Mr. O'Rourke. If you are doing economic order quantity, or
EOQ, purchases of components and you are ordering those
components upfront that would be installed across all the ships
in the group, then you do bring some money from later years
into earlier years to pay for that.
Mr. Hunter. Do you mind pulling that closer to you? I have
artillery ears, and the rest of these guys are just old.
Mr. O'Rourke. The one difference is that if you are making
EOQ purchases of components, batch purchases of components,
upfront as part of your strategy for achieving savings, then
the money to pay for that is moved from later years into
earlier years.
So in the first year of block buy contract for a group of
cutters, you would pay for that first cutter in that year, but
you would also make a payment for some of the components for
the downstream ships, and that would be in addition.
So there is a shifting or re-phasing of a little bit of the
money to the extent that you want to use your authority for
making economic order quantity purchases--upfront batch
purchases of components.
But in general, you are still paying for the ships one at a
time as you would under annual contracting.
Mr. Hunter. So could the manufacturer buy all the steel
they want to as the steel market goes up and down? They can
wait and time their buys or no?
Mr. O'Rourke. It is usually discussed in terms of
components, but the authority may extend I believe to materials
as well. You can think about pumps and valves, for example,
being the kind of thing that the shipbuilder would then order
in batch fashion from the component manufacturer so that they
can make them in an economically efficient manner, and then
they would be ready for installation on each of the ships as
those ships are then funded and produced through the life of
the contract.
Mr. Hunter. What is the difference between lead time
materials and having the money appropriated upfront to buy lead
materials, and what you are talking about, or is there a
difference?
Mr. O'Rourke. Somewhat similar. Long lead time materials
are ordered ahead of the ship that it is going on so that they
will be ready in time for installation on that one ship.
In this case if you are doing 25 OPCs or as many as 26 Fast
Response Cutters, you are getting as many as 25 things or maybe
11 things for the OPC program, 11 sets of pumps and valves, all
upfront, and they would sit there and wait then to be installed
on each of the first 11 OPCs or the 26 Fast Response Cutters.
Mr. Hunter. OK. And thanks.
We are going to jump right back into this, but I would just
like to recognize Mr. Garamendi.
Mr. Garamendi. Well, let us not jump out of this for a few
moments.
So the experience of the National Security Cutter and the
Offshore Patrol Cutter would indicate that we may be better off
looking at a block buy or a multiyear procurement contract for
the OPCs; is that correct, Mr. O'Rourke?
Mr. O'Rourke. What I would say is that the Navy's
experience in reducing shipbuilding and aircraft acquisition
costs through the use of both multiyear procurement contracts
and block buy contracting offers an example that can be
considered by this committee and the Congress for application
in Coast Guard cutter acquisition. In weighing whether to do
this or not, you would balance the potential savings of these
contracting mechanisms against the tradeoffs that I listed
earlier in my opening statement.
Mr. Garamendi. Ms. Mackin, do you tend to agree with the
theory that Mr. O'Rourke is putting forward?
Ms. Mackin. I think block buy multiyear can result in
savings, but I will just mention Littoral Combat Ship. That was
a block buy contract. It has not gone well in large part
because the requirements were not firm, and now the Navy, you
know, had 10 ships for each shipyard in these block buy
contracts, and that was their strategy.
So I think it can result in savings, but the key really is
to have the requirements nailed down and firm before
construction. You may build a few ships and then move into a
block buy situation afterwards, for example.
So that would be my only caveat there.
Mr. O'Rourke. If I could just add very quickly, the
Littoral Combat Ship program has had issues and controversy and
difficulties, but I view those as being independent of the
Navy's use of block buy contracting in that program, and the
actual construction of the ships that are under the block buy
contract under the LCS program has gone a lot more smoothly
than the construction of the earlier ships that were done under
annual contracting.
Mr. Garamendi. Why was that?
Mr. O'Rourke. In part because the stability provided by
working out the problems with the initial designs fed into the
block buy contracts, and the shipbuilders were in a position
where they could then produce them on a recurring, regular
basis.
Mr. Garamendi. The first ships in any of these three and I
suppose the Littoral Combat Ship also, the first ones are kind
of like we are going to discover all of the errors and mistakes
and problems and hopefully know what they are and get them out
of the way, and then move into a more production type
procedure.
Is that basically what happens all the time?
Mr. O'Rourke. I think as a general matter the Navy
discovers design issues and experiences cost growth on lead
ships that is then, yes, fed into its understanding of the
remainder of----
Mr. Garamendi. These three programs are all new ships.
Excuse me. Each program is a new program. It is a new ship that
had not previously been in the fleet; is that correct? I think
so. I am wrong?
Mr. O'Rourke. No, the Fast Response Cutter program is well
underway, and so if you were to do a contract for that program,
you are in the middle of it already.
Mr. Garamendi. I did not communicate well. My apologies.
What I am saying is that all three of these ships, each one is
a new ship at its outset. When the contract was let, it was a
new ship. National Security Cutter had never been built before.
There are going to be problems. You are going to find out
that this did not fit. You really did not want it done that
way. What you really needed was something different. That is
kind of like the way it is, is it not?
I guess the point to us is we should expect that to happen
with the first one off the line. It gets into the water;
hopefully it floats, and you go from there. Is that more or
less correct, Admiral?
And then you find the problems. You solve it. You figure
out the solutions to the problems, and then hopefully the next
ships coming off the line do not have the same problem,
correct?
Admiral Vojvodich. Yes, sir, there is a great deal of
learning that goes on in the shipyard.
Mr. Garamendi. In that process. So we might expect for the
first cutter coming off in any of these three, first ships
coming off in any of these three different types of ships to
have problems, right? Wrong? It is going to be perfect?
Ms. Mackin. I doubt it will be perfect, but I think this is
where the commercial shipbuilding best practices could help
inform the OPC acquisition. They are not the same kind of
ships, but the principle of building them, the whole
mechanical, electrical, the basic construction of the ships,
there are definitely lessons to be learned there.
In the commercial world, they deliver a ship that works
right off the bat, and largely because they make sure that the
design is stable before they begin construction.
The Navy typically does not do that, and so I think here is
an opportunity for the Coast Guard to try to get that part
right on the OPC.
Mr. Garamendi. Very interesting. So you want to know before
you begin to lay the keel what it is you want it to look like
when it is completed. Is that what I heard you say?
Ms. Mackin. Yes, sir.
Mr. Garamendi. And all of the little elements, including
the unmanned aerial vehicle?
Ms. Mackin. Those are additional capabilities. You know, I
think here we are kind of dealing with a legacy Deepwater issue
when you talk about the UAS, the cutter boats. The stern doors
have problems. A lot of this is the way that procurement went.
It was in a sole source environment. The Government had very
little control over the requirements in those days.
The Coast Guard obviously has come a long way since then.
Mr. Garamendi. So I think what I am trying to get is a good
sense of lessons learned, which I think is what we are here for
today, and the application of those lessons learned to this
next class of ships.
Mr. O'Rourke. One of the oldest lessons in shipbuilding
that has been learned many times over is to avoid design
construction concurrency, and the Navy has moved in recent
years to get away from that and to take its designs to a high
stage of completion prior to starting the construction of the
ships, and the degree of completion of design has been moving
upward over time.
But, yes, that is one of the oldest and most----
Mr. Garamendi. Now, with that foundation in place I am out
of time, well out of time, and so I am going to yield back, but
I want to come back and circle back around as to whether those
lessons are being applied by the Coast Guard.
Thank you, Mr. Chairman.
