Coast Guard: Progress Being Made on Addressing Deepwater Legacy  
Asset Condition Issues and Program Management, but Acquisition	 
Challenges Remain (22-JUL-05, GAO-05-757).			 
                                                                 
The Coast Guard has been asserting that its deepwater legacy	 
assets are "failing at an unsustainable rate." After the events  
of September 11, 2001, the Coast Guard's deepwater missions	 
expanded to include a greater emphasis on ports, waterways, and  
coastal security. These heightened responsibilities required	 
changes to the Deepwater implementation plan to provide the	 
assets with greater operational capabilities. To address these	 
needs, in 2002, the Coast Guard began a multiyear acquisition	 
program to replace or modernize its deepwater assets that is	 
currently estimated to cost $19 to $24 billion. More recently, it
began studying options for replacing or modernizing the assets	 
more rapidly in an effort to avoid some of the costs that might  
be involved in keeping aging assets running for longer periods.  
This report addresses three questions related to this effort: (1)
How has the condition of the Coast Guard's deepwater legacy	 
assets changed during fiscal years 2000 through 2004? (2) What	 
actions has the Coast Guard taken to maintain, upgrade, and	 
better manage its deepwater legacy assets? and (3) What are the  
management challenges the Coast Guard faces in acquiring new	 
assets, especially if a more aggressive acquisition schedule is  
adopted?							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-757 					        
    ACCNO:   A30857						        
  TITLE:     Coast Guard: Progress Being Made on Addressing Deepwater 
Legacy Asset Condition Issues and Program Management, but	 
Acquisition Challenges Remain					 
     DATE:   07/22/2005 
  SUBJECT:   Assets						 
	     Federal procurement				 
	     Procurement evaluation				 
	     Procurement planning				 
	     Program evaluation 				 
	     Program management 				 
	     Ships						 
	     Strategic planning 				 
	     Systems development life cycle			 
	     Agency missions					 
	     Cost control					 
	     Accountability					 
	     Military vessels					 
	     Asset management					 
	     Capital Asset Management Strategy			 
	     Coast Guard Deepwater Project			 
	     Coast Guard Integrated Deepwater System		 

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GAO-05-757

United States Government Accountability Office

GAO

                       Report to Congressional Requesters

July 2005

COAST GUARD

 Progress Being Made on Addressing Deepwater Legacy Asset Condition Issues and
             Program Management, but Acquisition Challenges Remain

GAO-05-757

[IMG]

July 2005

COAST GUARD

Progress Being Made on Addressing Deepwater Legacy Asset Condition Issues and
Program Management, but Acquisition Challenges Remain

                                 What GAO Found

Available Coast Guard condition measures indicate that the condition of
most Coast Guard legacy aircraft and cutters generally declined during
fiscal years 2000-2004, but these measures are inadequate to capture the
full extent of the decline in the condition with any 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 asset systems
and equipment that are not currently captured in the Coast Guard's
condition measures.

The Coast Guard has already taken actions to help keep its deepwater
legacy assets operational. 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. Responding to these continued concerns, as well as to
matters raised during this review and in prior GAO reports, the Coast
Guard has begun to explore additional strategies and approaches to better
determine and improve the mission capabilities of its legacy assets. These
actions include (1) developing a more proactive approach for prioritizing
maintenance and capability enhancement projects needed on its legacy
assets; (2) developing measures that more clearly demonstrate the extent
to which assets' conditions affect mission capabilities; and (3) for one
command, proposing a new strategy to sustain one of its oldest classes of
cutters. These ongoing efforts, while promising, are too new to allow GAO
to assess whether they will allow the Coast Guard to better determine and
improve the mission capabilities of its legacy assets.

If the Coast Guard adopts a more aggressive acquisition schedule, it will
likely continue to face a number of challenges to effectively manage the
Deepwater program. GAO has warned that the Coast Guard's acquisition
strategy of relying on a prime contractor ("system integrator") to
identify and deliver the assets needed carries substantial risks. GAO
found that 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. While the Coast Guard has been
addressing these problems- for example, putting more emphasis on
competition as a means to control costs-many areas have not been fully
addressed. A more aggressive acquisition schedule would only heighten the
risks.

Two Coast Guard Deepwater Legacy Assets in Action

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

United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
Legacy Assets Show Declining Condition, but Measures Are

Imprecise and Fail to Capture Impact on Mission Capabilities Actions to
Better Manage Legacy Assets Are Under Way, but Effects Will Not Be Known
for Some Time Management Challenges Faced in Acquiring New Assets Remain

Significant Concluding Observations Agency Comments

                                       1

                                      4 5

11

15

22 32 33

Appendix I Objectives, Scope, and Methodology

                                  Appendix II

Information on Deepwater Legacy Aircraft and Cutters

HC-130 Long-Range Surveillance Aircraft HU-25 Medium-Range Surveillance
Aircraft HH-60 Medium-Range Recovery Helicopter HH-65 Short-Range Recovery
Helicopter 378-Foot High-Endurance Cutter 270-Foot Medium- Endurance
Cutter 210-Foot Medium- Endurance Cutter 110-Foot and 123-Foot Patrol
Boats 38

38 41 43 45 48 50 52 54

Appendix III GAO Contact and Staff Acknowledgments

GAO Related Products

Tables

Table 1: Deepwater Legacy Aircraft and Cutter Fleet, as of early

June 2005 7 Table 2: Synopsis of Deepwater Legacy Assets' Condition 12
Table 3: Estimated Costs for Deferred Maintenance of Deepwater

Aircraft and Cutters, Fiscal Years 2002-2004 13

Table 4: Approved Upgrades for Deepwater Legacy Aircraft and Cutters 16
Table 5: Summary of Deepwater Areas Needing Management

Attention as Reported by GAO 24 Table 6: HC-130 Fleet Performance Data for
Fiscal Years 2000-2004 38 Table 7: HC-130 Fleet Maintenance Data forFiscal
Years 2000-2004,

in Fiscal Year 2004 Dollars 39 Table 8: HU-25 Fleet Performance Data for
Fiscal Years 2000-2004 41 Table 9: HU-25 Fleet Maintenance Data for Fiscal
Years 2000-2004,

in Fiscal Year 2004 Dollars 42 Table 10: HH-60 Fleet Performance Data for
Fiscal Years 2000-2004 43 Table 11: HH-60 Fleet Maintenance Data for
Fiscal Years 2000-2004,

in Fiscal Year 2004 Dollars 44 Table 12: HH-65 Fleet Performance Data for
Fiscal Years 2000-2004 45 Table 13: HH-65 Fleet Maintenance Data for
Fiscal Years 2000-2004,

in Fiscal Year 2004 Dollars 46 Table 14: 378-Foot Cutter Fleet Performance
Data for Fiscal Years 2000-2004 48 Table 15: 378-Foot Cutter Fleet
Maintenance Data for Fiscal Years 2000-2004, in Fiscal Year 2004 Dollars
49 Table 16: 270-Foot Cutter Fleet Performance Data for Fiscal Years
2000-2004 50 Table 17: 270-Foot Cutter Fleet Maintenance Data for Fiscal
Years 2000-2004, in Fiscal Year 2004 Dollars 51 Table 18: 210-Foot Cutter
Fleet Performance Data for Fiscal Years 2000-2004 52 Table 19: 210-Foot
Cutter Fleet Maintenance Data for Fiscal Years 2000-2004, in Fiscal Year
2004 Dollars 53 Table 20: Patrol Boat Fleet Performance Data for Fiscal
Years 2000-2004 55 Table 21: Patrol Boat Fleet Maintenance Data for Fiscal
Years 20002004, in Fiscal Year 2004 Dollars 55

Abbreviations

AC&I acquisition, capital, and investment
CAMS Capital Asset Management Strategy
DHS Department of Homeland Security
FRAM Fleet Rehabilitation and Modernization
HSP Hull Sustainment Project
ICGS Integrated Coast Guard Systems
IDS Integrated Deepwater System
IPT integrated product team
MCH multimission cutter helicopter
MEP Mission Effectiveness Project
POTF percent of time free
SINTSS Systems Integrated Near Term Support Strategy

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United States Government Accountability Office Washington, DC 20548

July 22, 2005

The Honorable Don Young
Chairman, Committee on Transportation and Infrastructure
House of Representatives

The Honorable Frank A. LoBiondo
Chairman, Coast Guard and Maritime Transportation Subcommittee
House of Representatives

The Honorable Olympia J. Snowe
Chair
The Honorable Maria Cantwell
Ranking Minority Member
Subcommittee on Fisheries and the Coast Guard
United States Senate

The Coast Guard's Integrated Deepwater System (or Deepwater)
acquisition program has experienced several changes since its inception in
2002. The Deepwater program is intended to be a long-term (20-year)
replacement or modernization of certain legacy assets,1 many of which are
at or approaching the end of their estimated service lives. As originally
conceived, Deepwater was designed around producing aircraft and cutters
that would function in the Coast Guard's traditional at-sea roles, such as
interdicting illicit drug shipments or rescuing mariners from difficulty
at
sea. The events of September 11, 2001, changed all of that. Suddenly, the
missions for these assets expanded to include a greater emphasis on ports,
waterways, and coastal security. These heightened responsibilities forced
the Coast Guard to revise its Deepwater implementation plan to provide
the replacement assets with greater operational capabilities. Further
change has come more recently with the Coast Guard asserting that its
deepwater legacy assets are "failing at an unsustainable rate" and
examining options for accelerating their replacement, thereby avoiding

1For purposes of this report, we use the term "legacy assets" to refer to
the existing fleet of deepwater aircraft and cutters. These legacy assets
include the HC-130 (H models only), HU-25, HH-60, 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 cutters.

some of the costs that might be involved in upgrading these assets
sufficiently to keep them running for longer periods.

These changes have created some uncertainty about how the Deepwater
program is developing. In its fiscal year 2006 budget request, the
Administration is requesting $966 million for the Deepwater program- $242
million more than Congress appropriated for the program for fiscal year
2005. Part of this request ($239.5 million) is for maintenance and
upgrades to some deepwater legacy assets, a majority of which are
scheduled to be part of the Deepwater solution. The fiscal year 2005
Department of Homeland Security (DHS) Appropriations Act2 required the
Secretary of Homeland Security to submit a revised Deepwater
implementation plan in conjunction with its fiscal year 2006 budget
request. However, with respect to pending fiscal year 2006 appropriations,
the House Appropriations Committee considered the Coast Guard's
implementation plan submission to be incomplete and recommended reducing
the Coast Guard's fiscal year 2006 Deepwater budget request of $966
million by nearly 50 percent.3 In late May 2005, the Coast Guard submitted
further documentation to the committee in an effort to comply with the
act's requirements. In June 2005, the Senate Appropriations Committee
expressed concern about the lack of information concerning the Deepwater
plan in the fiscal year 2006 budget request but recommended funding of
$905.6 million for the program for fiscal year 2006.4 As of early July
2005, the Coast Guard's fiscal year 2006 appropriation was still pending.

This report, which focuses on the condition of deepwater legacy assets and
the Coast Guard's acquisition and management challenges, is aimed at
providing information about some of these issues. We presented our
preliminary observations on these matters in recent testimony.5 This
report adds further details on the condition of the assets, as well as
updated information on Coast Guard initiatives to better sustain these

2Pub. L. No. 108-334, 118 Stat. 1298, 1306 (2004).

3H.R. Rep. No. 109-79, at 63 (2005).

4S. Rep. No. 109-83, at 60 (2005).

5GAO, Coast Guard: Preliminary Observations on the Condition of Deepwater
Legacy Assets and Acquisition Management Challenges, GAO-05-307T
(Washington, D.C.: April 20, 2005); and GAO, Coast Guard: Preliminary
Observations on the Condition of Deepwater Legacy Assets and Acquisition
Management Challenges, GAO-05-651T (Washington, D.C.: June 21, 2005).

assets until they are replaced or upgraded. Specifically, our report
addresses three issues related to these considerations:

o  	How has the condition of the Coast Guard's deepwater legacy assets
changed during fiscal years 2000 through 2004?

o  	What actions has the Coast Guard taken to maintain, upgrade, and
better manage its deepwater legacy assets?

o  	What are the management challenges the Coast Guard faces in acquiring
new assets, especially if a more aggressive acquisition schedule is
adopted?

To address these objectives, we analyzed data and condition measures used
by the Coast Guard for determining deepwater legacy assets' condition,6
reviewed Coast Guard actions to maintain and upgrade legacy assets and
their systems,7 and met with operations and maintenance staff at U.S.
Coast Guard headquarters and other Coast Guard facilities selected to
provide coverage of each type of deepwater legacy aircraft and each class
of deepwater legacy cutter. In addition, we met with Deepwater program
staff, performance monitors, and contractor staff and reviewed
documentation to verify the improvements the Coast Guard is making in its
management of the Deepwater acquisition. We conducted our work between
July 2004 and June 2005 in accordance with generally accepted governmental
auditing standards. Appendix I describes our objectives, scope, and
methodology in greater detail.

