Coast Guard: Preliminary Observations on the Condition of	 
Deepwater Legacy Assets and Acquisition Management Challenges	 
(20-APR-05, GAO-05-307T).					 
                                                                 
In 2002, the Coast Guard began a multiyear, $19 billion to $24	 
billion acquisition program to replace or modernize its fleet of 
deepwater aircraft and cutters, so called because they are	 
capable of operating many miles off the coast. For several years 
now, the Coast Guard has been warning that the existing 	 
fleet--especially cutters--was failing at an unsustainable rate, 
and it began studying options for replacing or modernizing the	 
fleet more rapidly. Faster replacement is designed to avoid some 
of the costs that might be involved in keeping aging assets	 
running for longer periods. This testimony, which is based both  
on current and past GAO work, addresses several issues related to
these considerations: (1) changes in the condition of deepwater  
legacy assets during fiscal years 2000 through 2004; (2) actions 
the Coast Guard has taken to maintain and upgrade deepwater	 
legacy assets; and (3) management challenges the Coast Guard	 
faces in acquiring new assets, especially if a more aggressive	 
schedule is adopted.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-307T					        
    ACCNO:   A21977						        
  TITLE:     Coast Guard: Preliminary Observations on the Condition of
Deepwater Legacy Assets and Acquisition Management Challenges	 
     DATE:   04/20/2005 
  SUBJECT:   Military procurement				 
	     National defense operations			 
	     Procurement planning				 
	     Program management 				 
	     Schedule slippages 				 
	     Ships						 
	     Strategic planning 				 
	     Military aircraft					 
	     Military vessels					 
	     Equipment maintenance				 
	     Military cost control				 
	     Ship overhauls					 
	     C-130J Aircraft					 
	     Coast Guard Deepwater Project			 
	     HC-130 Aircraft					 
	     HH-60 Helicopter					 
	     HH-65 Helicopter					 

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GAO-05-307T

United States Government Accountability Office

GAO	Testimony Before the House Committee on Transportation and
Infrastructure,

Coast Guard and Maritime Transportation Subcommittee

For Release on Delivery

Expected at 2:00 p.m. COAST GUARD

Wednesday, April 20, 2005

    Preliminary Observations on the Condition of Deepwater Legacy Assets and
                       Acquisition Management Challenges

Statement of Margaret T. Wrightson, Director Homeland Security and Justice
Issues

GAO-05-307T

[IMG]

April 20, 2005

COAST GUARD

Preliminary Observations on the Condition of Deepwater Legacy Assets and
Acquisition Management Challenges

                                 What GAO Found

Available Coast Guard condition measures indicate that the Coast Guard's
deepwater legacy aircraft and cutters are generally declining, but these
measures are inadequate to capture the full extent of the decline in the
condition of deepwater assets with any degree of precision. GAO's field
visits and interviews with Coast Guard staff, as well as reviews of other
evidence, showed significant problems in a variety of the assets' systems
and equipment. The Coast Guard has acknowledged that it needs to develop
condition measures that more clearly demonstrate the extent to which asset
conditions affect mission capabilities, but such measures have not yet
been finalized or implemented.

The Coast Guard has taken several types of actions to help keep the
deepwater legacy assets operational, but these actions, while helpful, may
not fully address mission capability issues and may require additional
funding. For example, to help meet mission requirements, Coast Guard staff
are performing more extensive maintenance between deployments, but even
so, aircraft and cutters continue to lose mission capabilities. One Coast
Guard command is using a new approach to help sustain the oldest class of
cutters, but this approach will likely require additional funds-something
not included thus far in Coast Guard budget plans or requests.

If the Coast Guard adopts a more aggressive acquisition schedule, it will
likely continue to face a number of challenges that have already affected
its ability to effectively manage the Deepwater program. GAO has warned
that the Coast Guard's acquisition strategy, which relies on a prime
contractor ("system integrator") to identify and deliver the assets
needed, carries substantial risks. In 2004, well into the contract's
second year, key components for managing the program and overseeing the
system integrator's performance had not been effectively implemented. The
Coast Guard has begun addressing some problems-for example, putting more
emphasis on competition as a way to control costs-but many areas have not
been fully addressed. A more aggressive schedule would only heighten the
risks.

                   U. S. Coast Guard Deepwater Legacy Assets

HC-130 HU-25 HH-60 HH-65

HC-130 HU-25 HH-60 HH-65

Source: Photographs courtesy of the U.S. Coast Guard.

United States Government Accountability Office

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss our preliminary observations on
the condition of deepwater legacy assets,1 actions the Coast Guard has
taken to maintain and upgrade these assets, and management challenges the
Coast Guard faces in acquiring new assets, especially if a more aggressive
schedule is adopted. Deepwater legacy assets consist mainly of aircraft
and cutters capable of operating further out to sea, but missions may
begin at ports, waterways, and coasts and extend seaward to wherever the
Coast Guard is required to take action. The Coast Guard uses these assets
to perform a variety of missions, such as interdicting illicit drug
shipments or attempted landings by illegal aliens, rescuing mariners in
difficulty at sea, protecting important fishing grounds, and responding to
marine pollution. After the events of September 11, 2001, these missions
were expanded to include a greater emphasis on port, waterways, and
coastal security. The Coast Guard's expanded responsibilities caused
changes in how the deepwater legacy assets are used-for example, in
conducting more security patrols-and they also created a need to make
adjustments in mission requirements for assets that would be updated or
built as part of the long-term acquisition program.