Mr. Hunter. Mr. Gibbs from Ohio is recognized.
Mr. Gibbs. Thank you, Mr. Chairman.
Admiral, you know, I listened to the testimony from Ms.
Mackin and Mr. O'Rourke, and I hear a common theme about the
purchasing problems. We could save $1 billion if they do
purchasing differently. That would pay for an icebreaker. I
hear about the warranty. I have got a paper in front of me that
talks about some of the challenges the Coast Guard has had,
averages four cracked cylinder heads a year. Then the Coast
Guard paid for it. Warranty did not pay for it or the
manufacturer. Generator bearings, propulsion systems, stern
doors maybe leak, may cause the boat to capsize.
I am trying to understand these issues. Why are taxpayers
paying for these fixes? I mean, how do you guys negotiate
contracts here? I mean, how does this work?
I think the other two witnesses, the Government
Accountability Office and the Congressional Research Service
are pretty critical about the procurement and what is
happening. So can you expound or enlighten me why this is
happening?
Admiral Vojvodich. Yes, sir. Thank you for the opportunity
to address that.
The National Security Cutter is obviously a very complex
cutter derived with many complex systems, and so over time as
we learn to operate them in the operational environment, we are
going to encounter issues out there. And so, you know, when
those issues come up, we engage our technical authority to make
sure we understand the engineering aspect of it.
We engage the shipbuilder as well as the originating
equipment manufacturers to understand the solutions. We put
plans in place whether it is in design or prototypes or
optimization studies, and we look at mission impact.
What we have observed with the National Security Cutter, we
are able to meet mission. We are encountering issues along the
way, and again, through this whole process of technical
authority and the shipbuilder, we are addressing those
efficiently to make sure that we have the best capability that
we can provide to our operators.
Mr. Gibbs. So I guess what you are saying is some of this
technology, you are developing it as you are building the ship,
and so it is not as clear-cut.
I mean, we are talking about cracked cylinder heads on a
diesel engine. I mean, I would think I missed something here.
Admiral Vojvodich. The application of these technologies in
a maritime environment in these complex, harsh environments,
and again, when we looked at the initial design, a crane, a
boat launch, a certain type of engine that has been used, and
then we put it in the operator's hands in terms of how we
actually apply and use it from a----
Mr. Gibbs. Well, let me ask you. OK. So you have a problem.
So it is the cylinder heads, and you go back to the
manufacturer. I mean, what kind of discussion do you have about
who is responsible?
Why does it fall on the taxpayers? Do they assume some
responsibility for the defect, or do you think it is all
because of the stress and the pressures that the Coast Guard is
putting on these ships? It is above the norm?
Admiral Vojvodich. In terms of addressing who pays for it
depends on the construct of the contract, whether it is in a
warranty or it is missing a capability that we put on contract.
In these particularities, it depends, sir, and in the case of
the engine and the cracked cylinder head, I would like to get
back to you and provide you the accurate detail for that
particular case.
[The information follows:]
The Coast Guard has been responsible for paying for replacement
cylinder heads on the propulsion diesel engines. The Coast
Guard continues to work with the engine manufacturer to study
the root cause of these issues and is committed to developing
an engineering solution to reduce the frequency of this repair.
There have been other component repairs on the propulsion
diesel engines, separate from the cylinder heads, where the
Coast Guard and manufacturer have shared costs of failure
analyses and repairs, and also situations where the
manufacturer assumed all costs. In each instance,
responsibility for the repairs was determined based on the
specifics of that situation.
Mr. Gibbs. Ms. Mackin, do you want to respond since you
talked about that this morning?
Ms. Mackin. I think generally this is one of the lessons
learned that we would point to for the OPC. The NSC, the way
that procurement was under, you know, the former Deepwater
program, it did not have a strong warranty provision. It just
did not.
The Fast Response Cutter's warranty is much stronger, more
what we would think of as a typical warranty, and as I
mentioned, that is the same kind of warranty that is planned
for the OPC. So if that plays out as planned, it should be
better at protecting the taxpayer investment.
Mr. O'Rourke. Could I just add one comment though?
Mr. Gibbs. Yes, go ahead.
Mr. O'Rourke. Warranties are not free. If you tell the
contractor that he is going to operate with a contract under
warranty, he is going to price that into the contract. So the
idea that you can get warranty protection and not have to pay
for it, you know, you could be deluding yourselves on that.
It is not a question of avoiding a cost to the taxpayer. It
is of balancing risk and when the taxpayer might pay for it. If
you do not have a warranty provision, the Government might have
a bad surprise down the road and the taxpayer would have to pay
for it at that point, but if you put the warranty into the
contract, the contractor will price that in, and the taxpayer
is paying for it along the way. There is no bad surprise.
Mr. Gibbs. No, I would agree with that, but I just want to
make sure that the Coast Guard is doing their due diligence
here to make sure that they are not getting taken for a ride.
Mr. O'Rourke. But when you weigh the cost of that warranty
against the risks, it may or may not make sense to have that
warranty.
When you go to a store and you buy some new piece of
electronics equipment, the salesperson says, ``Well, do you
want to get a warranty on that?''
Now, how many of you have bought that warranty? Probably
not many because it is priced in a way that it is not actually
a good deal. So from the Coast Guard's standpoint, it is a
matter of weighing what the extra cost of that warranty is
against the risks and the exposure that it has.
That is not an easy task to do because there is some
uncertainty involved, but I wanted to make that point because
warranties may or may not make sense based on how they are
priced into the contract.
Mr. Gibbs. I think that is an excellent point, and I
appreciate and would agree with that. But I wanted to make sure
that there should be some responsibility in some instances back
on the manufacturer when trying to do our due diligence.
Mr. O'Rourke. And the Coast Guard needs to address that
issue with eyes open and take a careful look at it. That is
what really needs to happen, and then make as informed a
decision as you can on it.
Mr. Gibbs. Thank you, Mr. Chairman.
Mr. Hunter. I thank the gentleman.
I would say, too, just looking at the NSC equipment
problems that Mr. Gibbs was just nailing off, it looks like
three or four of those are Coast Guard things, and the rest,
the cylinder heads, the generator bearings, the propulsion
systems, those are not Coast Guard-centric, right? I mean,
those are just boat things. Those have nothing to do with
weaponization or launching a UAS or launching a small boat off
the back. It is not the gantry crane. That is none of those
things. It is the engines, right?
Admiral Vojvodich. Yes, sir.
Mr. Hunter. And I would separate. I mean, you can expect to
have issues with new things like the single point launching for
the small boats and the crane and the UAS stop and maybe the
modules for weapons, but not the engines. I think that is what
is kind of surprising to me at least.
The gentlelady from California is recognized.
Ms. Brownley. Thank you, Mr. Chairman.
And I apologize for being late. I was attending another
meeting, but I am glad to be here as of now. So if my questions
are repetitive, I apologize.
But the first question I had had to do with NSC retrofits,
and I believe, Ms. Mackin, in your testimony you noted that the
GAO review identified several issues that will require
retrofits.
The Coast Guard plans to maintain the original equipment
for the production of the remaining NSCs and conduct retrofits
after accepting delivery. So my question is: does the GAO
believe that this decision will result in a cost savings for
the Coast Guard?
And how long would the new NSCs be out of service while
these retrofits are being made?
Ms. Mackin. Some of the retrofits have been known for many
years, for example, the structural enhancements on the first
two NSCs. I am not sure exactly what the timeframe will be, but
I would expect many months for those two ships.