6In assessing the condition of deepwater aircraft and cutters for this
report, 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. 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 report.

7For purposes of this report, we use the term "systems" to include all the
electrical, mechanical, heating, ventilation, and air conditioning, and
other systems on the deepwater assets.

Results in Brief

Coast Guard condition measures show that the condition of most 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
"failing at an unsustainable rate" as the Coast Guard has asserted, 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
significant problems in a variety of the assets' systems and equipment
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 engines are being replaced because of safety
and reliability concerns.

The Coast Guard has taken actions to keep its legacy assets operational.
These include developing a compendium of information to identify the
maintenance and upgrade projects needed to keep legacy assets operational
and performing increasingly more maintenance on the legacy assets than it
has 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 even with the additional maintenance, the
legacy aircraft and cutters are still losing mission capabilities because
of equipment and system failures. Responding to these continued concerns,
as well as to matters raised during this review and in our prior reports,
the Coast Guard has begun to explore additional strategies and approaches
to better determine and improve the mission capabilities of its legacy
assets. First, in an effort to implement our 2002 recommendation for
developing a longer-term strategy for linking mission performance to
measurable outputs and goals, the Coast Guard is developing a more
proactive approach for prioritizing maintenance and capability enhancement
projects needed on its legacy assets to increase mission capabilities.
Second, after we informed the Coast Guard of our concern that existing
measures of the condition of its assets were not adequate to demonstrate
the extent of the assets' decline, the Coast Guard began to develop
measures that more clearly demonstrate the extent to which assets'
conditions impact mission capabilities. Finally, the Coast

Guard's Pacific Area Command, which is heavily dependent on the
deteriorating 378-foot cutters for certain missions, is attempting to use
new strategies to help sustain the operation of these cutters through
2016, when they are currently scheduled to be replaced with newer cutters.
These ongoing efforts, while promising, are too new to allow us to assess
whether they will allow the Coast Guard to better determine and improve
the mission capabilities of its legacy assets.

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. However, if a more aggressive acquisition schedule is adopted,
the Coast Guard will 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. In 2004 we reported that well into
the contract's second year, key components needed to manage the program
and oversee the system integrator's performance had not been effectively
implemented. We made 12 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 Deepwater program still carries major risks.
While the Coast Guard has fully addressed 3 of the recommendations, the
remaining recommendations have not been 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. The
uncertainties associated with the proposed revisions to the Deepwater
program only heighten these risks.

We provided a draft copy of this report to the Department of Homeland
Security and the U.S. Coast Guard for review. The U.S. Coast Guard
provided technical comments, which have been incorporated where
appropriate.

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 Fleet, as of early June 2005

                 Deepwater asset Number Description Photograph

hours.a The in-service fleet average age for the Coast Guard's HU-25
aircraft is 22.4 years.

10,000 flight hours.a The in-service fleet average age for the Coast
Guard's HH-60 helicopters is 12.9 years.

HH-65                 95 This helicopter has a planned crew size of 3, a   
                            maximum speed of 165 knots, a                     
(short-range recovery    maximum range of 400 nautical miles, and a        
                            maximum endurance of 3.5 hours. It is             
helicopter)                      capable of flying 150 miles offshore. The 
                             original estimated service life of the HH-65 was 
                            20 years. a The in-service fleet average age for  
                            the Coast Guard's HH-65 helicopters is            
                            18.0 years.                                       

Guard's 270-foot cutters is 18.0 years.

    years. The average age of the Coast Guard's patrol boats is 16.4 years.

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

a Because 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 (IDS) 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 helicopters-so they
can meet new performance requirements.8

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.9 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-that in turn contract
with other subcontractors. Rather than using the traditional approach of
replacing classes of ships or aircraft through a series of individual
acquisitions, the Coast Guard chose to employ a "system of systems"
acquisition strategy that would replace its deteriorating deepwater assets
with a single, integrated package of new or modernized assets. This
system-of-systems approach 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. The Deepwater program's three overarching goals are to maximize
operational effectiveness, minimize total ownership cost,10 and satisfy
the customer-the operational

8Current 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 it will upgrade
the existing HC-130 aircraft and HH-60 and HH-65 helicopters to extend
their service lives.

9The 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.

10Total ownership cost is the sum of all costs associated with the
research, development, procurement, personnel, training, operation,
logistical support, and disposal of the entire Deepwater system.

commanders, aircraft pilots, cutter crews, maintenance personnel, and
others who will use the assets.

The revised Deepwater schedule calls for acquisition of new assets under
the Coast Guard's Deepwater program to occur over an approximately 20year
period at an estimated cost of $19 billion to $24 billion.11 By 2007, for
example, the Coast Guard is to receive the first 418-foot National
Security Cutter, which will have the capability to conduct military
missions related to homeland security. Current 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 legacy assets operational until they can be replaced or
upgraded.

We have been reviewing the Deepwater program for several years, pointing
out difficulties and expressing concern over a number of facets of the
program. In our 2001 report, we identified several areas of risk for
Deepwater.12 First, the Coast Guard faced potential risk in the overall
management and day-to-day administration of the contract. At the time, we
reported on the major challenges such as developing and implementing plans
for establishing effective human capital practices, having key management
and oversight processes and procedures in place, and tracking data to
measure system integrator performance. In addition, we expressed concerns
about the potential lack of competition during the program's later years
and the reliance on a single system integrator for procuring the Deepwater
assets. We also reported there was little evidence that the Coast Guard
had analyzed whether the approach carried any inherent risks for ensuring
the best value to the government and, if so, what to do about them.

We reviewed the program again in 2004 and found many of the same
concerns.13 Specifically, we reported that key components needed to manage
the program and oversee the system integrator's performance had

11The original Deepwater plan had an estimated cost of $17 billion.

12GAO, Coast Guard: Progress Being Made on Deepwater Project, but Risks
Remain, GAO-01-564 (Washington, D.C.: May 2, 2001).

13GAO, Coast Guard: Deepwater Program Acquisition Schedule Update Needed,
GAO-04-695 (Washington, D.C.: June 14, 2004); GAO, Coast Guard: Key
Management and Budget Challenges for Fiscal Year 2005 and Beyond,
GAO-04-636T (Washington, D.C.: April 7, 2004); and 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).

not been effectively implemented. The Coast Guard's primary tool for
overseeing the system integrator, the integrated product teams (IPTs) were
struggling to effectively collaborate and accomplish their missions
because of changing membership, understaffing, insufficient training, and
inadequate communication among members. Also, the Coast Guard had not
adequately addressed the frequent turnover of personnel in the program and
the transition from existing assets to those assets that will be part of
the Deepwater program moving forward. Further, the Coast Guard's
assessment of the system integrator's performance in the first year of the
contract lacked rigor, and the factors that formed the basis for the award
fee determination were supported only by subjective performance monitor
comments and not by quantifiable measures. This resulted in the system
integrator receiving a high performance rating and an award fee of $4.0
million out of a maximum of $4.6 million despite documented problems in
schedule, performance, cost controls, and contract administration.

At the time of our March 2004 report,14 the Coast Guard had begun to
develop models to measure the extent to which Deepwater was achieving
operational effectiveness and reduced total ownership cost, but it had not
made a decision as to which specific suite of models would be used.
Further, Coast Guard officials were not able to project a time frame for
when the Coast Guard would be able to hold the contractor accountable for
progress toward the goals of maximizing operational effectiveness,
minimizing total ownership cost, and customer satisfaction. Furthermore,
the Coast Guard had not measured the extent of competition among suppliers
of Deepwater assets or held the system integrator accountable for taking
steps to achieve competition. The Coast Guard's lack of progress on these
issues has contributed to our concerns about the Coast Guard's ability to
rely on competition as a means to control future programmatic costs.

Finally, we found that the Coast Guard had not updated the Deepwater
integrated acquisition schedule despite numerous changes, making it
difficult to determine the degree to which the program was on track with
its original plan. In response to these concerns, we made a number of
recommendations to improve Deepwater management and oversight of the
system integrator. The Coast Guard welcomed our observations and

14GAO-04-380.

Legacy Assets Show Declining Condition, but Measures Are Imprecise and
Fail to Capture Impact on Mission Capabilities

concurred with our recommendations and has begun to take actions to
address them.

Coast Guard condition measures show that the condition of most deepwater
legacy assets generally declined between 2000 and 2004, but the Coast
Guard's available measures are inadequate to capture the full extent of
the decline in the condition of deepwater assets with any degree of
precision and are insufficient for determining the impact on mission
capabilities. Further, other evidence we gathered, such as information
from discussions with maintenance and operations personnel, points to
conditions that may be more severe than the available measures indicate.
The Coast Guard acknowledges that it needs better condition measures, but
it has not yet finalized or implemented such measures. The Coast Guard
anticipates having the new measures finalized by the end of 2005.

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

During fiscal years 2000 through 2004, the Coast Guard's various condition
measures showed 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 of
time free of major casualties15-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
2004.16 (Appendix II provides further details on condition measures for
each of the deepwater legacy aircraft and cutters.)

15A casualty is a deficiency in mission essential equipment; a major
casualty causes the major degradation or loss of at least one primary
mission.

16However, major casualties for the 378-foot high-endurance cutters
continued to increase in 2004.

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 free of deficiencies in mission

endurance cutters	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 have operated free of

210-foot medium-endurance cutters 	deficiencies in mission-essential
equipment was well below the Coast Guard's target level during fiscal
years 2000 through 2004, but it showed slight improvement in fiscal year
2004.

110-foot and 123-foot patrol boatsa	The percentage of time the patrol boat
fleet has operated free of deficiencies in missionessential equipment was
below but near the Coast Guard's target level during fiscal years 2000 and
2001, but it declined in more recent years.

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

a Data 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.

Another, albeit less direct, measure of an asset's condition is deferred
maintenance-the amount of scheduled maintenance on an asset that must be
postponed 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 counterdrug 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 shortage of
maintenance funds, the maintenance was deferred and the flight deck was
not repaired. As a result, the cutter lost all shipboard helicopter
capability, significantly degrading mission readiness.

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 for one type of

asset, the HH-60 helicopter, and the increase came mainly from deferring
maintenance past the 48-month interval requirement-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 it dropped significantly in fiscal year 2004. The decrease in
fiscal year 2004 came mainly because the Coast Guard received supplemental
funding allowing it to address 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 be the result of 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 legacy 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 At the time we began our work, the Coast Guard's
measures generated Measures Not Sufficiently some limited information on
the condition of its legacy assets, but the Robust to Link Condition
measures were not sufficiently robust to link the assets' declining

condition to degradation in mission capabilities or performance. As awith
Impact on Mission result, the picture that emerges regarding the condition
of the deepwaterCapabilities 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
"failing at an unsustainable rate," as the Coast Guard has asserted, 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 into 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, the Coast Guard measures
we assessed focus on events, such as equipment casualties or flight
mishaps, but do not measure the extent to which these and other incidents
degrade mission capabilities. The following is an example in which Coast
Guard measures we assessed are not sufficiently robust to systematically
capture degradation in mission capabilities:

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 speed, 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, indicated
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
5-year period we examined, it is currently operating with engines that
have become increasingly subject to power failures, which may potentially
render the fleet unable to meet mission requirements. As a result, Coast
Guard pilots employ a number of work-arounds, such as dumping fuel or
occasionally 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 fleet's engines can be
replaced.

Actions to Better Manage Legacy Assets Are Under Way, but Effects Will Not
Be Known for Some Time

The Coast Guard has already undertaken two main types of actions to keep
its legacy assets operational: developing a compendium of information for
making decisions regarding maintenance and upgrades needed, and performing
increasingly more maintenance on these assets between deployments. These
efforts are likely helping to prevent a more rapid decline in the
condition of the assets, but the condition of these assets has nonetheless
generally continued to worsen. In response to both the continued decline
in the condition of its legacy assets, as well as to various observations
we have made to the Coast Guard about its need to develop more objective
information on mission capability needs and more precise condition
measures, the Coast Guard has begun to undertake additional efforts. These
additional efforts include developing a knowledge-based model to provide
more objective data on where to best spend budget dollars to achieve the
greatest enhancements in mission capabilities, improving the condition
measures it uses to more clearly quantify the impact declining conditions
have on mission capabilities, and, at the Pacific Area Command, applying
new business rules and strategies to better sustain the 378-foot
high-endurance cutters through 2016. These ongoing efforts, while
promising, are largely untested, and so it is too soon to tell whether
they will allow the Coast Guard to better determine and improve the
mission capabilities of its legacy assets.