Many deepwater legacy assets are at or approaching the end of their
estimated service lives. In 2002, the Coast Guard began a multiyear
Integrated Deepwater System acquisition program to replace or modernize
the legacy assets. The Coast Guard's new implementation plan estimates the
cost for the Deepwater program at $19 billion to $24 billion. From fiscal
years 2002 through 2005, the Coast Guard was appropriated nearly $2.2
billion for the Deepwater program. This amount included close to $1.3
billion for new acquisitions and $460.5 million for upgrades of the legacy
assets. Further, because the Coast Guard must continue to operate the
deepwater legacy assets until the new assets are acquired, the Coast Guard

1 For purposes of this testimony, we use the term "legacy assets" to refer
to the existing fleet of deepwater aircraft and cutters. These legacy
assets include the HC-130, HU-25, HH60, and HH-65 aircraft and the
378-foot high-endurance cutters, the 210-foot and 270-foot
medium-endurance cutters, and the 110-foot and 123-foot patrol boats. We
did not include the 213-foot Acushnet, the 230-foot Storis, or the
282-foot Alex Haley as part of our analyses of the deepwater legacy assets
because they are one-of-a-kind vessels.

has spent close to $594 million during fiscal years 2002 through 2004 to
fund intermediate-and depot-level maintenance of these assets.2

The Coast Guard is requesting $966 million for the Deepwater program for
fiscal year 2006-$242 million more than Congress appropriated for the
program last year. Part of this request ($239.5 million) is for
maintenance and upgrades to some deepwater legacy assets and is
predicated, in part, on the Coast Guard's assertion that its deepwater
legacy assets are "failing at an unsustainable rate" and "headed for a
train wreck." Faced with this concern, the Coast Guard has studied options
for replacing deepwater legacy assets more rapidly than initially planned
and thereby avoiding some of the costs that might be involved in upgrading
these assets sufficiently to keep them running for longer periods. In the
coming years, both the Coast Guard and Congress will likely be considering
the advisability of such changes in the program.

My testimony today addresses three issues related to these considerations:

o  Changes in the condition of deepwater legacy assets during fiscal years
2000 through 2004;

o  Actions the Coast Guard has taken to maintain and upgrade deepwater
legacy assets; and

o  Management challenges the Coast Guard faces in acquiring new assets,
especially if a more aggressive schedule is adopted.

My testimony is based on past and current work for this subcommittee and
other congressional committees. Our current work included analyzing data
and condition measures3 used by the Coast Guard for determining

2 Intermediate-level and depot-level maintenance include repairs and
upgrades that are too time-consuming or complicated to be performed at the
unit level. For aircraft, this would include repairing, overhauling, or
rebuilding parts, components, and end items, and emergency manufacturing
of unavailable parts. For cutters, intermediate-and depot-level
maintenance would include preventive or corrective maintenance, as well as
a major overhaul or complete rebuild of parts, assemblies, and end items;
as well as major hull repairs, general modifications, and testing.

3 To assess the reliability of the Coast Guard's data and condition
measures, we questioned knowledgeable officials and reviewed existing
documentation about the data and the systems that produced the data. We
determined that the data were sufficiently reliable for the purposes of
this testimony.

deepwater legacy assets' condition,4 reviewing Coast Guard actions to
maintain and upgrade the legacy assets, meeting with operations and
maintenance staff covering each type of deepwater legacy aircraft and each
class of deepwater legacy cutter, and assessing the improvements the Coast
Guard is making in its management of the Deepwater acquisition. We will be
following up this testimony with a written report that will contain
additional, detailed information related to the condition of deepwater
legacy assets, and the actions the Coast Guard is taking to maintain and
upgrade them. As part of the follow-on report, we will also further
examine the Coast Guard's management of the Deepwater program and follow
up on recommendations made in a prior GAO report.5 Our work was carried
out in accordance with generally accepted governmental auditing standards.

In summary, our work thus far shows the following:

o  Coast Guard condition measures show that the deepwater legacy assets
generally declined between fiscal years 2000 and 2004, but the Coast
Guard's available condition measures are inadequate to capture the full
extent of the decline in the condition of deepwater assets with any degree
of precision. While there is no systematic, quantitative evidence
sufficient to demonstrate that deepwater legacy assets are "headed for a
train wreck," this does not mean that the assets are able to perform their
missions safely, reliably, and at levels that meet or exceed Coast Guard
standards. Evidence we gathered in ways other than reviewing condition
measures, such as interviewing Coast Guard operations and maintenance
staff, showed deteriorating and obsolete systems and equipment as a major
cause of the reduction in mission

4 In assessing the condition of deepwater aircraft and cutters for this
testimony, we analyzed what Coast Guard officials told us were the best
available condition measures. For deepwater aircraft, we reviewed the
availability index (percentage of time aircraft were available to complete
missions), cost per flight hour, labor hours per flight hour, programmed
flight hours per year, scheduled versus unscheduled maintenance
expenditures, and estimated deferred maintenance. For cutters, we reviewed
the number of major casualties, the percent of time free of major
casualties, scheduled versus unscheduled maintenance, and estimated
deferred maintenance. We also reviewed data on mishaps and the dispatch
reliability index for aircraft, and lost cutter days and unscheduled
maintenance days for cutters. We did not use data on these measures,
though, because the data were either not relevant to our analysis,
incomplete, not available for the entire time period covered by our
review, or not sufficiently reliable for our purposes.