Others like the gantry crane were never intended for a
maritime environment. So obviously it is experiencing
corrosion. That will need to be replaced on all the ships, and
there are prototypes right now, which is one reason they are
testing the prototype on the third NSC before they go back and
do the retrofits.
Maybe the admiral will have a better idea about how long
the retrofits will take.
Ms. Brownley. Can you speak to any cost issues relative to
that? Is it going to cost more? Will there be cost savings?
Ms. Mackin. The Coast Guard estimates a little over $200
million for the known retrofits. How that will play out time
will tell because they have not taken place yet, and some of
that will depend on how they contract for these and what that
will look like, and that is not known at this point.
Ms. Brownley. Thank you.
Admiral, thank you for your service. If you have any
comments. No comment?
I mean, any terms of downtime with the retrofit, will it
impact the Coast Guard's mission readiness at all?
Admiral Vojvodich. Ma'am, thank you for the question. When
we leave the cutter production at the shipyard, we incur costs,
and sometimes we try to optimize the overall cost in terms of
delivering a mission complete cutter. Sometimes it is to our
advantage to be able to get it out of the shipyard and put it
in the hands of our sailors to operate it, to understand it,
and then we get to pick the time and choose the time in between
a deployment or an opportunity to learn more about the cutter
to put in those retrofits in a place that we could perhaps
compete and thoroughly understand the design with our technical
authorities, as well as any of the manufacturers that we are
involved with.
Ms. Brownley. Thank you.
Ms. Mackin, again, in your testimony you noted that several
weapons systems and the radar were repaired following initial
operational test and evaluation, but the post-operational
reports indicated persistent problems with these systems.
So what types of problems do persist?
Ms. Mackin. There have been some problems with the combat
systems suites. The air search radar, for example, has had some
parts fail, and it is taking some time to get replacement parts
from overseas. So that is one issue that has been coming up in
operations.
In the test event itself, some of the weapons systems did
not function as intended. As I noted, the Coast Guard has plans
to fix those problems, and we will see how they do in the
follow-on testing.
Ms. Brownley. So would you describe these problems as
isolated incidences or reoccurring in terms of other cutters
and issues?
Ms. Mackin. Frankly, until the follow-on testing is
complete, which as I mentioned will not be until 2017 or later,
it is hard to answer that question for sure. The Coast Guard
will continue, I am sure, during operations to get more
information, but really that operational testing that is very
rigorous is the best way to ensure that these are not
repeatable problems.
Ms. Brownley. And who are the providers of the parts that
are late? You said they came from overseas.
Ms. Mackin. It is a German firm. I do not recall the name
off the top of my head.
Ms. Brownley. Thank you.
I yield back, Mr. Chairman.
Mr. Hunter. Great question there on the end, too. I did not
know we were buying German stuff with our taxpayer dollars.
That is good.
Mr. Sanford, the gentleman from South Carolina is
recognized.
Mr. Sanford. Thank you, Mr. Chairman.
Two quick questions. One, we had a brief conversation about
multiyear contracting and block buy contracting, which is
ultimately I guess all about fleet modernization, and what hit
me is the real next cusp of fleet modernization is really tied
to the air. You know, vessels are important in terms of patrol,
but ultimately if you really want to leverage that capacity in
terms of intelligence, surveillance, reconnaissance, et cetera,
you really need to have things attached to you that give you a
much wider view than a patrol would.
And yet it seems that the stuff that I have read has
suggested that we are really behind with Guard unmanned aerial
systems on the new National Security Cutters. Bring me up to
speed on that. Why the lag?
Because it seems to me if you are really going to leverage
taxpayer dollars, that is a vital way of doing so.
Admiral Vojvodich. Sir, thanks for that question.
So the unmanned aerial system requirement exists in the
National Security Cutter. We have looked at other solutions in
terms of optimizing from an affordability perspective in
delivering capability. We are working through a number of
options, and one of the ones that we want to team up with is
making sure that we are acquiring mature technologies that
provide some capability, that some of the risks are wrung out,
if you will.
So we partnered up with the Navy who has a small UAS
program that delivers some capability. Right now we are looking
at the design aspect, integrating with the National Security
Cutter, and we anticipate in a year or so to be able to deliver
some capability on the National Security Cutter here and test
its capability accordingly.
Mr. Sanford. Yes, ma'am. You had a thought as well?
Ms. Mackin. I was just going to note that the UAS
capability has long been an integral planned part of the NSC's
capability as you mentioned, and it has been delayed. It was
supposed to be initially available in 2007.
It turned out to be way too expensive and some technology
problems existed there. So the Coast Guard has been studying it
for many years since then.
As the admiral noted, it sounds like a small UAS will be
available to be assessed in the follow-on testing.
Mr. Sanford. But we still move forward with these vessels,
but not the part that really leverages the vessels' capacity.
It just seems to me we have got a little bit of that backward,
but I will skip to a second question.
The GAO report suggested, I guess, the Fast Response Cutter
and the HC-144 Maritime Patrol Aircraft that the initial
testing basically said it was not fully operational, and this
really goes back to my colleague's point with regard to things
going wrong on ships and yet full procurement was approved.
Why would you go forward with something where in essence
there are bolts in the system that are not working so well, yet
you are going to go ahead with full production?
Help me understand that sequencing.
Admiral Vojvodich. We follow a very rigorous process to
understand what we are acquiring, and so we go through this
initial operating, test and evaluation, and we get in our
operators' hands. We demonstrate through an independent
operational test authority, again, that it is operational, it
is suitable, and effective, and that allows us to move forward
to do mission. It allows us to get it into the operator's hand
to be able to do----
Mr. Sanford. So let me just interrupt then. So what you'd
say is the GAO was off in their report? Because I mean their
words were that neither asset met all key, ``key'' in their
words, key requirements during initial operational testing.
Admiral Vojvodich. At the high level we are ready to
operate. There are aspects of the cutter that did not meet some
of the testing criteria.
Mr. Sanford. So you disagree with their definition of
``key.''
Admiral Vojvodich. Those are our words. Those are key
elements of the cutter. We have to demonstrate that. We are
committed to complete the testing in the fall, operating test
and evaluation.
Mr. Sanford. I have got 22 seconds. So let me just throw
one other thought at you and respond as best you can, which is
the GAO report was also critical with regard to Coast Guard
notifying Congress of performance breaches. Anything new that
the committee ought to be aware of on that front?
Ms. Mackin. We did make a recommendation there largely
pertaining to the guidance of the Department of Homeland
Security. It was not really clear. If you did not meet a key
performance parameter during the testing, does that mean you
are in breach and should report to Congress?
DHS has since, based on our recommendation, revised its
guidance to allow for the follow-on testing to prove that those
key parameters can be met before a breach is reported.
Mr. Sanford. Thank you very much for your testimony.
Thank you, Mr. Chairman.
Mr. Hunter. I thank the gentleman.
Mr. Garamendi is recognized.
[Inaudible.]
OK. Mr. Graves is recognized.
Mr. Graves of Louisiana. Thank you, Mr. Chairman.
The acquisition schedule for NSC, FRC, OPC is concerning
for a number of reasons when you look at the increased mission
of the Coast Guard, and I think that has come up in several
hearings that we have had over the last few years.
Mr. O'Rourke, one thing that the Navy last year retired the
USS Simpson, which is the last of the Perry-class frigates;
those served as a law enforcement platform for Coast Guard law
enforcement detachments for operations particularly in the
Caribbean.
Last year at a hearing Admiral Z noted that he had his
eyes, I think, on 90 percent of the transit of drugs, but only
had the capabilities to address 20 percent. What does the loss
of that Perry-class platform do to the Coast Guard's
capabilities?