Coast Guard Has Developed and Is Using a Compendium of Needs

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 legacy 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 allocated
through fiscal year 2005.

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 allocated through fiscal year 2005 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 allocated through fiscal year 2005.

      270-foot and    During fiscal year 2005    The MEP is projected to cost 
    210-foot medium-  these cutters are to       a total of $292              
endurance cutters  enter a legacy asset        million and be completed by 
                      sustainment project                   fiscal year 2015. 
                      known as the Mission       The medium-endurance cutters 
                      Effectiveness Project                   will ultimately 
                       (MEP) aimed at increasing be replaced by the Offshore  
                             their service lives Patrol Cutter. A             
                      until their replacement by  total of $12.5 million has  
                      a new cutter. The                 been allocated        
                      MEP includes upgrading      through fiscal year 2005.   
                      major engineering          
                      subsystems such as         
                      evaporators, sewage        
                             systems, and        
                            gyrocompasses.       

Total 	A total of $856 million is needed to fund these projects, of which
$215 million has been allocated through fiscal year 2005.

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

Note: While no funds have been allocated 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 address safety and reliability concerns. 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 fiscal year 2005, the Coast
Guard is beginning a maintenance effectiveness project on the 210-foot 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, $215 million has been allocated through fiscal year
2005, and the Coast Guard 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 crew members have
to spend increasingly more time between missions to prepare for the next
deployment. For example, due to the aging main landing gear on the HH-65
helicopter, Coast Guard official stated that maintenance crews spend
extensive time servicing, troubleshooting and fixing them in predeployment
maintenance. Comparable accounts were given 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, crew members 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, the 378-foot cutter
Chase 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. In addition, the 378-foot cutter Hamilton 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.

Coast Guard Is Developing a Strategy to Better Prioritize Upgrades and
Maximize Asset Capabilities

In the past, we have recommended that the Coast Guard develop a longterm
strategy to set and assess levels of mission performance.17 We found this
was an important step for the Coast Guard to take because it links legacy
asset investments to asset capabilities, mission priorities, and goals so
that the Coast Guard can better decide how limited budget dollars should
be spent. The Coast Guard has recently begun to apply the principles
behind such a strategy to (1) better prioritize the projects needed to
upgrade legacy assets that will be part of the Deepwater program and (2)
obtain the greatest overall mix of capabilities for its assets within its
budget in order to maximize mission performance. The tool it is developing
is called the Capital Asset Management Strategy (CAMS).

CAMS, once fully implemented, is expected to help the Coast Guard to
better manage its assets by linking funding decisions to asset condition.
Unlike the Coast Guard's current compendium, CAMS is designed to provide
analyses on the capability trade-offs for upgrades and maintenance
projects across asset classes, thereby allowing the Coast Guard to
determine which combination of projects will provide the most capability
for the dollars invested. For example, when Coast Guard officials are
trying to decide among potential project upgrades such as an HC-130
weather radar replacement, an HH-65 sliding cabin door replacement, or a
110-foot patrol boat fin stabilizer replacement, CAMS, once fully
implemented, could provide the officials with a recommended mix of project
upgrades that would achieve the greatest capability enhancements based on
the available budget.

CAMS analyses are to be based on legacy asset condition and readiness
data, asset retirement and replacement timelines, asset degradation
estimates, project production rates, cost data, and mission utility
rankings. Mission utility rankings will grade an asset's importance to
specific missions, such as search and rescue or counterdrug operations.
Rankings may also be assigned to an asset's critical subsystems or may be
altered based on an asset's geographic location. For example, a 378-foot
cutter may be critical to the success of fisheries patrols in the Pacific
but may not be as important for alien/migrant interdiction operations in
the Caribbean. However, according to Coast Guard headquarters officials,
the Coast

17GAO, Coast Guard: Comprehensive Blueprint Needed to Balance and Monitor
Resource Use and Measure Performance for All Missions, GAO-03-544T
(Washington, D.C.: March 12, 2003); and GAO, Coast Guard: Strategy Needed
for Setting and Monitoring Levels of Effort for All Missions, GAO-03-155
(Washington, D.C.: Nov. 12, 2002).

Guard remains cautious about employing such a strategy because an
investment strategy of this nature could lead to cutters that are no
longer multmission capable and are unable to respond to an emergency due
to reduced capabilities. In addition, the Coast Guard plans to rank its
missions within CAMS based on their relative importance.18 Each of these
elements is to form the basis for recommendations regarding which
combination of upgrade and maintenance projects will provide the greatest
enhancements to fleet capabilities.

According to Coast Guard staff, CAMS recommendations are not a replacement
for the existing budget development process, but rather are to augment and
make more consistent the information currently provided to decision
makers. Because the recommendations are to be based, in part, on user
assumptions, CAMS recommendations are to be reviewed by several internal
Coast Guard officials before any final funding requests are made. Further,
in order to prevent user "gaming"-making assumptions in such a way as to
ensure a positive recommendation or outcome for a particular project-the
Coast Guard is developing a series of job aids, manuals, and training
courses to ensure data integrity and consistency.

Coast Guard officials expect to have CAMS fully implemented by September
2005 and intend to use it while developing the Coast Guard's fiscal year
2008 budget submission. Although it is too soon to assess the
effectiveness of CAMS, we view this approach as a good faith effort toward
knowledge-based budgeting for legacy asset sustainment.

Coast Guard is Developing More Robust Condition Measures

At the time we began our work, in August 2004, the majority of the Coast
Guard's condition measures were not sufficiently robust to link an asset's
condition with its impact on 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. On the basis of our inquiries
and a series of discussions we held with cognizant Coast Guard officials,
the Coast Guard has begun developing improved measures to more accurately
capture data on the extent to which its deepwater legacy assets

18A mission's relative importance will be determined by Coast Guard
operational decision makers. These determinations will not be static, but
rather will be reviewed and revised to reflect changing priorities.

are degraded in their mission capabilities. However, because these
measures have not been finalized or fully implemented, we were unable to
assess their effectiveness. The Coast Guard anticipates having the new
measures finalized by the end of 2005.

Coast Guard naval engineers told us 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. As part
of this measure, the Coast Guard is developing mission criticality codes,
which would rank the degree of importance of each piece of a cutter's
equipment to each possible mission that the cutter could perform. These
codes would then be linked to electronic casualty reports for each cutter,
which would provide the cutter engineers and operators with information on
the impact that the equipment casualties would have on each possible
mission. This casualty report/mission criticality linkage will then be
factored into the calculation of the percent of time fully mission capable
measure for each cutter class and mission type. Coast Guard officials
could then review this measure to determine, for example, the degree of
capability that its 270-foot medium endurance cutter fleet has to conduct
search and rescue missions at any given time. We agree that measures like
this are needed-and as soon as possible.

According to Coast Guard officials, while the availability index will
remain the Coast Guard's primary measure for aircraft condition and
operational readiness, the Coast Guard is working to improve its dispatch
reliability index measure, which provides causal information on delayed,
aborted, or canceled missions.19 The Coast Guard can use the dispatch
reliability index-in conjunction with data captured by unit-level and
depot-level maintenance staff and entered into the Coast Guard's
Electronic Aircraft Logbook and Aviation Logistics Management Information
System, respectively-to determine which components and systems are failing
most frequently and thus causing degradation in aircraft availability and
mission performance. According to Coast Guard officials, data provided
from these systems rival the information that will be produced by the
cutter community's proposed percent of time fully mission capable measure.
Because the dispatch reliability index measure and the electronic aircraft
logbook are relatively new and have only recently been

19Because this measure was not in use during the full period covered by
our review (fiscal years 2000 through 2004), we did not include it as one
of the measures we used for assessing the condition of deepwater legacy
aircraft; see appendix II.

fully implemented Coast Guard-wide, we have not assessed their
effectiveness. However, we view these tools as a positive step toward
providing Coast Guard decision makers with more detailed information on
the primary factors leading to mission degradation.

New Initiative for Maintaining 378-Foot Cutters Is Under Way

One effort is under way at the Coast Guard's Pacific Area Command to
improve maintenance practices for its 378-foot cutters, which are among
the oldest cutters in its fleet.20 Pacific Area officials have recognized
that a different approach to maintaining and sustaining legacy cutters may
be needed since they are dependent on 378-foot cutters for meeting
missions, such as defense operations and fisheries patrols. As a first
step, Pacific Area officials 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, when they are scheduled
to be fully replaced by National Security Cutters. 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 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 as they near the end of their useful lives. Pacific Area
officials believe that in combination, these rules 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. However, according to Coast Guard
headquarters officials, if such strategies are employed, careful planning
must occur to avoid placing a cutter in an operational emergency where it
is incapable of adequately responding.

One example of the bridging strategies Pacific Area officials are
exploring is the development of what Pacific Area officials refer to as a
"class within a class" approach. Under this strategy, the individual
cutters within the 378-foot high-endurance cutter fleet would be
designated to perform specific mission types based on an assessment of
their condition and

20The Pacific Area Command is responsible for operations covering 74
million square miles, ranging from South America to the Arctic Circle and
west to the Far East.

mission capabilities.21 Cutters possessing full mission capabilities could
be assigned to the more demanding defensive operations, while cutters in
poorer condition and less than fully capable would be assigned to less
demanding missions, such as fisheries enforcement. According to Pacific
Area officials, this strategy is designed to more effectively spend the
maintenance funds available for the 378-foot cutters, since current
funding levels for the 378-foot cutters make it very difficult for Pacific
Area to maintain all 10 of its 378-foot cutters as fully mission capable.

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 according to Pacific Area officials, the approach
will likely require that the Coast Guard allocate additional maintenance
funds. Further, because the approach has not been fully implemented, it is
too soon to tell whether the approach will provide the results intended.
Coast Guard headquarters officials stated that before such a strategy can
be implemented further analysis is required, to include: (1) determining
the estimated savings associated with creating multiple 378-foot cutter
classes; (2) analyzing other cost saving concepts, such as decommissioning
cutters or rotating crews; (3) obtaining further information on the effect
on Coast Guard mission readiness; and (4) assessing the operational risk
associated with operating cutters that are no longer multimission capable.
Officials from Coast Guard headquarters officials further stated that they
are exploring the possibility of increasing the funds available for
operating expenses for the 378-foot high-endurance cutters in fiscal year
2007.

Management Challenges Faced in Acquiring New Assets Remain Significant

In its fiscal year 2006 budget request, the Administration requested $966
million for the Deepwater program--$242 million more than Congress
appropriated for the program in fiscal year 2005. This request reflects
significant revisions to the Deepwater program's requirements,
capabilities, and schedule necessitated by the Coast Guard's new homeland
security mission. Recently, the House Appropriations Committee recommended
$500 million for the Deepwater program, $466 million less than the
Administration requested.22 The committee

21Pacific Area officials have developed a "report card" to assist in
assigning cutters to specific missions by collecting a variety of data and
condition assessments from its cutter crews from which it prepares a
color-coded assessment of (1) the condition of each cutter's critical
systems (e.g., propulsion, electrical) to meet its current mission, and
(2) the ability of each cutter to meet each possible future mission.

22H.R. Rep. No. 109-79, at 63 (2005).

expressed concern about the path the program has taken and the lack of
information provided to Congress as the primary reasons for this
recommendation. Specifically, the committee did not believe that the Coast
Guard's revised implementation plan provided enough programmatic
information such as asset delivery timelines and funding projections for
each year through the program's completion.

In late May 2005, the Coast Guard submitted documentation to the committee
in response to the committee's request. In June 2005, the Senate
Appropriations Committee expressed concern about the lack of information
concerning the Deepwater plan in the fiscal year 2006 budget request but
recommended funding of $905.6 million for the program for fiscal year
2006.23 As of early July 2005, the fiscal year 2006 appropriation for the
Deepwater program was still pending, and so the funding level is still not
known. 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. In 2004 we
reported that, well into the contract's second year, key components needed
to manage the program and oversee the system integrator's performance had
not been effectively implemented.24 We also reported that the degree to
which the program was on track could not be determined because the Coast
Guard was not updating its schedule.25 We detailed improvements needed 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 expediting the acquisitions would
only complicate the problem.

23S. Rep. No. 109-83, at 60 (2005).
24GAO-04-380.
25GAO-04-695.

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

Area 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 are not
effectively implemented better training, approving charters, and improving
systems for sharing information 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

Control of future costs through competition Develop a comprehensive plan
for holding the system integrator accountable for remains at risk because
of weak oversight ensuring adequate competition among suppliers

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: GAO.