5 GAO, Contract Management: Coast Guard's Deepwater Program Needs
Increased Attention to Management and Contractor Oversight, GAO-04-380
(Washington, D.C.: March 9, 2004).

capabilities for a number of deepwater legacy aircraft and cutters that
will need to be addressed if the assets are to continue performing their
missions at or near current levels until replacement assets become
operational. These problems are not necessarily reflected in the condition
measures. For example, the Coast Guard's HH-65 helicopter consistently
exceeded the Coast Guard's primary condition measure during fiscal years
2000 through 2004, yet its engine is being replaced because of increasing
in-flight power loss incidents, a significant safety and reliability
issue. The Coast Guard has acknowledged that it needs measures that more
clearly demonstrate the extent to which asset conditions affect mission
capabilities, but such measures have not yet been finalized or
implemented.

o  The Coast Guard has taken several types of actions to keep existing
assets operational, but these actions, while helpful, may not fully
address mission capability issues and may require additional funding. The
Coast Guard now compiles information that can be used to better identify
and prioritize the maintenance or upgrade projects that need to be done to
keep existing assets operating. Coast Guard personnel, according to
evidence obtained during our site visits, are also performing more
maintenance on these assets than they have in the past-for example,
spending additional time on maintenance when cutters are in port between
deployments. These additional maintenance efforts are likely helping to
prevent a more rapid decline in the condition of these assets, but it is
important to note that even so, cutters and aircraft are still losing
mission capabilities because of equipment and system failures. Finally,
the Coast Guard's Pacific Area Command, which is heavily dependent on
deteriorating 378-foot cutters, is attempting to use new strategies to
help sustain the operation of these cutters through 2016, when they are
currently scheduled to be fully replaced with newer cutters. According to
the Pacific Area Commander, however, doing so is likely to require an
additional infusion of funds-something the Coast Guard has so far not
included in its budget requests or plans.

o  The Coast Guard's fiscal year 2006 budget request of $966 million for
the Deepwater program reflects significant revisions to the program's
requirements, capabilities, and schedule in light of the homeland security
mission. We have not yet analyzed the likely cost and schedule impact of
these revisions. However, if a more aggressive acquisition schedule were
adopted, the Coast Guard would likely continue to face a number of
management challenges that have already affected its ability to
effectively administer the Deepwater program. From the outset, we have
expressed concern about the risks involved with the

Coast Guard's acquisition strategy, which involves relying on a prime
contractor (or "system integrator") to identify the assets needed, using
tiers of subcontractors to design and build the actual assets. Last year,
we reported that well into the contract's second year, key components
needed to manage the program and oversee the system integrator's
performance had not been effectively implemented. We made a number of
recommendations in the areas of program management, contractor
accountability, and cost control through competition. While the Coast
Guard agreed with nearly all of these recommendations and has initiated
actions to address these problems, we remain concerned that the program
still carries major and inherent risks. The majority of our
recommendations have yet to be fully addressed. Recent information shows
continued challenges in the areas of overall system integration, cost and
schedule management, and integrated product teams, which consist of
contractor and government personnel and are the Coast Guard's principal
tool for managing the Deepwater program. In our opinion, the uncertainties
associated with the proposed revisions to the Deepwater program only
heighten these risks.

                                  Background 	

As the lead federal agency for maritime homeland security within the
Department of Homeland Security, the Coast Guard is responsible for
homeland and nonhomeland security missions, including ensuring security in
ports and waterways and along coastlines, conducting search and rescue
missions, interdicting drug shipments and illegal aliens, enforcing
fisheries laws, and responding to reports of pollution. The deepwater
fleet, which consists of 186 aircraft and 88 cutters of various sizes and
capabilities, plays a critical role in all of these missions. As shown in
table 1, the fleet includes fixed-wing aircraft, helicopters, and cutters
of varying lengths.

Table 1: Deepwater Legacy Aircraft and Cutter Fleets (as of April 14,
2005)

                    Deepwater Number Description Photograph

HH-60                41 This helicopter has a planned crew size of 4, a    
                           maximum speed of 160 knots, and a                  
(medium-range           maximum range of 700 nautical miles. It is capable 
                           of flying 300 miles offshore,                      
recovery helicopter)         remaining on scene for 45 minutes, hoisting 6 
                                  people on board, and returning to its point 
                            of origin. The original estimated service life of 
                                      the HH-60 was approximately 20 years or 
                           10,000 flight hours. a The in-service fleet        
                           average age for the Coast Guard's HH-60            
                           helicopter is 12.6 years.                          

Source: Developed by GAO from U.S. Coast Guard data. Photographs are
courtesy of the U.S. Coast Guard.

aBecause of scheduled depot-level maintenance and upgrades that the
deepwater aircraft have received or will receive, the service lives can be
extended beyond the original estimated service lives. For the HH-65
helicopter, a Coast Guard aviation official told us that the aircraft had
no original estimated service life in terms of flight hours, but rather
can continue to be operated as long as the structure of the aircraft is
sound.