Mr. O'Rourke. I think the admiral was better prepared than
I am to speak to that. I have been at hearings where this issue
was discussed, and, yes, the shortfall in available cutter
hours down in the southern region has reduced the fraction of
drug interdiction warnings that the Coast Guard is actually
prepared to act on, and they have intelligence that they
sometimes cannot act on due to lack of assets.
Mr. Graves of Louisiana. Is it safe to say that the
acquisition schedule for the vessels I mentioned is not meeting
demand, I guess, for lack of a better term, in regard to the
Coast Guard's mission?
Mr. O'Rourke. In a couple of ways. One is that the total
number of cutters planned under the Coast Guard's program of
record is well short of the number that the Coast Guard has
previously calculated would be needed to fully perform all of
the Coast Guard's projected missions in coming years. In fact,
the number is about 60 percent.
So the program of record would get you about 60 percent of
the cutters that the Coast Guard feels it will need in future
years under an earlier calculation to do all of its missions.
Mr. Graves of Louisiana. OK.
Mr. O'Rourke. A second way that the schedule is problematic
is that the speed at which you are bringing on those ships is
late compared to the end-of-service lives of the older assets
they are replacing.
Mr. Graves of Louisiana. Sure, sure. OK.
Mr. O'Rourke. And that is well established as a function of
the schedule.
Mr. Graves of Louisiana. Thank you.
Admiral, switching topics, the inspector general reported
that the MarAd [Maritime Administration] should maintain an
inventory of vessels, U.S. vessels that are to be disposed and
suggested that MarAd work with folks like the Coast Guard to
maintain that inventory of vessels.
Are you aware of any efforts by the Coast Guard to work
with MarAd to maintain a list of vessels to be disposed for
scrapping purposes?
Admiral Vojvodich. I am not aware of the specific list that
you refer to with MarAd. We do work with MarAd, but I am not--I
do not have any knowledge.
Mr. Graves of Louisiana. Would you mind submitting on the
record just an explanation of efforts by the Coast Guard to
work with MarAd?
In that same regard, the Coast Guard vessel Storis was
scrapped by MarAd, and as I recall, that vessel was scrapped in
Mexico, which I believe was contrary to U.S. law, which
required that scrapping efforts take place in the United
States.
Are you aware of any efforts by the Coast Guard to address
that inconsistency with MarAd?
Admiral Vojvodich. I will provide a response for the
record.
[The information follows:]
MarAd is the program manager regarding scrapping of a variety
of mothballed ships in the National Defense Reserve Fleet
(NDRF). MarAd does not provide a list of NDRF vessels to the
U.S. Coast Guard that are pending scrapping. MarAd does post a
list of those vessels available for disposal in our open ship
disposal solicitation DTMA-91-Q-2013-0014 posted on the Federal
Business Opportunity Web site. The Coast Guard has no
engagement regarding the selection of ship recycling facilities
used by MarAd.
Mr. Graves of Louisiana. Great. Thank you.
Mr. O'Rourke, one last question. Certainly you are familiar
with increased activities in the Arctic, and could you just
give a quick assessment of U.S. ice breaking capabilities
compared to some of the other Arctic nations?
Mr. O'Rourke. Yes. The Coast Guard currently has two
operational polar icebreakers, one heavy polar icebreaker. That
is the Polar Star, and one medium polar icebreaker. That is the
Healy.
There is one additional heavy polar icebreaker. That is the
Polar Sea. That ship is nonoperational. So the operational
fleet can be characterized as one plus one, one heavy, one
medium, and one additional heavy in nonoperational status.
Mr. Graves of Louisiana. Do you see those capabilities as
being sufficient, noting again increased activities in changes
in the Arctic?
Mr. O'Rourke. What I can tell you is that the Department of
Homeland Security has issued their own mission need statement.
That is an official requirement statement expressing the view
of the Department of Homeland Security, which states that the
Coast Guard in coming years will potentially need up to three
plus three polar icebreakers.
Mr. Graves of Louisiana. And you mentioned that is in the
Homeland Security report. Do you see that mission as solely
being a Homeland Security or Coast Guard mission, or do you see
other agencies, again, looking at what other nations are doing;
do you see other agencies perhaps with the Department of
Defense are having additional needs outside the scope of that
report?
Mr. O'Rourke. Oh, it is well established that the Coast
Guard is operating its polar icebreakers as a national asset
that serves the needs not only of core Coast Guard missions,
but for other agencies as well, in particular, the National
Science Foundation. A lot of what we use our polar icebreakers
for is to support scientific research activities.
Mr. Graves of Louisiana. What about military defense
missions? Do you see a need there?
Mr. O'Rourke. The icebreakers also have requirements under
our military plans to meet national defense requirements.
And part of the reason for going up to three plus three
potentially is to meet presence requirements for polar
icebreakers that the Department of Defense has communicated to
the Department of Homeland Security.
Mr. Graves of Louisiana. Thank you.
Mr. Chairman, I am going to note that CRS just endorsed
your bill.
Thank you.
Mr. Hunter. I thank the gentleman.
Mr. Garamendi is recognized.
Mr. Garamendi. I am trying to figure out how to structure
my work and in a way that has the maximum potential of
resolving problems in the two projects that are going forward.
Ms. Mackin and Mr. O'Rourke, you have done extensive
research on the problems that exist in the National Security
Cutter and the OPC. Both the Fast Response Cutter and OPC have
work to be done, new ships to be built, new contracts to be
let. In reviewing the testimony and reviewing your work, you
have information that I think can be put into a checklist, a
list of things that need to be done to reduce the potential for
problems.
But I do not have a list, nor do I see a list in your
testimony. I think it would be very, very helpful. I can spend
a lot of time asking questions, and I would probably learn a
lot, but it seems to me that if we could have the development
of a checklist. These are things that the Coast Guard should
and must do to avoid problems that we have seen develop in the
previous National Security Cutter program or the OPC.
Can the two of you, individually or together, develop such
a checklist? And we can then hold the Coast Guard responsible
to addressing. ``Yep, we did that one. That problem is not
going to happen again because we are paying attention. Maybe we
ought to pay attention to this one because we have not paid
attention to it.''
Is that possible for you guys to do?
Mr. O'Rourke. It is not only possible. I have already
developed a list of well-established lessons in shipbuilding. I
am sometimes asked for it. I will be happy to provide it for
you after the hearing.
Ms. Mackin. And for our part, I think in my statement I
mentioned several items that there are lessons learned from NSC
and commercial practices that could be applied to OPC. We could
provide that.
Mr. Garamendi. I have noticed it is not to say that you
have not thought about it because you have, but you know, maybe
we can just get a little computer file and it says, ``Check
this off. Let us see. We are going to have some sort of a
cannon, and does the Navy have that cannon already and can we
just use the Naval cannon and, by the way, the control system
for it and radar systems which may be available?''
Anyway, just a checklist, if you could develop that, that
would certainly be useful to me and save probably a whole round
of questions as I pursue trying to figure it out.
So I am asking for it from both of you, and if you want to
work together that would be OK, too.
Ms. Mackin. OK.
Mr. Garamendi. Thank you very much.
And with that I yield back.
Mr. Hunter. I thank the gentleman.
OK. Now it is just you and me. Let us go back, multiyear
procurement, block buy contracting, advanced procurement.
Admiral, what does the Coast Guard have the statutory ability
to do out of those three, if any?
Admiral Vojvodich. Mr. Chairman, we have authority through
title 10 to be able to do a multiyear procurement. We
understand the benefits of that in terms of once we have a
stable design, enduring need, and a good understanding of the
cost. Those are great criteria to use.