The Coast Guard agreed with nearly all of our recommendations and has made
progress in implementing them. Specifically, the Coast Guard has fully
addressed three of the recommendations and has actions under way on
others. However, in light of continuing management challenges, it will
likely take some time for the Coast Guard to fully address the remaining
recommendations. While actions are under way, management challenges remain
that are likely to take some time for the Coast Guard to fully address.

Improvement of Program We have seen mixed success in the Coast Guard's
efforts to improve Management and management of the program and contractor
oversight. Three of the four Contractor Oversight Is areas of
concern-improving integrated project teams (IPT), ensuring Mixed adequate
staff for the program, and planning for human capital

Strengthening Integrated Product Teams

Ensuring Adequate Staffing for the Deepwater Program

requirements for field units receiving new assets-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-such as greater coordination-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 if decisions affecting the entire program are made without the
full consultation of all parties involved. Deepwater program officials
told us that more attention is being paid to taking a system-wide approach
and that the Coast Guard has emphasized the need to ensure that the two
major subcontractors integrate their management systems. We will continue
to monitor the Coast Guard's progress in implementing this recommendation
during our pending review of the revised Deepwater plan.

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

and to develop a plan to bridge these gaps. The Coast Guard has also taken
some short-term steps to improve Deepwater program staffing, hiring
contractors to assist with program support functions, shifting some
positions from military to civilian to mitigate turnover risk, and
identifying hard-to-fill positions and developing recruitment plans
specifically for them. Finally, the Deepwater program and the Coast
Guard's acquisition branch have begun using an automated system for
forecasting military rotation cycles, a step Deepwater officials believe
will help with longrange strategic workforce planning and analysis.

Despite these actions, however, vacancies remain in the program, and some
measures that may have highlighted the need for more stability in the
program's staff have been removed from the new human capital plan. As of
January 2005, 244 positions were assigned to the program, with 206 of
these filled, resulting in a 16 percent vacancy rate. A year ago, 209
staff were assigned to the program. Further, the new human capital plan
removes a performance goal that measured the percentage of billets filled
at any given time. Coast Guard officials stated that the prior plan's goal
of a 95 percent or higher fill rate was unduly optimistic and was a poor
measure of the Coast Guard's ability to meet its hiring goals. For
example, billets for military personnel who plan to rotate into the
program in the summer are created at the beginning of the budget year,
leading the measure to count those positions as vacant from the beginning
of the budget year until summer. Other performance measures that were
included in the prior plan to measure progress in human capital issues
have also been removed. For example, to help ensure that incoming
personnel received acquisition training and on-the-job training, a billet
was included in the prior plan to serve as a floating training position
that replacement personnel could use for a year before the departure of
military incumbents. The Coast Guard did not fund this position, and the
new plan removes the billet. According to the Coast Guard, these measures
were removed because the revised Deepwater plan focuses on the long-range
strategic human capital issues associated with the execution of the
acquisition over the entire period, whereas the prior plan had a
short-term operational focus. We will continue to monitor the Coast
Guard's progress in implementing this recommendation during our pending
review of the revised Deepwater plan.

The Coast Guard recognizes the critical need to inform the operators who
are to use the Deepwater assets of progress in the program, and officials
stated that on the basis of our recommendations, they have made a number
of improvements in this area. A November 2004 analysis of the Deepwater
program's communication process, conducted in coordination

Updating the Acquisition Schedule

with the National Graduate School, found that the communication and
feedback processes were inadequate. Emphasis has now been placed on
outreach to field personnel, with a multipronged approach involving
customer surveys, face-to-face meetings, and presentations. We have not
yet evaluated the effectiveness of the new approach.

Human capital requirements for the Deepwater program-such as crew numbers
and schedules, training, and support personnel-will have an increasing
impact on the program's ability to meet its goals as the pace at which
assets are delivered to field units picks up. Recent assessments by Coast
Guard performance monitors show this to be an area of concern.26 Coast
Guard officials have expressed concern about whether the system integrator
is appropriately considering human capital in systems engineering
decisions. The system integrator is required to develop a workforce
management plan for Deepwater, as well as "human factors engineering"
plans for each Deepwater asset and for the overall system of systems. The
Coast Guard rejected the contractor's workforce management plan and
several of the proposed human factors engineering plans as being
inadequate. The rejections were due, in part, to the lack of an
established and integrated system-level engineering approach that shows
how issues relating to human capabilities and limitations of actually
performing with the system will be approached. One performance monitor
noted that as of late 2004, requirements for staffing and training of
maintenance facilities and organizations had yet to be determined.
According to the Coast Guard, emphasis on a system integrator for
addressing human capital considerations is necessary to ensure that
Deepwater goals are met, especially as they pertain to operational
effectiveness and total ownership cost. We will continue to monitor the
Coast Guard's progress in implementing this recommendation during our
pending review of the revised Deepwater plan.

The Coast Guard has recently undertaken efforts to update the original
2002 Deepwater acquisition schedule-an action that we suggested in our
June 2004 report.27 The original schedule had milestone dates showing when
work on an asset would begin and when delivery would be expected, as well
as the integrated schedules of critical linkages between assets, but we
found that the Coast Guard was not maintaining an updated and

26Performance monitors are contracting officers' technical
representatives, who represent the contracting officer in monitoring the
contractor's performance.

27GAO-04-695.

integrated version of the schedule.28 As a result, the Coast Guard could
not demonstrate whether individual components and assets were being
integrated and delivered on schedule and in critical sequence. As recently
as October 2004, Deepwater performance monitors likewise expressed concern
that the Coast Guard lacked adequate visibility into the program's status
and that lack of visibility into the schedules for component-level items
prevented reliable forecasting and risk analysis. The Coast Guard has
since taken steps to update the outdated schedule and has indicated that
it plans to continue to update the schedule each month for internal
management purposes, and semiannually to support its budget planning
efforts. We think this is an important step toward improving the Coast
Guard's management of the program because it provides a more tangible
picture of progress, as well as a baseline for holding contractors
accountable. We will continue our oversight of the Coast Guard to ensure
progress is made and to monitor how risks are mitigated.

Procedures for Ensuring System Integrator Accountability Are More
Rigorous, but Concerns Remain

Improving Criteria for Assessing Performance

We have seen progress in terms of the rigor with which the Coast Guard is
periodically assessing the system integrator's performance, but concerns
remain about the broader issues of accountability for achieving the
overarching goals of minimizing total ownership cost and maximizing
operational effectiveness.

Improvements continue to be made to the criteria for assessing the system
integrator's performance. In March 2004, we reported that the process for
assessing performance against specific contract tasks lacked rigor. The
criteria for doing so have since been revised to more clearly reflect
those that are objective, (that is, measured through automated tools
against established measures) and those that are subjective, meaning the
narrative comments by Coast Guard performance monitors. Weights have been
assigned to each set of evaluation factors, and the Coast Guard continues
to refine the distribution of the weights to reach an appropriate balance
between automated results and the eyewitness observations of the
performance monitors. Coast Guard officials told us that they have also
provided additional guidance and training to performance monitors. We
found that efforts have been made to improve the consistency of the

28Not maintaining a current and integrated schedule lessens the Coast
Guard's ability to monitor the system integrator's performance and take
early action to resolve risks that could become problems later.
Maintaining such a schedule is an industry best practice; the Department
of Defense is required to do so in order to be able to report any breaches
in cost, schedule, or performance targets.

Holding the System Integrator Accountable for Effectiveness of Product
Teams

Evaluation of Operational Effectiveness and Total Ownership Cost

format used for their input in assessments of the system integrator's
performance. Coast Guard officials said that they are continuing to make
improvements to ensure that performance monitors' relevant observations
are appropriately considered in making award fee determinations.

It is important to note that although performance monitor comments are
considered subjective, they are valuable inputs to assessing the system
integrator's performance, particularly when they are tied to measurable
outcomes. According to Coast Guard officials, the Coast Guard will
continue to refine the award fee factors as the program progresses. In
some cases, we noted that the performance monitors' assessments differed
vastly from the results of automated, data-driven assessments. For
example, while schedule management is discussed in the Coast Guard's
midterm assessment of the system integrator's performance as a major area
of challenge and risk, the objective measure showed 100 percent compliance
in this area. Another measure assesses the extent to which integrated
product teams consider the impact of their decisions on the overall cost
and effectiveness of the Deepwater program. Performance monitors reported
that because system-level guidance had not been provided to the teams
responsible for specific assets, they had a limited ability to see the
whole picture and understand the impact of decisions on total ownership
cost and operational effectiveness. However, the automated measure was
again 100 percent compliance. Coast Guard officials said that, in some
cases, the data-driven measures do not accurately reflect the contractor's
performance. We will continue to monitor changes to the Coast Guard's
measures for assessing the system integrator's performance.

Changes have been made to the award fee measures that place additional
emphasis on the system integrator's responsibility for making integrated
product teams effective. Award fee criteria now incorporate specific
aspects of how the integrator is managing the program, including
administration, management commitment, collaboration, training, and
empowerment of these teams. However, as discussed above, concerns remain
about whether the teams are effectively accomplishing their goals.

While the Coast Guard has developed models to measure the system
integrator's performance in operational effectiveness and total ownership
cost, concrete results have not yet emerged. Minimizing total ownership
cost and maximizing operational effectiveness are two of the overarching
goals of the Deepwater program. The system integrator's performance in
these two areas will be a critical piece of information when the Coast
Guard makes a decision about whether to award the contractor the first

Establishing Criteria and Documenting Changes to the Baseline

contract option period of 5 years. Initial decision making is to start in
June 2006.

With regard to the operational effectiveness of the program, measuring the
system integrator's impact has yielded limited results to date because few
of the new assets are operational. The Coast Guard has developed modeling
capabilities to simulate the effect of the new capabilities on its ability
to meet its missions. However, until additional assets become operational,
progress toward this goal will be difficult to determine.

With regard to total ownership cost, the Coast Guard does not plan to
implement our recommendation, despite concurring with it at the time of
our March 2004 report. The Coast Guard has not adhered to its original
plan, set forth in the Deepwater program management plan, of establishing
as its baseline a cost not to exceed the dollar value of replacing the
assets under a traditional approach (e.g., on an asset-by-asset basis
rather than a system-of-systems approach). In addition to providing for
greater synergies between air, sea, sensor and communications assets and
equipment, the system-of-systems approach was to yield cost savings when
compared with a traditional acquisition approach. Although the Coast Guard
initially established a cost baseline consistent with the program
management plan's approach, the Coast Guard has not updated it to reflect
changes made to the system integrator's cost estimate baseline, and
therefore is not being used to evaluate the contractor's progress in
holding down total ownership cost. As a result, the cost baseline being
used to measure total ownership cost is not the Coast Guard's, but rather
is the system integrator's own cost estimate. As we reported in March
2004, we believe that measuring the system integrator's cost growth
compared with its own cost proposal will tell the government nothing about
whether it is gaining efficiencies by turning to the system-of-systems
concept rather than the traditional asset-by-asset approach. Although the
Deepwater program has undergone a number of alterations since the contract
was awarded in 2002, the Coast Guard has not studied whether the
system-of-systems approach is still more cost effective as opposed to a
traditional acquisition approach. Thus, the Coast Guard will lack this
information as it prepares to decide whether to award the first contract
option beginning in June 2006.

Coast Guard officials stated that the contract total ownership cost and
operational effectiveness baseline is adjusted based on approved decision
memorandums from the Agency Acquisition Executive, the Vice Commandant of
the Coast Guard. Such memorandums were originally approved by the program
executive officer on a case-by-case basis. As we

reported in March 2004,29 establishing a solid baseline against which to
measure progress in lowering total ownership cost is critical to holding
the contractor accountable.

Coast Guard Reports Taking Steps to Hold the System Integrator Accountable
for Competition

The Coast Guard reported that it is taking steps to address our
recommendations concerning cost control through competition among
second-tier suppliers and notification of "make" decisions.30 While we
have not assessed the effectiveness of the Coast Guard's actions regarding
competition among second-tier suppliers, we are satisfied with its efforts
regarding notification of make decisions. It should be noted, though, that
we have not assessed the effectiveness of the following actions.

o  	Competition among second-tier suppliers. Coast Guard officials told us
that in making the decision about whether to award the first contract
option, the government will specifically examine the system integrator's
ability to control costs by assessing the degree to which competition is
fostered at the major subcontractor level. The evaluation will consider
the subcontractors' project management structure and processes to control
costs, as well as how market surveys of similar assets and major
subsystems are implemented. The Coast Guard is focusing its attention on
those areas that were priced after the initial competition for the
Deepwater contract was completed, such as the HH-65 re-engining and the
C-130J missionization.31 For example, a new process implemented for the
C-130J missionization was a requirement for competition in subcontracting
and government approval of all subcontracts exceeding $2 million in order
for the Coast Guard to monitor the integrator's competition efforts.

o  	Notification of make decisions. According to the Federal Acquisition
Regulation, the prime contractor is responsible for managing contract
performance, including planning, placing, and administering subcontracts
as necessary to ensure the lowest overall cost and technical risk to the
government.32 The Federal Acquisition Regulation further provides that

29GAO-04-380.