Some Coast Guard deepwater cutters were built in the 1960s.
Notwithstanding extensive overhauls and other upgrades, a number of the
cutters are nearing the end of their estimated service lives. Similarly,
while a number of the deepwater legacy aircraft have received upgrades in
engines, operating systems, and sensor equipment since they were
originally built, they too have limitations in their operating
capabilities.

In 1996, the Coast Guard began developing what came to be known as the
Integrated Deepwater System acquisition program as its major effort to
replace or modernize these aircraft and cutters. This Deepwater program is
designed to replace some assets-such as deteriorating cutters-with new
cutters and upgrade other assets-such as some types of aircraft-so they
can meet new performance requirements.6

The Deepwater program represents a unique approach to a major acquisition
in that the Coast Guard is relying on a prime contractor-the system
integrator-to identify and deliver the assets needed to meet a set of
mission requirements the Coast Guard has specified.7 In 2002, the Coast
Guard awarded a contract to Integrated Coast Guard Systems (ICGS) as the
system integrator for the Deepwater program. ICGS has two main
subcontractors-Lockheed Martin and Northrop Grumman-who in turn contract
with other subcontractors. The resulting program is designed to provide an
improved, integrated system of aircraft, cutters, and unmanned aerial
vehicles to be linked effectively through systems that provide command,
control, communications, computer, intelligence, surveillance,
reconnaissance, and supporting logistics. We have been reviewing the
Deepwater program for several years. In recent reports we have pointed out
difficulties the Coast Guard has been having in managing the

6 Current plans call for the Coast Guard to replace all of its deepwater
legacy cutters and patrol boats, beginning with the 378-foot cutters. The
Coast Guard also plans to replace the HU-25 aircraft, but will upgrade the
existing HC-130 aircraft and HH-60 and HH-65 helicopters to extend their
service lives.

7 The mission requirements include such things as the ability to (1)
respond to 90 percent of all distress incidents within 2 hours; (2) detect
and track targets of any material such that the probability of detection
is at least 90 percent for small targets, such as a person in the water or
a single-engine civil aircraft; and (3) respond to National Emergency
Response Operations within 48 hours.

Deepwater program and ensuring that the acquisition schedule is up to

8

date and on schedule.

The existing schedule calls for acquisition of new assets under the Coast
Guard's Deepwater program to occur over an approximately 20-year period.
By 2007, for example, the Coast Guard is to receive the first National
Security Cutter, which will have the capability to conduct military
missions related to homeland security. Plans call for 6 to 8 of these
cutters to replace the 12 existing 378-foot cutters. However, in order to
carry out its mission effectively, the Coast Guard will also need to keep
all of the deepwater legacy assets operational until they can be replaced
or upgraded.

Coast Guard condition measures show that the deepwater legacy assets
generally declined between 2000 and 2004, but the Coast Guard's available
condition measures are inadequate to capture the full extent of the
decline in the condition of deepwater assets with any degree of precision.
Other evidence we gathered, such as information from discussions with
maintenance personnel, point to conditions that may be more severe than
the available measures indicate. The Coast Guard acknowledges that it
needs better condition measures but has not yet finalized or implemented
such measures.

  Deepwater Legacy Assets Show General Decline in Condition, But Current
  Measures Do Not Capture True Extent

    Coast Guard's Condition Measures Show General Decline in Deepwater Assets,
    with Some Fluctuations

During fiscal years 2000 through 2004, the Coast Guard's various condition
measures show a general decline, although there were year-to-year
fluctuations (see table 2). For deepwater legacy aircraft, a key summary
measure of the condition-the availability index (the percentage of time
aircraft are available to perform their missions)-showed that except for
the HU-25 medium-range surveillance aircraft, the assets continued to
perform close to or above fleet availability standards over the 5-year
period. In contrast, other condition measures for aircraft, such as cost
per flight hour and labor hours per flight hour, generally reflected some
deterioration. For cutters, a key summary measure of condition-percent

8See GAO, Coast Guard: Deepwater Program Acquisition Schedule Update
Needed, GAO-04-695 (Washington, D.C.: June 14, 2004); Coast Guard: Key
Management and Budget Challenges for Fiscal Year 2005 and Beyond,
GAO-04-636T (Washington, D.C.: April 7, 2004); and GAO-04-380.

of time free of major casualties9-fluctuated but generally remained well
below target levels. The number of major casualties generally rose from
fiscal years 2000 through 2003 and then dropped slightly in fiscal year
2004.10

Table 2: Synopsis of Deepwater Legacy Assets' Condition

Deepwater
legacy asset Synopsis of general asset condition

HC-130 aircraft	The percentage of time the HC-130 fleet was available to
perform missions nearly met or exceeded the Coast Guard's target level
during fiscal years 2000 through 2003, but dropped below the target level
in fiscal year 2004.

HU-25 aircraft 	The percentage of time the HU-25 fleet was available to
perform missions varied from year to year, but was consistently below the
Coast Guard's target level during fiscal years 2000 through 2004.

HH-60 aircraft 	The percentage of time the HH-60 fleet was available to
perform missions met or was just below the Coast Guard's target level
during fiscal years 2000 though 2004.

HH-65 aircraft 	The percentage of time the HH-65 fleet was available to
perform missions consistently exceeded the Coast Guard's target level
during fiscal years 2000 through 2004.