We are also looking at potential downside. It does commit
the Government well in advance of the year of appropriation in
terms of things that we are going to buy, and so the downside
is that if we are not able to meet that obligation, there could
be a real downside in that contract in terms of not providing
the expected funding for the multiyear buy.
Mr. Hunter. But that is not your job. That is our job.
Admiral Vojvodich. Yes, sir. Right.
Mr. Hunter. So you have the statutory ability to do
advanced procurement.
Admiral Vojvodich. Yes, sir, advanced procurement, yes,
sir.
Mr. Hunter. And multiyear.
Admiral Vojvodich. Multiyear procurement, yes, sir.
Mr. Hunter. Have you ever used multiyear procurement?
Admiral Vojvodich. I have not. I will have to go back in
the archives and research that.
Mr. Hunter. Well, we have the research right over here.
Have they ever used multiyear procurement?
Mr. O'Rourke. I am not aware of the Coast Guard having used
it in the past. I cannot prove a negative on it, but in the
years that I have been here I have not seen it.
Mr. Hunter. So I guess that leads to you already have the
statutory ability to do multiyear procurement, which you could
have done with the FRCs and did not do. You could have done it
with the NSC. You did not do it.
Did you use advanced procurement? Advanced procurement I am
guessing is the batch buys, or is that buying stuff for the one
vessel?
Admiral Vojvodich. We buy long lead time material that is
in front of what is going to come in product.
Mr. Hunter. That is per one vessel, right?
Admiral Vojvodich. That is per one or a number of vessels
that might be coming up in that production cycle within that
particular fiscal year.
Mr. O'Rourke. Right. That is only for 1 year's worth of
procurement.
Mr. Hunter. OK.
Mr. O'Rourke. Either the ship or the multiple ships being
procured that year, and that helps to optimize the construction
schedule just for those ships, but that is still implementing
annual contracting.
Mr. Hunter. So Mr. O'Rourke says you could have saved $1
billion, could have saved, not can still save, but could have
saved with the NSC.
Mr. O'Rourke. The savings in my testimony are all future
savings out there that could be realized. We missed
opportunities for doing that with the National Security Cutter
and the first 36 ships in the Fast Response Cutter program.
Mr. Hunter. OK. So why not do it? If the Coast Guard has
the ability to do it, why didn't the Coast Guard do it?
Why not save $1 billion?
Admiral Vojvodich. We chose a contract strategy that
encouraged options, sir. We can look at that further. We will
have to work with the Department administration to really
understand the upside and the downside of that, but we are
willing to take another look at that.
Mr. Hunter. Well, let me ask you this, Ms. Mackin and Mr.
O'Rourke. When it comes to the Coast Guard then and the
administration, where does OMB play in terms of what the Coast
Guard can do, meaning what type of contracting strategies they
can use?
Do they have a play in it? I mean, how does the
administration play in terms of what their strategies are for
contracting future ships?
Mr. O'Rourke. In general, my understanding is that OMB can
give directions to agencies regarding the ways in which it can
carry its programs forward. Now, what OMB may or may not have
said about the use of multiyear procedure or block buy
contracting for these programs I do not know, but as a general
issue, OMB can issue instructions to executive branch agencies,
guidance if you will, for how programs are to be executed.
Mr. Hunter. Ms. Mackin?
Ms. Mackin. All I would say is for the National Security
Cutter, I am not sure that would have been a good approach
because the requirements were not stable. We are still seeing
problems now. The first two ships are going to have to go
through these structural enhancements. They are not
representative of the rest of the ships, and so I think, again,
not that it is a bad idea, not that it cannot save money, it is
just that, as the admiral mentioned, it needs to be carefully
considered.
Mr. Hunter. And the one example, the LCS is a horrible
ship, ships, right? The requirements were not set for and now
they are lowering the number of LCS they are going to make in
the future because they realize it was not the right ship. They
just wanted to get numbers, et cetera, and all of the problems
that they had.
I am look at one of the big retrofits. It is like $80
million for the C4ISR [command, control, communications,
computers, intelligence, surveillance and reconnaissance] in
the NSC. Why are things like that not simply taken from the
Navy? It is not like the Coast Guard has to do special things
that are tens of billions of dollars Navy budgeting has not
already had to look at, in terms of weapons systems, C4ISR,
radar, UAS.
You already talked about piggybacking with the Navy on UAS,
thank God. Why the C4ISR retrofit? Why would the Coast Guard
possibly need their own type of C4ISR modules or platform?
There is no way it is more all-encompassing than what the Navy
has. There is no way.
Ms. Mackin. One thing I would offer, and the admiral can
weigh in, is this, again, is a legacy Deepwater issue. The
original C4ISR was an ICGS, Integrated Coast Guard Systems, a
contractor system, very proprietary.
Mr. Hunter. But why would the Coast Guard want to do that
even then? I mean why would you have people in the Coast Guard
say, ``Let us develop our brandnew system that is probably much
more limited than what the Navy has anyway, but let us do it
all for us''?
Why would they decide that, even with the flawed Deepwater
system, a program that was flawed for other reasons?
Who in the Coast Guard would say it is a great idea for us
to develop our own multimillion-dollar communication C4ISR
platform?
Ms. Mackin. That was inherent in the Deepwater strategy.
The contractor said, ``Here it is,'' and frankly, the
Government did not have adequate insight into the requirements,
and the contractor made that call and so now the Coast Guard is
opening up, opening up the architecture and implementing
actually a very more cost-effective C4ISR system.
Mr. O'Rourke. Mr. Chairman, if I could go back to your
earlier question about the missed opportunity on the National
Security Cutter, Ms. Mackin is right, of course, that there
were problems with the design of that ship, but one of the
statutory requirements for using multiyear procurement is that
the item being procured has to have a stable design.
In shipbuilding programs, stable design is demonstrated by
completing the construction of the first ship in class and
putting it through its initial testing to show that there are
no problems.
At that point, once those problems had been identified and,
in fact, they were cranked into later ships in the NSC, you had
a design that might then have met the statutory requirement for
stable design, and the follow-on ships in the program could
have been pursued under multiyear procurement.
So it is correct that you do not want to do this if you
think that the design is not stable, but as you review the
schedule of how these events transpired, multiyear procurement
is never used on a lead ship anyway because of the requirement
for stable design. It was a question of whether the program was
ready for multiyear procurement for the follow-on ships in the
class, and that is a question that people could have looked at
and decided, well, yeah, it might have been.
Mr. Hunter. I am not clear on that. On the NSC when you had
some testing done, you had the first couple of ships done, were
the problems that we are looking at, and we are looking at
this. We already got this, but this is a nice, little page that
has a lot of the issues, right?
These were not recognized right away? No one realized that
there were issues until the fourth ship, fifth ship? At what
point did you realize there were some issues?
Admiral Vojvodich. Sir, some of those issues were revealed
during operational test and evaluation through the test event.
Mr. Hunter. Oh, the first ship?
Admiral Vojvodich. In this particular case we used a third
ship to demonstrate.
Mr. Hunter. But the first ship was working well or these
same issues were on the first ship as well?
Admiral Vojvodich. Not that I know of, but I can get back
to you. If there is a lineage that we can provide, we certainly
will do that.
A number of those items, sir, if we leverage a Navy program
of record like you just commented, that we need a weapons
system and we need a particular sensor system; we leveraged the
Navy on a number of those things outlined, and we will follow
the Navy's priorities and look to them to, you know, help us
develop those solutions and implementation.