30A "make item" means an item or work effort to be produced or performed
by the prime contractor or its affiliates, subsidiaries, or divisions.

31The C-130J missionization, planned for the Coast Guard's six C-130J
aircraft, is intended to modify and install mission-essential equipment to
convert the aircraft into C-130J longrange surveillance maritime patrol
aircraft.

32Federal Acquisition Regulation S:15.407-2, "Make or Buy Programs."

Concluding Observations

when "make-or-buy programs" are required, the government may reserve the
right to review and agree on the contractor's make-or-buy program when
necessary to ensure negotiation of reasonable contract prices, among other
things. We recommended that the Coast Guard be notified of make-or-buy
decisions over $5 million in order to facilitate controlling costs through
competition. We suggested the $5 million threshold because Lockheed
Martin, one of the major subcontractors, considers that amount to be the
threshold for considering its suppliers major. The Coast Guard has asked
the system integrator, on a voluntary basis, to provide notification 1
week in advance of a make decision of $10 million or more based on the
criteria in the make-or-buy program provisions of the Federal Acquisition
Regulation. According to Coast Guard officials, to date, no make decision
has exceeded $10 million since the request was made. The details
implementing this recommendation have not yet been worked out, such as
specifically who in the Coast Guard will monitor the subcontractors' make
decisions to ensure that the voluntary agreement is complied with. We will
continue to monitor the Coast Guard's progress in implementing this
recommendation during our pending review of the revised Deepwater plan.

Our work suggests the costly and important Deepwater program will need
constant monitoring and management attention to successfully accomplish
its goals. In this respect, we identified three points that should be kept
in mind in considering how to proceed with the program.

o  	First, the need to replace or upgrade deteriorating legacy assets is
considerable. While the Coast Guard currently lacks measures that clearly
demonstrate how this deterioration affects its ability to perform
deepwater-related missions, it is clear that the deepwater legacy assets
are insufficient for the task. As the Coast Guard continues to develop
condition measures that are more robust and able to link the assets'
condition with mission capabilities, and as it further develops and
implements its Capital Asset Management System, it will be in a better
position to make more informed decisions regarding where its budget should
be spent to maximize the capabilities of its legacy assets as the Coast
Guard transitions to the Integrated Deepwater System.

o  	Second, there are signs that as the Deepwater program moves ahead, the
Coast Guard will continue to report more problems with sustaining existing
assets, together with the attendant need for additional infusions of
funding to deal with them. Some of these problems, such as those on the
378-foot cutters, are included in the compendium the Coast Guard uses to
set sustainment priorities and plan budgets, but the Coast Guard has not
allocated funds because the problems pertain to assets that are among the

first to be replaced. However, projects to address these problems are
nevertheless likely to be needed. While the Coast Guard is moving to
improve the information it uses to set budget priorities through
development of CAMS, the system has not been implemented, and therefore,
it is too soon to tell how effective the system will be. We will continue
to work with the Coast Guard to monitor its progress on CAMS as a means
for ensuring that there is a more systematic and comprehensive approach to
keeping Congress abreast of the potential bill for sustaining these
assets.

o  	Third, although the need to replace and upgrade assets is strong,
there still are major risks in the Coast Guard's acquisition approach. The
cost increases and schedule slippages that have already occurred are
warning signs. While the Coast Guard has initiated actions to address
problems we have raised involving system integration, cost and schedule
management, and integrated product teams, we remain concerned that the
program still carries major risks. We will continue to work with the Coast
Guard to determine how best to manage these risks so that the Deepwater
missions can be accomplished in the most cost-effective way.

We requested comments on a draft of this report from the Department of
Homeland Security and the U.S. Coast Guard. The U.S. Coast Guard

                                Agency Comments

provided technical comments, which have been incorporated into the report
where appropriate.

We are providing copies of this report to the Secretary of the Department
of Homeland Security, the Commandant of the U.S. Coast Guard, and
interested congressional committees. The report will also be made
available to others upon request. In addition, the report will be
available at no charge on GAO's Web site at http//www.gao.gov.

For information about this report, please contact me at (415) 904-2200, or
[email protected]. Contact points for our Offices of Congressional

Relations and Public Affairs may be found on the last page of this report.
Individuals making key contributions to this report are listed in appendix

III.

Margaret T. Wrightson
Director, Homeland Security and Justice Issues

Appendix I: Objectives, Scope, and Methodology

This report examines the condition of the U. S. Coast Guard's Deepwater
legacy assets and the acquisition management challenges the Coast Guard
faces. Our work focused on three key questions: (1) How has the condition
of the Coast Guard's deepwater legacy assets changed during fiscal years
2000 through 2004? (2) What actions has the Coast Guard taken to maintain,
upgrade, and better manage its deepwater legacy assets? (3) What are the
management challenges the Coast Guard faces in acquiring new assets,
especially if a more aggressive schedule is adopted?

In assessing how the condition of the deepwater legacy assets has changed
during fiscal years 2000 through 2004, we analyzed what Coast Guard
officials told us were the best available condition measures. For
deepwater aircraft, we obtained concurrence from Coast Guard Office of
Aeronautical Engineering officials that the appropriate measures to use
for aircraft condition included 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 obtained concurrence from the Office of Naval Engineering
and the Office of Cutter Forces that the appropriate measures to use for
cutter condition were the number of major (category 3 and 4) 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, but we did not use
these measures 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. We supplemented our
analyses of these measures with documentation from relevant reports and
studies, as well as from interviews of asset program managers and crews
for each type of deepwater legacy aircraft and cutter. For aircraft, we
collected data from the Aircraft Repair and Supply Center in Elizabeth
City, North Carolina; and visited selected air stations in Kodiak, Alaska;
Miami, Florida; and Elizabeth City, North Carolina; to provide coverage of
each of the four types of Deepwater aircraft-HC-130 and HU-25 fixed wing
aircraft, and the HH-60 and HH-65 rotary aircraft. For cutters, we
collected data at the Maintenance and Logistics Commands in Alameda,
California; and Norfolk, Virginia; and visited selected Coast Guard
facilities in Kodiak, Alaska; Portsmouth, Virginia; and Miami, Florida; to
provide coverage of each of the three types of Deepwater
vessels-high-endurance cutters, medium-endurance cutters, and patrol
boats. We also reviewed Coast Guard policies and standards, including the
Coast Guard Cutter Employment Standards,

Appendix I: Objectives, Scope, and Methodology

Coast Guard Aircraft Employment Standards for Days Employed Aboard Ship
and Days Away from Home Station, and the Coast Guard Environmental Health
and Safety Manual. In addition, 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. On the basis of our assessments, we determined that the
data were sufficiently reliable for the purposes of this report.

To determine the actions that the Coast Guard has undertaken to maintain,
upgrade, and better manage its deepwater legacy assets, we reviewed
documentation such as the Systems Integrated Near Term Support Strategy
(SINTSS), which is a compendium of information on proposed asset
sustainment projects, and spoke with various Coast Guard program officials
from the Offices of Naval and Aeronautical Engineering, as well as the
Atlantic Area Maintenance and Logistics Command, regarding the need to
perform increasing maintenance on assets between deployments. To determine
additional efforts that Coast Guard plans to undertake to better manage
these assets, we met with Coast Guard officials from the Office of Naval
Engineering to discuss the development of measures that the Coast Guard
hopes will more accurately measure the impact that the declining condition
of its legacy assets has on mission capabilities and reviewed
documentation relevant to these measures. We also reviewed plans and
guidance for the newly developed Capital Asset Management Strategy (CAMS),
which the Coast Guard intends to use in establishing priorities for
determining which Deepwater asset maintenance and sustainment projects to
fund. In addition, we also met with officials at the Pacific Area Command
and Maintenance and Logistics Command to discuss their fleet sustainment
initiative for keeping the high-endurance cutters operational until their
replacement by the National Security Cutter.

To determine what management challenges the Coast Guard faces in acquiring
new assets, we followed up on actions the Coast Guard has taken to
implement the 11 recommendations in our report Contract Management: Coast
Guard's Deepwater Program Needs Increased Attention to Management and
Contractor Oversight (GAO-04-380), of March 9, 2004; and the 1
recommendation from our report Coast Guard: Deepwater Program Acquisition
Schedule Update Needed, (GAO-04-695), of June 14, 2004. We received
briefings and held several meetings with the Deepwater Program Executive
Officer, the Deputy Program Executive Officer, and a number of Deepwater
staff, including contracting officers. We also held a discussion with
representatives of the system integrator to get their views on progress
made in implementing the recommendations.

Appendix I: Objectives, Scope, and Methodology

We analyzed documentation supporting the Coast Guard's midterm assessment
of the contractor's system integration and management performance in the
third year of the contract, including written comments by the performance
monitors. We also held discussions with Deepwater program performance
monitors. We recently began an assessment of the third year of
performance. However, we were not able to thoroughly review the
documentation in time to include our observations in this report. We
reviewed information on Deepwater integrated product teams, including
membership lists and briefings provided by the Coast Guard on measures of
effectiveness for the teams. We analyzed the Coast Guard's plans to
increase communications to field operators, including its August 2004
Integrated Deepwater Systems Internal Communications Plan, and received a
briefing on how the plan is being implemented. We compared the September
2003 Deepwater Human Capital Plan with the February 2005 revised plan to
identify changes that had been made and discussed Deepwater program office
staffing numbers and plans with Coast Guard officials. Finally, we
discussed with Coast Guard officials steps the Coast Guard has taken to
hold the system integrator accountable for "make" versus "buy" decisions
by the two major subcontractors and reviewed a January 2005 letter on this
subject from the Director of Subcontracts for Integrated Coast Guard
Systems to the subcontractors.

We performed our review from July 2004 to June 2005 in accordance with
generally accepted government auditing standards at various Coast Guard
offices and facilities.

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

                               HC-130 Long-Range
                             Surveillance Aircraft

HC-130 Fleet Overview 	The HC-130 is a long-range, fixed-wing,
multimission aircraft used for search and rescue, drug interdiction, alien
and migrant interdiction, living marine resources, and defense readiness
and logistics missions. Manufactured by Lockheed Martin Aero, the HC-130
aircraft entered Coast Guard service beginning in 1972. There are
currently 27 HC-130 aircraft within the Coast Guard. The estimated service
life is approximately 30 years or 40,000 flight hours.

Performance Trends 	The HC-130 fleet's performance data show that while
there was a decline in fiscal year 2004, fleet availability has steadily
improved since 2000 and remains near the Coast Guard's 71 percent
availability standard. Similarly, the number of labor hours per flight
hour remained fairly stable from fiscal year 2000 to 2003 but increased
slightly in fiscal year 2004. Programmed flight hours have also remained
reasonably stable, with some year-to-year fluctuations after a decline in
fiscal year 2001. These performance measures are summarized in table 6.

Table 6: HC-130 Fleet Performance Data for Fiscal Years 2000-2004

                          Availability      Programmed            Labor hours 
             Fiscal year     indexa       flight hoursb     per flight hour c 
                    2000      63.5%                20,805 
                    2001      65.9%                19,027 
                    2002      71.0%                18,824 
                    2003      73.3%                19,006 
                    2004      68.6%                18,800 

Source: U.S. Coast Guard.

a The availability index indicates the percentage of time that aircraft
assigned to Coast Guard air stations are available to perform Coast Guard
missions. The historical availability standard is 71 percent, driven in
part by the Coast Guard's goal of each air station with at least three
aircraft having at least one aircraft ready to launch within 30 minutes of
a distress signal.

b Programmed flight hours are the number of hours per year assigned to a
particular type of aircraft based on budget considerations for operation
and maintenance costs.

c Labor hours per flight hour represent the average of the number of
maintenance labor hours expended by field units versus the number of
flight hours produced by those units, for each asset class.

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

Maintenance Trends 	The HC-130 fleet's maintenance costs have generally
increased during fiscal years 2000 through 2004. Overall, the fleet's cost
per flight hour and scheduled maintenance expenditures have risen, driven
by an increase in the scope of depot-level maintenance to improve the
fleet's material condition. Also, depot-level maintenance schedule delays
have led to a backlog, thereby increasing the amount of fleet deferred
maintenance, as shown in table 7.