378-foot high-The percentage of time the 378-foot cutter fleet has
operated

                               endurance cutters

free of deficiencies in mission-essential equipment remained substantially
below the Coast Guard's target level during fiscal years 2000 through
2004.

270-foot and The percentage of time the 210-foot and 270-foot cutter
fleets 210-foot medium-have operated free of deficiencies in
mission-essential endurance cutters equipment was well below the Coast
Guard's target level during

fiscal years 2000 through 2004, but showed slight improvement

in fiscal year 2004.

110-foot and The percentage of time the patrol boat fleet has operated
free of 123-foot patrol boatsa deficiencies in mission-essential equipment
was below but near

the Coast Guard's target level during fiscal years 2000 and 2001, but
declined in more recent years.

Source: GAO analysis of data provided by the U.S. Coast Guard.

aData on the 123-foot patrol boats were not compiled until fiscal year
2004. That year's data were added to the 110-foot patrol boat data to
arrive at totals for the patrol boat fleet.

9 A casualty is a deficiency in mission essential equipment; a major
casualty causes the major degradation or loss of at least one primary
mission.

10 However, major casualties for the 378-foot high-endurance cutters
continued to increase in 2004.

Another, albeit less direct, measure of an asset's condition is deferred
maintenance-the amount of scheduled maintenance that must be postponed on
an asset in order to pay for unscheduled repairs. Such deferrals can occur
when the Coast Guard does not have enough money to absorb unexpected
maintenance expenditures and still perform all of its scheduled
maintenance, thus creating a backlog. For example, in spring 2004, while
on a counter-drug mission, the 210-foot cutter Active experienced problems
in the condition of its flight deck that were to be corrected during its
scheduled depot-level maintenance. However, because of a lack of funding,
the maintenance was deferred and the flight deck not repaired. As a
result, the cutter lost 50 percent of its patrol time, since the required
support helicopters could not take off from or land on it.

As table 3 shows, deferred maintenance does not show a clear pattern
across all classes of deepwater legacy assets. For the deepwater legacy
aircraft, the overall amount of estimated deferred maintenance increased
each year during fiscal years 2002 through 2004, from $12.3 million to
about $24.6 million. However, most of the increase came from one type of
asset, the HH-60 helicopter, and was mainly the result of shortening the
interval between scheduled depot-level maintenance from 60 months to 48
months-thereby increasing the scheduled maintenance workload-and not from
having to divert money to deal with unscheduled maintenance. For the
deepwater cutters, the amount of estimated deferred maintenance increased
from fiscal year 2002 to 2003, but then dropped significantly in fiscal
year 2004. The decrease in fiscal year 2004 came mainly because (1) the
Coast Guard ceased maintenance on an icebreaker, thus freeing up some
maintenance funds; and (2) the Coast Guard also received supplemental
operational and maintenance funding, allowing it to deal with both
scheduled and unscheduled maintenance. Thus, the drop in the estimate of
deferred maintenance costs for fiscal year 2004 is not necessarily an
indicator that the condition of the legacy assets was improving; it could
result from the Coast Guard having more money to address the maintenance
needs.

Table 3: Estimated Costs for Deferred Maintenance of Deepwater Aircraft
and Cutters, Fiscal Years 2002-2004

       Deepwater asset     Fiscal year 2002 Fiscal year 2003 Fiscal year 2004 
           HC-130                $4,691,000       $7,016,000       $5,737,000 
            HU-25                         0         $201,000 
            HH-60                $7,630,000       $9,436,000      $18,824,000 
            HH-65                         0                0 
    Subtotal for aircraft    $12,321,000         $16,653,000      $24,561,000 
      378-foot cutters           $2,556,000       $8,135,000       $3,000,000 
      270-foot cutters           $2,070,000         $870,000 
      210-foot cutters             $786,000       $1,137,000 
    110-foot patrol boats        $1,618,000       $1,961,000         $500,000 
    Subtotal for cutters         $7,030,000      $12,103,000       $3,500,000 
Total for all deepwater                                                    
           assets            $19,351,000         $28,756,000      $28,061,000

Source: U.S. Coast Guard

Note: The Coast Guard estimates the cost for aircraft deferred maintenance
by multiplying a percentage of average depot maintenance costs by the
number of aircraft overdue for depot maintenance overhauls, plus the
annual cost for extension inspections each year. The Coast Guard generally
does not track deferred maintenance costs by cutter class, but compiled
these data at GAO's request for fiscal years 2002 through 2004. The Coast
Guard estimated the costs of only the planned cutter maintenance that had
to be deferred to the following year and not the amount of maintenance
that should have been conducted and was not funded.

    Current Condition Measures Not Robust Enough to Clearly Link Condition with
    Effect on Missions

At the time we began our work, the Coast Guard's condition measures were
not sufficiently robust to systematically link assets' condition with
degradation in mission capabilities. As we discussed with Coast Guard
officials, without such condition measures, the extent and severity of the
decline in the existing deepwater legacy assets and their true condition
cannot be fully determined. As a result, the picture that emerges
regarding the condition of the deepwater legacy assets based on current
Coast Guard condition measures should be viewed with some caution. While
there is no systematic, quantitative evidence sufficient to demonstrate
that deepwater legacy assets are nearing a "train wreck," this does not
mean the assets are in good condition or have been performing their
missions safely, reliably and at levels that meet or exceed Coast Guard
standards. We identified two factors that need to be considered to put
these condition measures in proper context.