And then over time as we get smarter and better users, we
have brought more cutters, and we have more sailors that are
accustomed to using the equipment. You know, we will become
better and more proficient with the usage of the system.
Mr. Hunter. I still do not understand that. OK. So you have
one NSC goes into the water and people start operating it and
it goes and does its thing. There are no issues there.
The second NSC jumps in the water. It goes out and starts
being tested, and it is used operationally while it is being
evaluated, and no problems there. Nothing changes.
You built the third NSC, put it in the water, and you have
all of a sudden realized all of these different issues on the
third one that no one saw on the first one or second one?
Admiral Vojvodich. The third one was our opportunity to
really have the capability that is reflective. So Ms. Mackin
alluded to the changes----
Mr. Hunter. Can you explain that though? Why is number 3
the charm? Why could you not recognize the operational
capability of the first or second ones?
I mean, why did you have to wait until number 3 to really
delve into it? I am just not understanding.
Admiral Vojvodich. I would like to get you a finer detail
for the record sir, for that one.
Mr. Hunter. No, no, just tell me how. I do not need fine
detail. Why is it boat number 3 is the one that we started
recognizing issues and not the first one?
I am not trying to get you. I just do not understand.
Admiral Vojvodich. Right. So that is the one that we said
that is the one that we will have crews on it that is going to
be indicative of future National Security Cutters. We want that
one to be tested because that is going to demonstrate the
initial operating capability.
Mr. Hunter. Did you dramatically change design after the
first two on the third one?
Admiral Vojvodich. We did, and I will have to give you a
level of detail on that, sir.
[The information follows:]
The third NSC, USCGC Stratton, was chosen for Initial
Operational Test and Evaluation (IOT&E) because it was the
first cutter considered representative of the fleet for the
foreseeable future. That is to say Stratton's fundamental
characteristics and capabilities represent that which is
intended for all NSCs.
As it relates to the first two NSCs (Bertholf and Waesche),
there were two compelling reasons why the Coast Guard,
Department, and the Navy's Commander Operational Test and
Evaluation Force (COMOPTEVFOR) chose not to use them for IOT&E:
1. Cutter boat handling systems: Based on operational feedback
from the first two NSCs, an improvement was needed for these
systems. This included the original overhead gantry crane on
the stern of the ship and the single-point davit on the
starboard side of the ship. The overhead gantry crane was
replaced with three folding boom cranes and the side davit was
replaced with a new davit system offering improved control and
handling during boat launch and recovery. These were first
installed and tested on Stratton. To maximize the benefits of,
and document best practices during formal testing, it was
determined that the new cutter boat handling systems should be
tested in IOT&E, and therefore Stratton was selected. The
cutter boat handling systems for Bertholf and Waesche will be
upgraded during their respective structural enhancement
periods.
2. Structural enhancements: Neither Bertholf nor Waesche had
undergone the structural enhancement to ensure at least a 30-
year fatigue life of the ship's structure. These two cutters
were too far along in construction to incorporate the
structural enhancements during construction without incurring
inordinate contract cost and schedule impacts. Although not a
disabling impediment to testing, structural differences between
Stratton and the first two NSCs were considered relevant to
ensure IOT&E results were most representative of the end-state
fleet.
Mr. Hunter. OK. And how many of these were built with the
Deepwater boondoggle? How many NSCs were built under the
Deepwater plan?
Mr. O'Rourke. Well, the Coast Guard transitioned out of
Deepwater in 2007, and that transition was phased with the
completion of contracts that were legacies coming out of that
period. I do not know what the exact cutoff point was, but this
is now a nine-ship program, and at some point most or all of
the significant design issues with that class became known, and
any ships procured after that point might have been considered
candidates for multiyear procurement or block buy contracting.
The prices we paid for those ships suffered for a number of
reasons. One is the general Deepwater contracting environment
that Ms. Mackin mentioned, but there were two others. One is
that the intervals that we had for procuring these ships were
not regular and even. So the shipyard did not have a steady
drumbeat.
And the third was that the final ships in the program were
not done under a form of multiyear contracting.
These are all ways in which those ships turned out to be
more expensive than they might have been.
Mr. Hunter. Admiral, do you agree with that? Do you agree
that multiyear procurement and block buy contracting can save
money?
I mean, obviously it is not going to work if your first two
ships are not really what you wanted in the first place, where
you have actually changed so much design on the third one that
it is the real ship that you are going to test against, but if
you were going to do it the way that the Navy does it, meaning
the right way, building, have all the lead time materials, do
it right, do all your testing on that one ship, and then be
able to do multiyear going out, does the Coast Guard have an
issue with that?
Do you think that that would save you money?
Admiral Vojvodich. We would have to look at it a lot
closer, sir. We would absolutely love to----
Mr. Hunter. Well, I am asking you. You do not have to look
at it closer because in general does contracting ships like the
Navy does it, especially when you only have really three or
four types of ships in the entire Coast Guard, it is not too
complicated, right?
Do you think that that would save the Coast Guard money?
Admiral Vojvodich. As we indicate here, if we have a stable
design, we have an enduring need, where the costs are well,
well understood, the applicability of the multiyear procurement
has some merits, and we will take that back for a high-level
consultation.
Mr. Hunter. Do you disagree with Mr. O'Rourke that it will
save you $1 billion in the NSC?
Admiral Vojvodich. I would have to look at that closer,
sir.
Mr. Hunter. OK. Do you disagree that you would save $100
million with the FRC?
Admiral Vojvodich. Again, in the application of that
particular strategy in terms of what we have here, I would have
to look at it a lot closer.
Mr. Hunter. OK. When the Navy went to block buys and
multiyear procurement, did they just do it on one design and
did they pick that ship design on purpose to do this on, or was
it more of a ``we can use this in any kind of ship class; let
us just jump into it''?
I mean, how did the Navy decide to do it and was there
anything special about when they decided to do it and on what
type of ship?
Mr. O'Rourke. The Navy decides its contracting strategies
on a program-by-program basis, but I think there was a general
atmosphere within the Navy in recent years that these
contracting mechanisms made sense to them, and they began to
use them more extensively.
I think it is important to note that all three of the
Navy's year-to-year shipbuilding programs where you get a ship
of that kind every year, year after year, all three of them,
the Virginia-class attack submarine, the DDG-51, and the
Littoral Combat Ship, are now under multiyear contracting, and
collectively those ships represent more than two-thirds of all
the ships in the Navy's 5-year shipbuilding plan. That is how
extensively the Navy is using this.
And in terms of savings, if you looked at the last DDG-51
multiyear, the savings on that were estimated at $1.3 billion
or $1.4 billion, and if you look at the last Virginia-class
attack submarine multiyear, the savings on that were estimated
in the range of $3 billion to $4 billion.
So just on those two instances of multiyear procurement
contracting, the Navy saved more than $4 billion.
Mr. Hunter. Has the Coast Guard looked at what class of
ship would best fit the multiyear procurement contracting
scheme?
Admiral Vojvodich. Well, we read Mr. O'Rourke's report. We
understand the utility of a multiyear strategy. We have
considered it, and we have chosen the acquisition strategy that
we are on right now.
Mr. Hunter. When you do multiyear procurement, do you need
us in this committee to authorize it?
Mr. O'Rourke. Yes, multiyear contracts, more than a certain
value, and these would be more than that threshold value, would
need----
Mr. Hunter. But does it have the statutory ability right
now to do multiyear procurement?
Mr. O'Rourke. They have a statutory framework in which the
Services can conduct multiyear procurement, and that framework
requires approval by Congress on a case-by-case basis for each
program.