Table 7: HC-130 Fleet Maintenance Data forFiscal Years 2000-2004, in
Fiscal Year 2004 Dollars

                Cost per          Estimated     Estimated           Estimated 
                                  scheduled    unscheduled           deferred 
     Fiscal       flight maintenance           maintenance        maintenance 
      year         houra expenditures        expenditures b             costs 
      2000        $1,347         $8,415,000        $9,051,000      $4,549,000 
      2001        $1,637         $9,769,000        $7,226,000     $14,295,000 
      2002        $2,202         $9,309,000        $6,354,000      $4,976,000 
      2003        $2,077        $12,891,000        $7,593,000      $7,223,000 
      2004        $2,357        $18,641,000       $10,142,000      $5,737,000 

Source: GAO analysis of U.S. Coast Guard data.

Note: Cost per flight hour, estimated maintenance expenditures and
deferred maintenance cost data in this and other aircraft fleet
maintenance data tables were adjusted for inflation using U.S. Department
of Labor producer price indices for aircraft maintenance and repair, and
are presented in fiscal year 2004 dollars.

a The cost per flight hour measure represents the variable costs of spare
parts and depot-level maintenance associated with operating each aircraft
type. This figure is derived by dividing historical aircraft part demand
data by the number of hours flown during the same period. The current year
data are combined with that of the 2 previous fiscal years, adjusted for
inflation, to calculate a weighted average. The model does not address
deferred maintenance or inventory holes but reports how much it costs to
operate each fleet for a given number of hours in a given fiscal year.

b The Coast Guard does not normally track aviation unscheduled maintenance
expenditures in relation to scheduled maintenance expenditures. However,
at GAO's request, Coast Guard officials estimated the unscheduled
maintenance expenditures for each type of deepwater aircraft based on the
classification of air station requests for certain spare parts.

Sustainment Issues

Obsolescence of the HC-130's Surface Search Radar System

According to Coast Guard officials, there is an urgent need to replace the
HC-130's APS-137 surface search radar system. The radar system-part of the
aircraft's original configuration-is subject to frequent failures and is
quickly becoming unsupportable, according to the Coast Guard officials.
Replacement parts are very difficult to locate. While HC-130 flight crews
will work around any failures, without the system, the flight crews are
reduced to looking out windows for targets, thereby greatly reducing
mission capabilities for performing search and rescue, alien-migrant
interdiction, and drug interdiction missions. In the conference report

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

Avionics Modernization and Wing-Rewiring Projects

accompanying the Coast Guard's fiscal year 2005 appropriation, the
conferees directed $9 million for the radar system.1 Total system
replacement costs are estimated to be $78 million and are to be completed
in fiscal year 2008.

The Coast Guard has identified several additional HC-130 sustainment
projects in its latest Systems Integrated Near Term Support Strategy.
Included in these projects are an avionics modernization and a related
wing-rewiring project. According to the Coast Guard, the HC-130's avionics
suite utilizes 1960s technology that is costly to maintain and will soon
be unsupportable because of a lack of spare and repair parts. This cockpit
modernization project is aimed at enabling the HC-130 aircraft to better
support maritime safety and security and national defense and logistics
missions. The Coast Guard estimates this project will cost $305 million
and take 4 years to complete. The wing-rewiring project is designed to
provide more power to an upgraded avionics suite and to ward off potential
safety issues due to deteriorating wiring, such as electrical shorts and
probability of fire. Coast Guard officials estimate the project will cost
nearly $11 million and will take 5 years to complete.

HC-130 Center Wing Box Structural Issues

Five of the 27 operational HC-130s have recently been placed under
operational restrictions at the request of the aircraft's manufacturer,
Lockheed Martin Aero, because of a problem associated with the aircraft's
center wing box. The restrictions include limitations on weight,
airspeeds, maneuvering, and mission endurance. As of early June 2005, the
Coast Guard was awaiting the release of inspection criteria from Lockheed
Martin. Nevertheless, the Coast Guard estimates that the inspections will
cost $2 million for the 5 aircraft. This problem is not limited to Coast
Guard aircraft, but is affecting HC-130s worldwide. The remaining Coast
Guard HC-130s are not subject to the operational restrictions but will
likely have to undergo similar limitations and inspections beginning in
fiscal year 2006.

1H.R. Conf. Rep. No. 108-774, at 57 (2004).

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

                               HU-25 Medium-Range
                             Surveillance Aircraft

HU-25 Fleet Overview

The HU-25 is a medium-range, fixed-wing, multimission aircraft used for
search and rescue, drug interdiction, alien/migrant interdiction,
fisheries law enforcement, defense readiness, and essential logistics
missions. Manufactured by Falcon Jet, the HU-25 entered the Coast Guard
aviation fleet in 1982. The Coast Guard's fleet contains 23 aircraft. The
Coast Guard maintained a fleet of 26 operational HU-25 aircraft in fiscal
year 2000 but reduced the fleet because of budgetary constraints in fiscal
year 2002. The original estimated service life was 20 years or 20,000
flights (landings) or 30,000 flight hours.

                               Performance Trends

The HU-25 fleet's programmed flight hours have fluctuated during fiscal
years 2000 through 2004 with changes in fleet size. In fiscal year 2004,
the fleet flew 86 percent of the fiscal year 2001 programmed flight hours
with 29 percent fewer aircraft. Moreover, the fleet's availability index
has generally improved during fiscal years 2000 through 2003, in large
part because of the enhanced reliability of the HU-25's ATF-3 engine.
Though it consistently remained below the Coast Guard's 71 percent
availability standard, it has improved from fiscal year 2000 levels. The
fleet's labor hours per flight hour have also remained fairly consistent
since fleet reduction. Table 8 provides a summary of the HU-25's key
performance measures.

Table 8: HU-25 Fleet Performance Data for Fiscal Years 2000-2004

                            Availability     Programmed           Labor hours 
              Fiscal year      index        flight hours      per flight hour 
                     2000      59.0%                16,322 
                     2001      57.4%                15,616               13.4 
                     2002      62.4%                11,200               12.9 
                     2003      67.2%                14,122               12.9 
                     2004      65.8%                13,500               13.5 

                           Source: U.S. Coast Guard.

Maintenance Trends 	The maintenance measures for the HU-25 show varied
results. During fiscal years 2000 through 2004, the fleet's cost per
flight hour has generally

       Appendix II: Information on Deepwater Legacy Aircraft and Cutters

declined, scheduled and unscheduled maintenance expenditures fluctuated,
and the amount of deferred maintenance dropped significantly. Table 9
provides a summary of the key maintenance measures.

Table 9: HU-25 Fleet Maintenance Data for Fiscal Years 2000-2004, in Fiscal Year
                                  2004 Dollars

                Cost per          Estimated Estimated               Estimated 
                                  scheduled unscheduled              deferred 
     Fiscal       flight maintenance           maintenance        maintenance 
      year          hour expenditures         expenditures              costs 
      2000        $1,980        $17,616,000       $16,572,000     $12,338,000 
      2001        $1,979        $15,184,000       $18,979,000      $4,230,000 
      2002        $1,917        $13,264,000       $11,065,000 
      2003        $1,833        $18,447,000        $9,868,000        $207,000 
      2004        $1,897        $16,524,000       $11,961,000 

Source: GAO analysis of U.S. Coast Guard data.

Sustainment Issues Engines

Sensors

According to Coast Guard officials, the HU-25's Honeywell ATF-3 engines
are complex, have been historically unreliable, and are time-consuming to
maintain-requiring as long as 4 days to re-install a repaired engine. Some
of the engine problems have been mitigated by improvements in sensor
capabilities that allow the aircraft to fly at higher altitudes for longer
periods of time during surveillance missions. Flying at higher altitudes
reduces the amount of saltwater introduced into the engines, thereby
reducing corrosion and placing less stress on the engines. According to
Coast Guard officials, this has contributed to increasing engine
reliability and improvements in HU-25 fleet availability.

The sensors on the six HU-25D models were recently upgraded at a cost of
$43 million in acquisition, capital, and investment (AC&I) funding. Five
of the six upgraded HU-25D aircraft are stationed at air station Miami.
According to the air station's commanding officer, the upgraded sensors,
while critical to mission success, also have a relatively high rate of
inoperability. Sensor inoperability is a function of the aircraft's poor
air conditioning system. When the cabin becomes too warm, the sensors
fail. Air conditioning system and sensor failure does not present a safety
of flight issue but does degrade mission capability. According to Coast
Guard officials this problem is limited to the HU-25D models.

       Appendix II: Information on Deepwater Legacy Aircraft and Cutters

HH-60 Medium-Range Recovery Helicopter

HH-60 Fleet Overview 	The HH-60 helicopter is used for ports, waterways,
and coastal security; drug interdiction; alien/migrant interdiction;
defense readiness; search and rescue; ice operations; living marine
resources; and marine environmental protection missions. Manufactured by
Sikorsky Aircraft Corporation, the HH-60 entered into the Coast Guard
fleet in 1990. The Coast Guard has a total of 41 HH-60 aircraft. The
original estimated service life was approximately 20 years.

                               Performance Trends

The HH-60's deteriorating subsystems, such as the avionics suite, are
requiring increasing amounts of maintenance and thereby reducing fleet
performance. Nevertheless, the HH-60 fleet has maintained a relatively
high availability level, remaining close to or exceeding the Coast Guard's
71 percent availability standard since fiscal year 2000. The fleet's
number of programmed flight hours has experienced some year-to-year
fluctuations but has been relatively stable. At the same time, increasing
subsystem failures are requiring more unit-level maintenance, as reflected
by the fleet's general rise in the number of labor hours per flight hour.
Further, Coast Guard officials have told us that flight crews and
maintenance personnel have to work harder and longer to maintain the
fleet's high availability levels. Table 10 provides a summary of the key
performance measures.

       Table 10: HH-60 Fleet Performance Data for Fiscal Years 2000-2004
                         Labor Fiscal       flight    per                                                                                                                
 Availability Programmed hours   year index hours  flight 2000 71.4% 24,109  2001 70.8% 22,115 18.6 2002 68.1% 24,915 20.2 2003 72.4% 26,014 19.8                   
                                                     hour                                                                                         2004 69.8% 24,832 21.5

                           Source: U.S. Coast Guard.

Maintenance Trends 	In constant dollars, the HH-60 fleet's estimated
scheduled and unscheduled maintenance expenditures generally trended
downward during fiscal years 2000 through 2004, while the cost per flight
hour has

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

fluctuated. In contrast, the amount of HH-60 deferred maintenance incurred
by the Coast Guard has nearly doubled since fiscal year 2000. HH60 fleet
product line managers attribute this increase to budget constraints and an
expansion in the scope of the HH-60 overhauls without a corresponding
increase in the number of maintenance personnel. Table 11 provides a
summary of the key maintenance measures.

     Table 11: HH-60 Fleet Maintenance Data for Fiscal Years 2000-2004, in
                            Fiscal Year 2004 Dollars
 Cost Estimated  Estimated  Estimated Fiscal flight maintenance  maintenance  maintenance 2000 $1,062 $18,968,000 $17,897,000 $10,067,000 2001 $1,294 $20,787,000 $15,450,000 $11,374,000 2002 $1,568 $17,848,000 $15,845,000 $8,094,000 2003 $1,516 $17,189,000 $12,017,000 $9,715,000                                                 
  per scheduled unscheduled  deferred  year    hour expenditures expenditures       costs                                                                                                                                                                                               2004 $1,387 $17,254,000 $12,596,000 $18,824,000

Source: GAO analysis of U.S. Coast Guard data.

Sustainment Issues HH-60 Avionics Replacement

The HH-60 Service Life Extension Program

According to HH-60 flight crews and maintenance staff, the reliability of
the aircraft's 1970s era avionics system is steadily declining. The
system's increasing failure rate is directly affecting the HH-60 fleet's
mission capabilities, as avionics system failures are occurring every 11
flight hours, on average. Further, according to the Coast Guard, HH-60
avionics repair vendors will phase out system component repairs in fiscal
year 2007. For these reasons, the Coast Guard has implemented an HH-60
avionics upgrade to replace the current system with a state-of-the-art
open architecture system that Coast Guard officials claim will meet the
future needs of HH-60 missions. The Coast Guard estimates that this
program will cost about $84 million and will be completed in fiscal year
2010. The Coast Guard has allocated $30.8 million through fiscal year 2005
for the program.

The Coast Guard has developed a service life extension program for the
HH-60 fleet to upgrade structural components such as beams, fittings, and
frames, and will increase depot-level maintenance production to nine
aircraft per year. According to the Coast Guard, the program will extend
the service life of the HH-60 fleet through 2022.