The first factor deals with limitations in the measures themselves. Simply
put, the Coast Guard's measures of asset condition do not fully capture
the extent of the problems. As such, they may understate the decline in
the legacy assets' condition. More specifically, Coast Guard measures
focus on

events, such as flight mishaps or equipment casualties, but do not measure
the extent to which these and other incidents degrade mission
capabilities. Here are two examples in which the Coast Guard's current
measures are not sufficiently robust to systematically capture degradation
in mission capabilities:

o  The surface search radar system on the HC-130 long-range surveillance
aircraft, called the APS-137 radar, is subject to frequent failures and is
quickly becoming unsupportable. Flight crews use this radar to search for
vessels in trouble and to monitor ships for illegal activity, such as
transporting illicit drugs or illegal immigrants. When the radar fails,
flight crews are reduced to looking out the window for targets, greatly
reducing mission efficiency and effectiveness. A flight crew in Kodiak,
Alaska, described this situation as being "like trying to locate a boat
looking through a straw." Mission capability degradations such as these
are not reflected in the Coast Guard's current condition measures.

o  The 378-foot cutter Jarvis recently experienced a failure in one of its
two main gas turbines shortly after embarking on a living marine resources
and search and rescue mission. While Jarvis was able to accomplish its
given mission, albeit at reduced speeds, this casualty rendered the cutter
unable to respond to any emergency request it might have received-but did
not in this case-to undertake a mission requiring higher speeds, such as
drug interdiction. The Coast Guard condition measures are not robust
enough to capture these distinctions in mission capability.

The second factor that needs to be kept in mind is the compelling nature
of the other evidence we gathered outside of the Coast Guard's condition
measures. This evidence, gleaned from information collected during our
site visits and discussions with maintenance personnel, showed
deteriorating and obsolete systems and equipment as a major cause of the
reduction in mission capabilities for a number of deepwater legacy
aircraft and cutters. Such problems, however, are not captured by the
Coast Guard's condition measures. One example of this involves the HH-65
short-range recovery helicopter. While this helicopter consistently
exceeded availability standards established by the Coast Guard over the
5year period we examined, it is currently operating with underpowered
engines that have become increasingly subject to power failures. As a
result, Coast Guard pilots employ a number of work arounds, such as
dumping fuel or leaving the rescue swimmer on scene if the load becomes
too heavy. Further, because of increasing safety and reliability problems,
the Coast Guard has also implemented a number of operational

restrictions-such as not allowing the helicopter to land on helipads-to
safeguard crew and passengers and prevent mishaps until all of the fleets'
engines can be replaced.

The Coast Guard has recently recognized the need for improved measures to
more accurately capture data on the extent to which its deepwater legacy
assets are degraded in their mission capabilities, but as of March 2005,
such measures have not yet been finalized or implemented. Subsequent to
our inquiries regarding the lack of condition and mission capability
measures, Coast Guard naval engineers reported that they had begun
developing a "percent of time fully mission capable" measure to reflect
the degree of mission capability, as well as measures to track cutter
readiness. We agree that measures like this are needed-and as soon as
possible. Further, current plans call for the measure, if approved, to be
used for cutters, but not for aircraft. Consequently, even if this measure
were to be implemented across the Coast Guard, there would still be no
measure to address degradation in mission capabilities for aircraft. We
will be exploring this issue further in our follow-on report.

The Coast Guard has taken several actions to address maintenance issues
and upgrades for its deepwater legacy assets. These include establishing a
compendium of information for making decisions regarding maintenance and
upgrades, performing more extensive maintenance between deployments, and,
at the Pacific Area Command, applying new business rules and strategies to
better sustain the 378-foot high-endurance cutters through 2016. These
additional efforts are likely helping to prevent a more rapid decline in
the condition of these assets, but condition problems continue, and the
efforts will likely involve additional costs.

  Actions to Maintain and Upgrade Deepwater Legacy Assets Are Under Way, but
  Condition Issues Remain

               Compendium of Needs Is 	Being Compiled and Used 	

Since 2002, the Coast Guard has annually issued a Systems Integrated Near
Term Support Strategy compendium. Among other things, this compendium
consolidates information needed to make planning and budgeting decisions
regarding maintenance and upgrades to sustain legacy assets. Its purpose
is to serve as a tool for senior Coast Guard management in setting
priorities and planning budgets. From this strategic document, the Coast
Guard has identified a number of upgrades to improve the capabilities of
the deepwater legacy aircraft and cutters. The most recent compendium (for
fiscal year 2006) lists more than $1 billion worth of upgrades to the
deepwater legacy assets. The planned upgrades identified in the compendium
that have been approved and received initial funding account for an
estimated $856 million the Coast Guard anticipates

it will need to complete those projects. The approved upgrades for
deepwater legacy assets are shown in table 4.

      Table 4: Approved Upgrades for Deepwater Legacy Aircraft and Cutters

Estimated costs and time frames of upgrades

Deepwater asset Synopsis of planned upgrades

            HC-130 aircraft The Coast Guard is beginning to replace

aircraft's dated and difficult to support surface search radar system.

The radar system replacement is projected to cost $78 million and be
completed in fiscal year 2008. A total of $9 million has been funded to
date.