Block buy contracting has no title 10 or permanent
statutory framework, and so in the instances where Congress has
provided that for the Navy, they have done it through specific
legislation. In one time they did it in an NDAA [National
Defense Authorization Act], and in another time they did it in
an appropriations bill.
Mr. Hunter. So it would be the Appropriations Committee or
the authorizing committee can both grant that authority?
Mr. O'Rourke. Based on the precedent of the two block buy
contracts for Virginia-class and Littoral Combat Ship, it
appears that the authority can be provided through a single act
that can be either a National Defense Authorization Act or an
Appropriations Act.
Mr. Hunter. Say that the Navy did not want to do it. Say
that the Navy was like the Coast Guard and we do not want to
save billions of dollars. We just want to spend money.
That is not fair, but I am kind of exaggerating.
Can Congress make them do it?
Mr. O'Rourke. The authorities that were granted for
Virginia-class and LCS allowed the Navy to do it. They did not
mandate, but it may be that you can write the language so that
it mandates the use.
For example, the Appropriations Committees in the past have
said that the Navy will contract for the ship. It was an
amphibious assault ship, which shall be funded on an
incremental basis. And that is incremental funding, which is
different from what we are talking about here.
But the use of the ``shall'' language mandated that to the
Navy as the way that the ship would be funded in coming fiscal
years. And based on that precedent you might imagine that
language for block buy contracting can use the ``shall''
language and not simply to say that the Coast Guard may
contract or may do this.
Mr. Hunter. So the one last thing, I am not understanding
that. How do you see it, and, Admiral, we will start with you;
how do you see the Coast Guard? Let us just talk about buying
ships. How is the Coast Guard different from the Navy?
Now, I do not mean in what size of ship, but in the way
that you acquire them, why should the Coast Guard be
contracting differently than the Navy?
Admiral Vojvodich. Mr. Chairman, fundamentally we acquire
and build ships very similarly. We use some of the same
facilities that the Navy does. There are a level of
requirements that might be different that might change the
approach or the testing or the scrutiny of the hardening of the
various ships, but fundamentally, you need steel. You need a
shipyard. You need a lift. You need proficient workers to put
it all together, and so there are some aspects that are exactly
the same.
There are other ones that are some nuances that we would
have to look at closely, but those probably are on a case-by-
case basis.
Mr. Hunter. Ms. Mackin, why should the Coast Guard ship
acquisition be treated differently than the Navy?
Ms. Mackin. I think there is one thing that has not been
mentioned in this discussion and that is the contract type of
the ships. The Fast Response Cutter was firm-fixed-price, and
that is consistent with commercial best practices. That is the
price is nailed down, and that is one reason they could
negotiate a very strong warranty.
I believe the plan for the Offshore Patrol Cutter is to
transition to firm-fixed-price at some point in time as well.
So block buy is one thing to look at, but contract type can
also be a way to save a significant amount of money.
Mr. O'Rourke. But the statute that regulates multiyear
procurement requires that multiyear procurement contracts be
fixed-price contracts, and the block buy contracts that are
being done for the Littoral Combat Ship program are also fixed-
price type contracts.
Ms. Mackin. They are fixed-price incentive (firm target),
which is a little different than firm-fixed-price.
Mr. Hunter. But again, why should the Coast Guard
acquisition be treated differently than the Navy?
Ms. Mackin. I mean, that is a contracting officer's call in
large part. There are lots of factors to consider. I am just
offering the contract type is one very important component.
Why the Coast Guard did not consider block buy for the Fast
Response Cutter, I do not know the answer to that.
Mr. Hunter. Admiral? We can get it right now, Ms. Mackin.
Admiral Vojvodich. For the OPC that is absolutely
considered, but the path that we chose is not a multiyear
procurement. I would be happy to take a closer look at the
merits and the risks associated with that and provide a more
thorough response. We would have to work with the Department
and administration and make sure that we collectively
understand the approach, and I am happy to follow up with you
at some point, sir.
Mr. Hunter. Admiral, here is what I am not understanding.
If you build one or two ships, whether it is an FRC or the OPC,
and you look at it and you test it and you evaluate it and you
find problems and you then fix your problems, what is the
downside with doing a multiyear procurement?
What is the downside, if any? If you have a design that is
not flawed like the NSCs that we discovered on ship 3, if your
design is good and your ship is good and your requirements are
firm and set and fixed, what is the downside? I am not getting
it.
Admiral Vojvodich. And I understand. Based on my
understanding the downside is that if we are unable to not meet
that future year commitment----
Mr. Hunter. But that is not your problem.
Admiral Vojvodich. I understand.
Mr. Hunter. So what is the downside to the Coast Guard? Why
would the Coast Guard not want to do that?
Ms. Mackin. Can I make an observation?
Mr. Hunter. Yes.
Ms. Mackin. The FRC had its initial operational test and
evaluation and only one of its key performance parameters was
even partially met. So it is not proven yet. It still has----
Mr. Hunter. So you are say only one out of a bunch.
Ms. Mackin. Out of six.
Mr. Hunter. Was partially met.
Ms. Mackin. Was partially met, and so they are going to
have the follow-on operational test beginning this fall, just
like the NSC. So----
Mr. Hunter. How many FRCs have been built now? Anybody?
John might know?
Mr. O'Rourke. Well, there are 14 or 15 of the FRCs in
operation.
Admiral Vojvodich. Commissioned number 15 a week or so ago
and deliver number 16 at the end of the calendar year.
Mr. Hunter. And so is that normal to build that many when
the operational requirements, whatever check boxes you have,
are not met?
Ms. Mackin. It was a fast-paced procurement. I would not
say that is consistent with best practices because they still
have to go through the follow-on testing and prove that they
can meet those key performance parameters.
Mr. O'Rourke. Right, but the issue is that even with the
deficiencies that have been discovered through initial testing,
the Coast Guard's intention is still to continue getting the
ships.
So the question is: if you are still going to continue
getting the ships, does it make sense to continue doing it
under a contract with options which operates closer to being a
form of annual contracting or under block buy?
Mr. Hunter. Mr. Graves is recognized for 5 minutes. Sorry
about that.
Mr. Graves of Louisiana. Yeah, that is all right. I mean, I
am enjoying it.
To somewhat channel the chairman's frustration, you know
there are two key things obviously that are, I think, his
frustrations and ones that we share. One is that looking back
over the last several years, certainly I think one can make a
strong case for perhaps some taxpayer dollars not being used as
wisely as they could have been on the acquisition, and
something that is very important to me personally and I know
the chairman shares it is the lack of capabilities.
I made reference earlier to Admiral Z's statement that eyes
are on 90 percent of the drug trafficking shipments, yet
capabilities only respond to 20 percent of them.
I think when you look across the Coast Guard's mission,
which has expanded significantly over the last several years,
the demand for the Coast Guard, the demand for the Coast Guard
to have greater capabilities is significant, yet this
acquisition schedule is continuing to drag on and, I think
provide readiness issues that are not just limited to the Coast
Guard but also transcends over to some of the support for Navy
and other capabilities that are important for this Nation.
So looking back, we can talk about Deepwater. We can talk
about NSC, FRC, whatever you want, but let us look forward for
a minute. Looking at OPC, can you talk about some of the
lessons learned that you were applying to that acquisition
strategy that will ensure, again, fair use of taxpayer dollars,
and ensure that we are delivering solid equipment within an
appropriate amount of time?
Admiral Vojvodich. Yes, I would be happy to. I appreciate
the opportunity.