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

HH-65 Short-Range Recovery Helicopter

HH-65 Fleet Overview

The HH-65 is a twin-engine, short-range recovery helicopter used for
ports, waterways and coastal security; drug interdiction; alien-migrant
interdiction; defense readiness; search and rescue; ice operations; and
marine environmental missions. The HH-65 entered Coast Guard service
beginning in 1984. The helicopter's airframe is manufactured by
Eurocopter, and most HH-65s are equipped with Honeywell-manufactured
LTS-101-750 engines. However, these engines are currently being replaced
(see details below). The Coast Guard maintains 95 aircraft in the fleet.
The original estimated service life for the HH-65 aircraft was 20 years,
but according to Coast Guard aviation staff, the engine replacement
program should extend the service live beyond that estimate.

                               Performance Trends

Despite safety and reliability concerns related to its engines, the HH-65
fleet has consistently maintained an availability level above the 71
percent Coast Guard standard during fiscal years 2000 through 2004.
Moreover, the number of fleet programmed flight hours has steadily
increased since fiscal year 2000. The fleet's labor hours per flight hour
have remained stable since fiscal year 2001. However, it should be noted
that the number of fleet mishaps, particularly engine-related mishaps,
increased sharply in 2004, primarily because of the engine and engine
control system's poor reliability. Table 12 provides a summary of the key
performance measures.

       Table 12: HH-65 Fleet Performance Data for Fiscal Years 2000-2004
                         Labor Fiscal       flight    per                                                                                                            
 Availability Programmed hours   year index hours  flight 2000 76.6% 46,451  2001 75.0% 45,212  2002 73.4% 50,840 13.0 2003 75.5% 51,380 13.6                   
                                                     hour                                                                                     2004 80.9% 51,745 13.3

                           Source: U.S. Coast Guard.

Maintenance Trends 	The HH-65 fleet has sustained a comparatively high
level of availability even though maintenance data show that the fleet has
had challenges related to poor engine performance. Fleet cost per flight
hour steadily increased during fiscal years 2000 through 2004. The Coast
Guard has not

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

deferred any maintenance for the HH-65 fleet from fiscal year 2000 through
2004. Table 13 provides a summary of the key maintenance measures.

     Table 13: HH-65 Fleet Maintenance Data for Fiscal Years 2000-2004, in
                            Fiscal Year 2004 Dollars
 Cost Estimated Estimated   Estimated Fiscal flight maintenance  maintenance  maintenance 2000 $908 $36,034,000 $18,377,000  2001 $976 $31,793,000 $17,690,000  2002 $1,089 $33,296,000 $21,458,000  2003 $1,107 $36,623,000 $22,388,000                                      
  per scheduled unscheduled  deferred  year    hour expenditures expenditures       costs                                                                                                                                                 2004 $1,312 $31,431,000 $22,815,000 

Source: GAO analysis of U.S. Coast Guard data.

Sustainment Issues

The HH-65 Re-engining Program

Other Multimission Cutter Helicopter Conversion Elements

The increasing trend in the number and seriousness of safety-related HH65
incidents prompted a Coast Guard decision in January 2004 to replace the
existing engines and the associated engine control systems within 24
months. However, the Coast Guard now anticipates that the re-engining of
all 84 operational HH-65 helicopters will take until February 2007. Total
program costs are estimated to be nearly $350 million, or about $3.7
million per helicopter.

As of June 7, 2005, 5 HH-65 aircraft have been successfully re-engined, 14
are under production at the Coast Guard's Aircraft Repair and Supply
Center, and an additional aircraft is under production at the American
Eurocopter's facility in Columbus, Mississippi. Upon completion of this
test case, the Coast Guard will determine if the American Eurocopter
facility is suitable to serve as the site for a second re-engining
production line.

According to the Coast Guard, the HH-65 was selected for conversion to the
Deepwater program's multimission cutter helicopter (MCH) beginning in
fiscal year 2007. As such, the converted HH-65 helicopters will be part of
the Deepwater program moving forward. There are several steps constituting
the full MCH conversion, of which the current HH-65 reengining program is
one element. Other elements include the replacement of the HH-65's landing
gear and tail rotors. The HH-65's new engine should allow the helicopter
to support an increase in maximum gross weight. However, the current
landing gear cannot support such an increase. The

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

current tail rotors also need to be replaced because the product
manufacturer is discontinuing production of the rotors, though supplies on
hand should last until May 2005.

Other elements of the MCH conversion, such as an upgrade of the avionics,
will increase the aircraft's service life and capabilities. These
conversion elements are scheduled for integration beginning in fiscal year
2007.

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

378-Foot High-Endurance Cutter

378-foot High-Endurance Cutter Fleet Overview

The 378-foot cutters are the largest cutters in the deepwater fleet, with
a crew size of 19 officers and 147 enlisted. The Coast Guard has 12 of the
378-foot cutters in its deepwater fleet, with 10 of these stationed in the
Pacific Area Command and the remaining 2 in the Atlantic Area Command. The
378-foot cutters typically operate 185 days away from home port per year.
The 378-foot cutters are used in a number of missions, such as defense
operations; maritime security/law enforcement; search and rescue; living
marine resources; ports, waterway, and coastal security; alien-migrant
interdiction; and drug interdiction. These cutters were commissioned by
the Coast Guard during 1967 to 1972 and have an estimated service life of
about 40 years, affected in part by the Fleet Rehabilitation and
Modernization (FRAM) program, which is discussed in further detail below.

Performance Trends 	The 378-foot cutters are considered by the Coast Guard
to generally be deteriorating in condition, and this assertion is
supported by the Coast Guard's data measures. Major casualties2 per cutter
have increased from fiscal year 2000 through 2004, and the percent of time
free (POTF) of major casualties has fluctuated, but it has remained well
below the target of 72 percent. Table 14 provides a summary of the key
performance measures.

       Table 14: 378-Foot Cutter Fleet Performance Data for Fiscal Years
                                   2000-2004
Fiscal   Major       POTF of                                                                      
  year casualties      major 2000 10.7 30% 2001 15.3 22% 2002 15.3 38% 2003 17.1 26%           
       per cutter casualties                                                         2004 17.3 7%

                           Source: U.S. Coast Guard.

2A major casualty is a deficiency in mission-essential equipment that
causes the major degradation of a primary mission or loss of at least one
primary mission.

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

Maintenance Trends 	Both scheduled and unscheduled maintenance
expenditures for the 378foot cutters have been on a general upward trend
during fiscal years 2000 through 2004, with some fluctuations. The
increasing age of these cutters, along with equipment obsolescence,
appears to be driving these costs. Table 15 provides a summary of the key
maintenance measures.

       Table 15: 378-Foot Cutter Fleet Maintenance Data for Fiscal Years
                     2000-2004, in Fiscal Year 2004 Dollars
Fiscal   Scheduled Unscheduled       Total                                                                                                                                                                                                         
 year  maintenance maintenance maintenance 2000 $13,376,901 $2,641,025 $16,017,925 2001 $19,842,996 $4,230,497 $24,073,493 2002 $15,109,120 $3,416,032 $18,525,152 2003 $15,523,775 $6,487,666 $22,011,440                             
             costs    costs          costs                                                                                                                                                                 2004 $17,131,625 $4,686,052 $21,817,677

Source: GAO analysis of U.S. Coast Guard data.

Note: The data in this and other cutter maintenance expenditure tables are
adjusted for inflation using U.S. Department of Labor producer price
indexes for ship repair, conversion, reconversion, and the U.S. military.

                               Sustainment Issues

The average age of the 378-foot cutters is 36.3 years. Each 378-foot
cutter underwent the FRAM at approximately 20 years of age, beginning in
the late 1980s and ending in 1992. As part of the FRAM, each cutter
received an overhaul, costing anywhere from $70 million to $90 million,
that Pacific Area Command officials estimated would add about 15
additional years of service-a mark that many of the cutters are beginning
to reach. Many major propulsion and hull systems, however, were merely
overhauled but not upgraded or replaced, and these systems are now at or
near the end of their useful service life. In addition, the Coast Guard
regularly compiles a list of the top 10 maintenance issues affecting each
cutter class. The most recent top 10 list has identified service boilers,
the gyrocompass navigation system, and propulsion shafting and shaft
bearings, among other things, as the most critical sustainment issues for
the 378-foot cutters.

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

                                270-Foot Medium-
                                Endurance Cutter

270-Foot Medium-The Coast Guard's 270-foot cutter fleet consists of 13
cutters, all of which Endurance Cutter Fleet are stationed in the Atlantic
Area Command. These cutters were Overview commissioned between 1983 and
1991, have an estimated service life of

30 years, and operate with a crew of 13 officers and 85 enlisted
personnel. The 270-foot cutters typically operate 185 days away from home
port each year and are used for maritime security/law enforcement; search
and rescue; living marine resources; ports, waterway, and coastal
security; alien-migrant interdiction; drug interdiction; and defense
missions.

                               Performance Trends

Officials at Coast Guard headquarters stated that the condition of the
270-foot medium endurance cutters is generally worsening, and key
condition measures seem to bear this out, though there were some
improvements in fiscal year 2004. Major casualties per cutter saw a major
increase from fiscal year 2000 to 2001, remained fairly steady during
fiscal years 2002 and 2003, and then decreased in fiscal year 2004. The
POTF of major casualties fluctuated during fiscal years 2000 through 2004
but remained well below the POTF target rate of 72 percent. Table 16
provides a summary of the key performance measures.

       Table 16: 270-Foot Cutter Fleet Performance Data for Fiscal Years
                                   2000-2004
Fiscal   Major       POTF of                                                                       
  year casualties      major 2000 11.7 38% 2001 15.1 35% 2002 14.2 47% 2003 14.7 32%           
       per cutter casualties                                                         2004 11.9 42%

                           Source: U.S. Coast Guard.

Maintenance Trends 	Scheduled maintenance expenditures fluctuated for the
270-foot mediumendurance cutters from fiscal years 2000 to 2004, with a
major increase in fiscal year 2003. Coast Guard officials attribute this
increase in expenditures to the age and poor structural condition of the
cutters, the replacement of obsolete equipment, and upgrades. The
increased cutter maintenance that occurred in fiscal year 2003 was sourced
from supplemental appropriations. Unscheduled maintenance expenditures saw

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

a small amount of fluctuation for the 270-foot cutters during fiscal years
2000 through 2004. Table 17 provides a summary of the key maintenance
measures.

       Table 17: 270-Foot Cutter Fleet Maintenance Data for Fiscal Years
                     2000-2004, in Fiscal Year 2004 Dollars
 Scheduled Unscheduled Total Fiscal maintenance maintenance maintenance 2000 $9,175,918 $1,419,443 $10,595,360 2001 $10,253,382 $1,365,576 $11,618,957 2002 $8,814,319 $1,527,919 $10,342,238 2003 $15,744,978 $1,690,038 $17,435,015                                       
                               year       costs costs             costs                                                                                                                                                               2004 $6,098,884 $1,620,839 $7,719,723

                 Source: GAO analysis of U.S. Coast Guard data.

                               Sustainment Issues

The average age of the 270-foot cutters is 18.0 years. During fiscal year
2005, the Coast Guard began a Mission Effectiveness Project (MEP) on the
medium-endurance cutters (270-foot and 210-foot) in order to extend their
service lives. The MEP includes replacement of the major systems, such as
evaporators and gyrocompasses, as well as other auxiliary systems. The
first 270-foot cutter entered the MEP in May 2005 at a cost of $7.5
million, funded from the Deepwater program's acquisition, construction,
and improvement account. Overall, the 270-foot cutter MEP is projected to
cost $193.5 million, and the work will extend 10 years, into fiscal year
2015. In addition, regularly scheduled maintenance should continue to
address the principal maintenance problems for the 270-foot cutters as
identified in the top 10 list, including the air conditioning and
refrigeration systems, the main propulsion control and monitoring system,
and the auxiliary saltwater and sewage piping systems.

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

                                210-Foot Medium-
                                Endurance Cutter

210-Foot Medium-Endurance Cutter Fleet Overview

The Coast Guard's 210-foot cutter fleet consists of 14 cutters, 11 of
which are stationed in the Atlantic Area Command, and the remaining 3 are
based in the Pacific Area Command. These cutters were commissioned between
1964 and 1969, have an estimated service life of 43 to 49 years and
operate with a crew of 12 officers and 63 enlisted personnel. The 210-foot
cutters typically operate 185 days away from home port each year, during
which time they perform missions such as maritime security/law
enforcement; search and rescue; living marine resources; ports, waterway,
and coastal security; alien-migrant interdiction; and drug interdiction.