HH-60 aircraft

The Coast Guard has begun a service life extension plan and a replacement
of the obsolete avionics suite.

The service life extension program is estimated to cost $16 million and be
completed by fiscal year 2009. The avionics replacement program is
projected to cost $121 million and be completed by fiscal year 2010. A
total of $32.8 million has been funded to date for these upgrades.

        HH-65 aircraft Serious safety and reliability problems with the

engine led the Coast Guard to place operational restrictions on the HH-65
fleet in October 2003.

The Coast Guard plans to re-engine 84 HH-65 aircraft at a projected cost
of $349 million, now estimated to be completed by February 2007. A total
of $160.7 million has been funded to date.

270-foot and During fiscal year 2005 these cutters are to The MEP is
projected to cost a total of $292

210-foot medium- endurance cutters 	enter a legacy asset sustainment
project million and be completed by fiscal year 2015. known as the Mission
Effectiveness Program The medium-endurance cutters will ultimately (MEP)
aimed at increasing their service lives be replaced by the Offshore Patrol
Cutter. A until their replacement by a new cutter. The total of $12.5
million has been funded to date. MEP includes upgrading major engineering
subsystems such as evaporators, sewage systems, and gyrocompasses.

Total: 	$856 million total needed to fund these projects, of which $215
million has been funded to date.

Source: GAO analysis of data provided by the U.S. Coast Guard.

Note: While there has not been any funding approved for upgrades to the
HU-25 aircraft, the 378-foot cutters, or the 110-foot and 123-foot patrol
boats, since all of these deepwater legacy assets are scheduled to be
replaced, each of these assets has upgrades listed in the Systems
Integrated Near Term Support Strategy compendium. The HU-25 aircraft has
an engine replacement project estimated to cost $78.1 million; the
378-foot cutter has an MEP estimated to cost $137.8 million; and the
patrol boats have three projects-replacement of the fin stabilizer system
that is estimated to cost $10.4 million, an MEP that is estimated to cost
$162 million, and replacement of the ship service generators that is
estimated to cost $20.7 million. If the Coast Guard were to request
funding for all of these sustainment projects, it would cost an additional
$409 million.

Among the projects already begun is the re-engining of the HH-65
helicopters to increase the helicopter's power and capabilities. The Coast
Guard is also upgrading several other aviation systems in an effort to
improve aircraft capabilities. Enhancements are also planned for certain

classes of deepwater cutters. For example, during this fiscal year, the
Coast Guard is to begin a maintenance effectiveness project on the 210foot
and 270-foot cutters. This project includes replacing major engineering
subsystems with the goal of extending the cutters' service lives until
their replacement by the Offshore Patrol Cutter. Of the $856 million total
estimated costs needed for the planned upgrades to the deepwater legacy
assets listed above, the Coast Guard has received $215 million through
fiscal year 2005 and has requested another $217.3 million in its fiscal
year 2006 budget. The remaining estimated costs of $423.7 million would
have to be funded beyond fiscal year 2006.

    Increasing Amounts of Maintenance Are Being Performed, but Loss of Mission
    Capabilities Continues

Coast Guard personnel consistently reported to us that crewmembers have to
spend increasingly more time between missions to prepare for the next
deployment. For example, to prevent further corrosion-related problems,
air station maintenance personnel at the locations we visited said they
have instituted additional measures, such as washing and applying fluid
film to the aircraft prior to each deployment. Similar accounts were told
by personnel working on cutters. For example, officers of the 270-foot
cutter Northland told us that because of dated equipment and the
deteriorating condition of its piping and other subsystems, crewmembers
have to spend increasingly more time and resources while in port to
prepare for their next deployment. While we could not verify these
increases in time and resources because the Coast Guard does not capture
data on these additional maintenance efforts, the need for increasing
amounts of maintenance was a message we consistently heard from the
operations and maintenance personnel with whom we met.

Such efforts are likely helping to prevent a more rapid decline in the
condition of these deepwater legacy assets, but it is important to note
that even with the increasing amounts of maintenance, these assets are
still losing mission capabilities because of deteriorating equipment and
system failures. For example, in fiscal year 2004, one 378-foot cutter
lost 98 counterdrug mission days because of a number of patrol-ending
casualties-including the loss of ability to raise and lower boats and run
major electrical equipment-requiring $1.2 million in emergency
maintenance. Another 378-foot cutter lost 27 counterdrug mission days in
the fall of 2004 when it required emergency dry-dock maintenance because
of hydraulic oil leaking into the reduction gear.

    New Initiative for Maintaining 378-Foot Cutters Is Under Way, but Additional
    Funding Will Likely Be Needed

One effort is under way at the Coast Guard's Pacific Area Command to
improve maintenance practices for the 378-foot cutters.11 Pacific Area
Command officials have recognized that a different approach to maintaining
and sustaining legacy cutters may be needed and, as a first step, they
have undertaken an initiative applying what they refer to as "new business
rules and strategies" to better maintain the 378-foot highendurance
cutters through 2016. Under the original Deepwater proposal, the final
378-foot cutter was to be decommissioned in 2013, but by 2005, that date
had slipped to 2016. To help keep these cutters running through this date,
Pacific Area Command officials are applying such rules and strategies as
(1) ensuring that operations and maintenance staffs work closely together
to determine priorities, (2) recognizing that maintaining or enhancing
cutter capabilities will involve trade-off determinations, and (3)
accepting the proposition that with limited funding not all cutters will
be fully capable to perform all types of missions. Pacific Area Command
officials believe that in combination, these principles and strategies
will result in more cost-effective maintenance and resource allocation
decisions-recognizing that difficult decisions will still have to be made
to balance maintenance and operations.