The key to all of this is to make sure that we have well
understood, stable requirements that have been vetted
throughout the Service with industry to make sure they
understand it very well. It allowed us to have the conversation
to understand where the cost drivers are, if you will, and to
be able to address that, to make those appropriate adjustments.
We are using competition to the fullest, and we are also
using fixed-price contracting throughout the acquisition, which
is at times very difficult in a large ship buy because there
are a lot of unknowns in the design. So right now we are in a
limited competition, if you will, so they can mature their
designs to be able to make a submission that is going to be a
fixed-price environment as we move forward.
In terms of the testing, we absolutely learn from the
testing over time. We are going to test on the first article
for the OPC. We have learned that that involvement with test is
very important.
We have involved the testers from both the Department and
our operational test authority early in that development so
they can help us make sure that the things that we put in the
requirement are testable and it is well understood. So a lot of
things that were developed many years ago were unclear, and so
even when we have these test events, we are sometimes not quite
talking on the same sheet of music.
And so those are the kinds of things that we are resolving,
and we are clearly moving forward with a lot of lessons learned
into the strategy for the Offshore Patrol Cutter.
Mr. Graves of Louisiana. Admiral, thank you. In closing I
just want to make note that, you know, you have got a great
group of Coasties out there, and there is increasing demand
upon their services and mission requirements and making sure
that we get the equipment out there to them that they need as
soon as possible.
I think it is critical, and again, we do not need to go
through the entire list of drug alien interdictions and many,
many other things that you do, but looking back over the
history, I know that there are a lot of mistakes that you guys
are trying to make up for right now.
I just want to encourage you. You know, the Navy obviously,
as the chairman pointed out, has some acquisition strategies
that may be applicable in this case, but most importantly we
have got to get this equipment out there as quickly as we can
and make sure that we are respectful of taxpayer dollars moving
forward.
Thank you. I yield back, Mr. Chairman.
Mr. Hunter. I thank the gentleman.
I have one last question. If the Coast Guard decided to do
a multiyear procurement for the OPCs and the rest of the FRCs,
do you have the authority to do that or do you have to get
approval from the Department of Homeland Security or the
administration?
Admiral Vojvodich. Mr. Chairman, I would like to take that
back for the record. I will need to understand thoroughly what
our options are with that strategy.
I understand at a high level what a multiprocurement
strategy will allow. I know it was considered, but it sounds
like you want me to take it to the next level, and I will
thoroughly understand that.
Mr. Hunter. I just looked at the bill we passed last year,
the Coast Guard bill, and we grant you statutory authority for
the OPCs to have multiyear procurement done on those.
So my question is though you obviously looked at that, and
you have seen that. So do you have the authority, does the
Coast Guard have the authority to do that if they want to?
Admiral Vojvodich. I would like to take that one back for
the record and make sure I thoroughly understand and provide
you the best answer possible with that.
[The information follows:]
Multiyear Procurement (MYP) Contracting: The Coast Guard has
considered multiyear procurement (MYP) contracting to acquire
new assets; most recently the Coast Guard evaluated this
strategy while planning for the Offshore Patrol Cutter. This
contracting approach provides stability and promotes
efficiencies which are more difficult to achieve when utilizing
annual contracting mechanisms.
MYP contracting provides an opportunity to generate savings
through economic order quantities for materials and equipment,
as well as improved production efficiencies and shipyard
learning associated with construction stability. MYP
contracting is also beneficial for shipyard material and labor
cost management. Optimally phased and stable production
schedules establish the best scenario for shipyard learning,
leading to reduced labor costs. In addition, multiple ship sets
of supplies and materials may be procured at reduced costs due
to quantity buys.
MYP contracting does introduce some risk if subsequent years'
funding were not available. In such circumstances the Coast
Guard would be required to renegotiate or terminate the
contract likely requiring the Government to pay a cancellation
fee. Renegotiating the contract would also have a negative
financial impact, and therefore one potential disadvantage of
using MYP is that it can reduce the flexibility to make changes
in future years.
The Coast Guard has standing authority to enter into a
multiyear contract under 10 U.S.C. 2306(b). In order to
qualify, the Coast Guard must show the following:
Significant savings. The program must demonstrate
that a MYP contract would result in ``significant savings''
compared with annual contracting.
Realistic cost estimates. The program's estimates of
the cost of the MYP contract and the anticipated savings must
be realistic.
Stable need for the items. The program must expect
its minimum need for the items will remain substantially
unchanged during the contract in terms of production rate,
procurement rate, and total quantities.
Stable funding request for the items. There must be a
reasonable expectation that the program will request annual
funding for the contract at a level required to avoid contract
cancellation.
Stable design for the items. The design for the items
to be acquired must be stable, and the technical risks
associated with the items must not be excessive.
Block Buy Contracting: Like multiyear procurement, block buy
contracting may provide an opportunity to generate savings
through economic order quantities for materials and equipment,
as well as improved production efficiencies and shipyard
learning associated with construction stability. While Congress
has provided the Coast Guard, the other armed services and NASA
standing authority for multiyear procurement under 10 U.S.C.
2306(b), there is no similar general authority for block buy
contracting. Congress has provided limited authority in
specific instances to the Navy to use block buy contracting to
acquire Virginia-class attack submarines and Littoral Combat
Ships; however, no similar authority has ever been enacted for
a Coast Guard acquisition program.
The Coast Guard has been responsible for paying for replacement
cylinder heads on the propulsion diesel engines. The Coast
Guard continues to work with the engine manufacturer to study
the root cause of these issues and is committed to developing
an engineering solution to reduce the frequency of this repair.
There have been other component repairs on the propulsion
diesel engines, separate from the cylinder heads, where the
Coast Guard and manufacturer have shared costs of failure
analyses and repairs, and also situations where the
manufacturer assumed all costs. In each instance,
responsibility for the repairs was determined based on the
specifics of that situation.
Mr. Hunter. Ms. Mackin, do you know if the Coast Guard has
the authority if they choose to go multiyear after being
granted the authority to do so by this committee?
Ms. Mackin. I have not looked into that.
Mr. Hunter. Mr. O'Rourke.
Mr. O'Rourke. Statutory authority versus direction that the
Coast Guard may receive within the executive branch. As a
matter of statutory authority, the Coast Guard has the
authority to use multiyear procurement under title 10, 2306(d),
and that is the law that governs multiyear procurement and
establishes the statutory framework for conducting it.
It states explicitly that the Coast Guard is among the
Services that can use it. That same law states that to use
multiyear procurement for a contract with a value above a
certain level, you need to get congressional approval for each
case in an Appropriations Act and a bill other than an
Appropriations Act, which is typically an authorization act.
That is all part of the legislative framework for multiyear
procurement.
For using block buy authority, block buy does not have a
statutory framework. It just happens through specific
legislation that Congress grants to the Service in question,
and based on the two precedents of Virginia-class and Littoral
Combat Ships, that can be a single provision in an
authorization bill or a single provision in an Appropriations
Act.
Mr. Hunter. All right.
Mr. O'Rourke. Now, none of that speaks to then the
direction that the Service gets within the executive branch
from its superiors, but as a matter of statutory authority,
that is where we are.
Mr. Hunter. All right. I think that that is all I have got.
I do not think there is anybody else here.
Thank you very much for kind of getting deep into the weeds
on this stuff. That is what we have to do in the end. We want
to make the best decision possible. We want to save lots of
money so we can buy other stuff, in general.
So thank you very much for your testimony.
With that our hearing is adjourned.
[Whereupon, at 11:33 a.m., the subcommittee was adjourned.]
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