                               Performance Trends

Officials at Coast Guard headquarters stated that the condition of the
210-foot medium endurance cutters is generally worsening, and key
condition measures seem to bear this out, though there were some
improvements in fiscal year 2004. Major casualties per cutter saw a major
increase from fiscal year 2000 to 2001, a smaller increase during fiscal
years 2002 and 2003, and then a decrease in fiscal year 2004. The POTF of
major casualties has generally declined for the 210-foot cutters during
fiscal years 2000 through 2004, and consistently remained well below the
POTF target rate of 72 percent. Table 18 provides a summary of the key
performance measures.

       Table 18: 210-Foot Cutter Fleet Performance Data for Fiscal Years
                                   2000-2004
      Major  POTF Fiscal    per                                                                                 
 casualties    of   year cutter casualties 2000 7.1 52% 2001 11.1 48% 2002 12.1 40% 2003 12.6 37%           
            major                                                                                 2004 11.1 41%

                           Source: U.S. Coast Guard.

Maintenance Trends 	Scheduled maintenance expenditures fluctuated for the
210-foot mediumendurance cutters from fiscal years 2000 to 2004, with a
major increase in fiscal year 2003. Coast Guard officials attribute this
increase in expenditures to the age and poor structural condition of the
cutters, the

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

replacement of obsolete equipment, and upgrades. The increased cutter
maintenance that occurred in fiscal year 2003 was sourced from
supplemental appropriations. Unscheduled maintenance expenditures saw a
small amount of fluctuation during fiscal years 2000 through 2004. Table
19 provides a summary of the key maintenance measures.

       Table 19: 210-Foot Cutter Fleet Maintenance Data for Fiscal Years
                     2000-2004, in Fiscal Year 2004 Dollars
 Scheduled Unscheduled Total Fiscal maintenance maintenance maintenance 2000 $9,994,463 $1,899,895 $11,894,358 2001 $8,801,109 $1,783,393 $10,584,502 2002 $6,168,837 $1,443,401 $7,612,238 2003 $15,209,055 $1,541,610 $16,750,666                                       
                               year costs       costs             costs                                                                                                                                                             2004 $6,362,468 $1,176,492 $7,538,960

                 Source: GAO analysis of U.S. Coast Guard data.

                               Sustainment Issues

The average age of the 210-foot cutters is 38.3 years. The first 210-foot
cutter will enter the MEP beginning in September 2005 at a projected cost
of $5 million, funded from the Deepwater program's acquisition,
construction, and improvement account. Overall, the 210-foot cutter MEP is
projected to cost a total of $98.5 million, and the work will extend into
fiscal year 2009. In addition, regularly scheduled maintenance should
continue to address the principal maintenance problems for the 210-foot
cutters as identified in the top 10 list, such as the air conditioning
system, refrigeration system, oily water separators, and supportability of
the emergency diesel generators.

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

110-Foot and 123-Foot Patrol Boats

110-Foot and 123-Foot Patrol Boat Fleet Overview

Overall, there are currently 49 patrol boats in the Coast Guard Deepwater
fleet. Of these, 41 are 110 feet long, with 29 of those stationed in the
Atlantic Area Command and the remaining 12 stationed in the Pacific Area
Command. Six of the Atlantic Area Command's 110-foot patrol boats are
currently serving in the Persian Gulf. These 110-foot patrol boats were
acquired between 1986 and 1992, have estimated service lives of 14 to 20
years, and operate with a crew of 2 officers and 14 enlisted personnel.
The patrol boats generally operate at 1,800 hours per year. The 110-foot
patrol boats are used in a variety of missions, such as defense
operations; maritime security/law enforcement; search and rescue; living
marine resources; ports, waterway, and coastal security; alien-migrant
interdiction; and drug interdiction.

The remaining 8 patrol boats either have undergone or are in the process
of being converted into 123-foot patrol boats. These patrol boats are to
be stationed in the Atlantic Area Command and, like the 110-foot patrol
boats, are to operate with a crew of 2 officers and 14 enlisted personnel.
The 123-foot patrol boats are slated to perform the same missions as the
110-foot patrol boats but will have the capability to generally operate
2,500 hours per year. The first converted 123-foot patrol boat (Matagorda)
became operational in February 2005, and as of early June 2005, 4
additional 123-foot patrol boats are operational, with restrictions.3

Performance Trends 	During fiscal years 2000 through 2004, the 110-foot
patrol boats have experienced many problems, especially hull corrosion
issues, which led to a worsening condition. However, the Coast Guard began
addressing the hull condition issues (see details below), which likely
contributed to the decreases in the major casualties in fiscal years 2003
and 2004. Table 20 provides a summary of the key performance measures.

3The patrol boats' operational restrictions require a reduction in speed
based upon significant wave heights that might be encountered at sea.

       Appendix II: Information on Deepwater Legacy Aircraft and Cutters

    Table 20: Patrol Boat Fleet Performance Data for Fiscal Years 2000-2004
Major     POTF Fiscal  per                                                                                 
 casualties    of   year patrol casualties 2000 6.2 67% 2001 9.9 57% 2002 12.9 47% 2003 9.7 48%           
            major         boat                                                                  2004a 7.7 44%

Source: U.S. Coast Guard.

aFiscal year 2004 data include major casualties and POTF data from the
newly converted 123-foot patrol boats.

Maintenance Trends 	Scheduled and unscheduled maintenance expenditures saw
large increases in fiscal years 2002 and 2003. These increases appear to
be closely related to increased major casualties, deteriorating hull
conditions, and an increase in operational tempo. In addition, increased
cutter maintenance occurred during this time period due to supplemental
appropriations. Table 21 provides a summary of the key maintenance
measures.

    Table 21: Patrol Boat Fleet Maintenance Data for Fiscal Years 2000-2004,
                          in Fiscal Year 2004 Dollars
 Scheduled Unscheduled Total Fiscal maintenance maintenance maintenance 2000 $12,713,001 $1,650,862 $14,363,864 2001 $12,891,098 $2,445,161 $15,336,258 2002 $21,406,754 $3,439,798 $24,846,551 2003 $23,713,280 $5,149,335 $28,862,615                                          
                               year costs       costs             costs                                                                                                                                                                 2004a $18,850,450 $3,625,459 $22,475,909

Source: GAO analysis of U.S. Coast Guard data.

aFiscal year 2004 expenditure data also include maintenance expenditures
for the newly-converted 123-foot patrol boats.

Sustainment Issues	The average age of the patrol boats is 16.4 years. A
number of the 110-foot patrol boats have experienced significant hull
deterioration. To combat these corrosion problems and add other
capabilities to the 110-foot patrol boats, the Coast Guard developed the
Hull Sustainment Project (HSP) and the 123-foot patrol boat conversion
program.

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

The HSP was implemented to replace all deteriorated hull plates and
structural members. The selected patrol boats were gutted, sandblasted,
and thoroughly inspected, and all metal wasted beyond 15 percent was
renewed. As of early June 2005, 9 of the original 49 110-foot patrol boats
had completed the HSP. The Coast Guard believes that all remaining
110-foot patrol boats that have not had their hulls strengthened or
replaced will eventually require such work. The Coast Guard is currently
preparing a business case analysis in order to use $49.2 million in fiscal
year 2005 supplemental appropriations4 for a 110-foot patrol boat MEP.

This project would include hull sustainment work.
In addition to the HSP, 8 patrol boats deemed to be among those in the
worst condition were placed in the 123-foot conversion program. The
Coast Guard had the option to place an additional 4 patrol boats (for a
total of 12) in the 123-foot conversion program but has decided not to
exercise this option. This program was implemented to renew the
deteriorated hull structure and to add additional capability. Among the
expected capability improvements are:

o  	enhanced and improved command, control, communications, computer,
intelligence, surveillance, and reconnaissance capabilities;

o  stern launch/recovery capability for the Short Range Prosecutor;

o  	renovation of some berthing areas, including relocation of aft
berthing to a location forward and nonadjacent to the engine room; and

o  renewing the pilot house to include a 360-degree bridge.

As of early June 2005, 7 of the 8 patrol boats have completed the
conversion, and 5 converted patrol boats are operational (Matagorda,
Metompkin, Padre, Attu, and Vashon, with all patrol boats currently under
operating restrictions). The first patrol boat to come out of the
conversion process, the Matagorda, was delivered to the Coast Guard in
March 2004 but experienced a number of problems that prevented it from
becoming operational until February 2005. Specifically, upon delivery, the

4Emergency Supplemental Appropriations Act for Defense, the Global War on
Terror, and Tsunami Relief, 2005, Pub. L. No. 109-13, 119 Stat. 231, 270
(2005). In the conference report accompanying the bill that was enacted
into law as Public Law 109-13, the conferees agreed that such funds may be
used for procurement of new U.S. Coast Guard 110-foot patrol boats or
major refits, renovation, and subsystem replacement. H.R. Conf. Rep. No.
109-72, at 138 (2005).

Appendix II: Information on Deepwater Legacy Aircraft and Cutters

Coast Guard identified several discrepancies with the original performance
specifications. One such discrepancy was the inability of the patrol boat
to simultaneously launch or recover the short-range prosecutor while
towing another vessel. In September 2004, Matagorda experienced hull
buckling, and repairs were completed in December 2004. However, while en
route from the shipyard to Key West, Florida, Matagorda encountered a
storm, causing damage to the primary radar system and new cracks in the
hull. These problems were resolved, and Matagorda began patrols in early
February 2005. Additionally, the contractor that performed the work is
applying lessons learned from the Matagorda conversion to the other patrol
boats still undergoing conversion. Further, the contractor has increased
the number of quality assurance personnel from one to four to improve
oversight of the conversion process.

The Coast Guard top 10 list mentions several maintenance concerns, in
addition to hull corrosion, that have negatively affected the condition of
the 110-foot patrol boats. These include difficulties in obtaining parts
for the fin stabilizer system, steering spaces holding moisture (which
leads to rust and corrosion), and exhaust piping leaks. In addition, the
Coast Guard has stated that mechanical and electrical subsystems need to
be upgraded or replaced if the patrol boats are to operate for another 10
to 15 years, even the newly converted 123-foot patrol boats.

Appendix III: GAO Contact and Staff Acknowledgments

Staff Contact Margaret Wrightson, Director (415) 904-2200.

Acknowledgment 	Steven Calvo, Christopher Conrad, Adam Couvillion, Michele
Fejfar, Geoffrey Hamilton, Julie Leetch, Michele Mackin, Stan Stenersen,
and Linda Kay Willard.

GAO Related Products

Coast Guard's Acquisition Management: Deepwater Project's Justification
and Affordability Need to Be Addressed More Thoroughly,

GAO/RCED-99-6 (Washington, D.C.: Oct. 26, 1998)

Coast Guard: Budget Challenges for 2001 and Beyond,

GAO/T-RCED-00-103 (Washington, D.C.: March 15, 2000)

Coast Guard: Progress Being Made on Deepwater Project, but Risks Remain,
GAO-01-564 (Washington, D.C.: May 2, 2001)

Coast Guard: Actions Needed to Mitigate Deepwater Project Risks,

GAO-01-659T (Washington, D.C.: May 3, 2001)

Coast Guard: Strategy Needed for Setting and Monitoring Levels of Effort
for All Missions, GAO-03-155 (Washington, D.C.: Nov. 12, 2002)

Coast Guard: Comprehensive Blueprint Needed to Balance and Monitor
Resource Use and Measure Performance for All Missions, GAO-03-544T
(Washington, D.C.: March 12, 2003)

Contract Management: Coast Guard's Deepwater Program Needs Increased
Attention to Management and Contractor Oversight,

GAO-04-380 (Washington, D.C.: March 9, 2004)

Coast Guard: Replacement of HH-65 Helicopter Engine, GAO-04-595
(Washington, D.C.: March 24, 2004)

Coast Guard: Key Management and Budget Challenges for Fiscal Year 2005 and
Beyond, GAO-04-636T (Washington, D.C.: April 7, 2004)

Coast Guard: Deepwater Program Acquisition Schedule Update Needed,

GAO-04-695 (Washington, D.C.: June 14, 2004)

Coast Guard: Observations and Agency Priorities in Fiscal Year 2006 Budget
Request, GAO-05-364T (Washington, D.C.: March 17, 2005)

Coast Guard: Preliminary Observations on the Condition of Deepwater Legacy
Assets and Acquisition Management Challenges, GAO-05-307T (Washington,
D.C.: April 20, 2005)

Coast Guard: Preliminary Observations on the Condition of Deepwater Legacy
Assets and Acquisition Management Challenges, GAO-05-651T (Washington,
D.C.: June 21, 2005)

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