The Pacific Area Command's new initiative has the potential for assisting
the Coast Guard in making more informed choices regarding the best use of
their resources, but the approach will likely require additional funding.
In particular, the Pacific Area Commander told us that in order for the
378foot cutters to be properly maintained until their replacements become
operational; the Coast Guard will have to provide additional funding for
sustaining the 378-foot cutters. So far, the Coast Guard's budget plans or
requests do not address this potential need.

  Management Challenges Faced in Acquiring New Assets Remain Significant

Since the inception of the Deepwater program, we have expressed concerns
about the degree of risk in the acquisition approach and the Coast Guard's
ability to manage and oversee the program. Last year, we reported that,
well into the contract's second year, key components needed to manage the
program and oversee the system integrator's performance had not been
effectively implemented.12 We also reported that the degree to which the
program was on track could not be determined

11 The Pacific Area Command is responsible [0]for operations covering 74
million square miles, ranging from South America, north to the Arctic
Circle and west to the Far East.

12 GAO-04-380.

because the Coast Guard was not updating its schedule.13 We detailed
needed improvements in a number of areas, shown in table 5. These concerns
have a direct bearing on any consideration to increase the program's pace.
Because the Coast Guard was having difficulty managing the Deepwater
program at the pace it had anticipated, increasing the pace by attempting
to speed the acquisition would only complicate the problem.

Table 5: Summary of Deepwater Areas Needing Management Attention as
Reported by GAO

Areas of concern Recommendations to the U.S. Coast Guard

Key components of management and Improve integrated product teams
responsible for managing the program by providing oversight have not been
effectively better training, approving charters, and improving systems for
sharing information implemented between teams

Ensure adequate staffing of the Deepwater program

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

Update the original acquisition schedule to support future budget
requests, starting with the fiscal year 2006 request

Procedures for ensuring contractor Develop measurable award fee criteria
consistent with guidance from the Office of accountability are inadequate
Federal Procurement Policy

Provide for better input from U.S. Coast Guard technical representatives

Hold system integrator accountable for improving effectiveness of
integrated product teams

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

Establish a baseline for determining whether the acquisition approach is
costing the government more than a traditional asset replacement approach

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

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

                  Control of future costs through competition

                   remains at risk because of weak oversight

For subcontracts over $5 million awarded by the system integrator to the
two major subcontractors, require notification to the Coast Guard about
decisions to perform the work in-house rather than contracting it out.

Source: Developed by GAO from our reports GAO-04-380 and GAO-04-695.

The Coast Guard agreed with nearly all of our recommendations and has made
progress in implementing some of them. In most cases, however, while
actions are under way, management challenges remain that are likely to
take some time to fully address.

13 GAO-04-695.

    Improvement of Program Management and Contractor Oversight Is Mixed

Strengthening Integrated Product Teams

Ensuring Adequate Staffing for the Deepwater Program

We have seen mixed success in the Coast Guard's efforts to improve
management of the program and contractor oversight. All four areas of
concern-improving integrated project teams (IPT), ensuring adequate staff
for the program, planning for human capital requirements for field units
receiving new assets, and updating the program's schedule-have yet to be
fully addressed.

Although the Deepwater program has made some efforts to improve the
effectiveness of IPTs, we continue to see evidence that more improvements
are needed for the teams to effectively do their jobs. These teams, the
Coast Guard's primary tool for managing the program and overseeing the
contractor, are generally chaired by a subcontractor representative and
consist of members from subcontractors and the Coast Guard. The teams are
responsible for overall program planning and management, asset
integration, and overseeing delivery of specific Deepwater assets. Since
our March 2004 report, the teams have been restructured, and 20 teams have
charters setting forth their purpose, authority, and performance goals.
And new, entry-level training is being provided to team members.

Despite this progress, however, the needed changes are not yet
sufficiently in place. A recent assessment by the Coast Guard of the
system integrator's performance found that roles and responsibilities in
some teams continue to be unclear. Decision making is to a large extent
stovepiped, and some teams still lack adequate authority to make decisions
within their realm of responsibility. One source of difficulty for some
team members has been the fact that each of the two major subcontractors
has used its own databases and processes to manage different segments of
the program. Decisions on air assets are made by Lockheed Martin, while
decisions regarding surface assets are made by Northrop Grumman. This
approach can lessen the likelihood that a "system of systems" outcome will
be achieved. Officials told us that more attention is being paid to taking
a systemwide approach and that the Coast Guard has emphasized the need to
ensure that the two major subcontractors integrate their management
systems.

The Coast Guard has taken steps to more fully staff the Deepwater program,
with mixed effects. In February 2005, the Deepwater program executive
officer approved a revised human capital plan. The plan emphasizes
workforce planning, including determining needed knowledge, skills, and
abilities and developing ways to leverage institutional knowledge as staff
rotate out of the program. This analysis is intended to help determine
what gaps exist between needed skills and existing skills

      Improving Communication with Personnel Who Will Use the New Assets