    United States Coast Guard: Improvements Needed in Management and
    Oversight of Rescue System Acquisition (31-MAY-06, GAO-06-623).

    Search and rescue--one of the United States Coast Guard's (USCG)
    oldest missions and highest priorities--involves minimizing loss
    of life, injury, and property damage by aiding people and boats
    in distress. In September 2002, USCG contracted to replace its
    search and rescue communications system--installed in the
    1970s--with a new system known as Rescue 21. However, the
    acquisition and initial implementation of Rescue 21 has resulted
    in significant cost overruns and schedule delays. GAO's
    objectives in reviewing the Rescue 21 program were to (1) assess
    the reasons for the significant cost overruns and implementation
    delays; (2) evaluate the viability of the revised cost and
    schedule estimates; and (3) evaluate the impact of the
    implementation delays.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-623
        ACCNO:   A54961
      TITLE:     United States Coast Guard: Improvements Needed in
    Management and Oversight of Rescue System Acquisition
         DATE:   05/31/2006
      SUBJECT:   Communication systems
    	     Contract administration
    	     Contract oversight
    	     Cost analysis
    	     Cost overruns
    	     Federal procurement
    	     Schedule slippages
    	     Systems evaluation
    	     Cost estimates
    	     Coast Guard Rescue 21 System

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    GAO-06-623

         * Recommendations for Executive Action
         * Agency Comments and Our Evaluation
         * Appendix I: Briefing Slides
         * Appendix II: Comments from the Department of Homeland Securi
         * Appendix III: GAO Contacts and Staff Acknowledgments
              * GAO Contacts
              * Staff Acknowledgments
                   * Order by Mail or Phone

    Report to Congressional Committees

    United States Government Accountability Office

    GAO

    May 2006

    UNITED STATES COAST GUARD

    Improvements Needed in Management and Oversight of Rescue System
    Acquisition

    GAO-06-623

    Contents

    Letter 1

    Recommendations for Executive Action 4
    Agency Comments and Our Evaluation 4
    Appendix I Briefing Slides 8
    Appendix II Comments from the Department of Homeland Security 48
    Appendix III GAO Contacts and Staff Acknowledgments 54
    Abbreviations

    DHS Department of Homeland Security EVM earned value management NDRS
    National Distress and Response System OMB Office of Management and Budget
    USCG United States Coast Guard

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
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    separately.

    United States Government Accountability Office

    Washington, DC 20548

    May 31, 2006

    The Honorable Harold Rogers Chairman The Honorable Martin Sabo Ranking
    Member Subcommittee on Homeland Security, Committee on Appropriations
    House of Representatives

    The Honorable Olympia Snowe Chairman The Honorable Maria Cantwell Ranking
    Member Subcommittee on Fisheries and Coast Guard, Committee on Commerce,
    Science and Transportation United States Senate

    The United States Coast Guard (USCG) is currently replacing its
    30-year-old search and rescue communications systems with a new system
    known as Rescue 21. Rescue 21 will be used not only for search and rescue,
    but it will support other USCG missions, including those involving
    homeland security. However, Rescue 21 has had significant cost overruns
    and schedule delays. As a result of these delays, completion of Rescue 21
    deployment nationwide-originally scheduled for fiscal year 2006-has been
    delayed until fiscal year 2011, and its total acquisition cost has risen
    from $250 million in 1999 to its current estimate of $710.5 million.1 In
    addition to the cost overruns and schedule delays, Rescue 21 may not be
    deployed with all of the functionality originally promised. For example,
    functionality for vessel asset tracking was not deployed as part of the
    initial operating capability due to the system's inability to meet
    original requirements, and USCG is now considering alternative strategies
    for this functionality. Also, there has been a reduction in promised
    improvements to limit communications gaps; originally, Rescue 21 was
    intended to limit communications gaps to 2 percent-now the target is less
    than 10 percent.

    1In April 2006, the Department of Homeland Security approved a new
    acquisition program baseline for Rescue 21 with a total acquisition cost
    of $730.2 million after decreasing certain functionality.

    This report responds to your request that we (1) assess the reasons for
    the significant implementation delay and cost overruns against the
    original Rescue 21 proposal, (2) evaluate the viability of the USCG's
    revised cost and implementation schedule, and (3) evaluate the impact of
    Rescue 21's implementation delay on USCG's field units that are awaiting
    the modernization of antiquated communications equipment.

    On March 27, 2006, we provided your staff with a briefing on the results
    of our study. The slides from that briefing are included in this report as
    appendix I. The purpose of this report is to formally publish the briefing
    slides and officially transmit our recommendations to the Commandant of
    USCG.

    To assess the reasons for the implementation delay and cost overruns of
    Rescue 21, we analyzed current and previous program documents, including
    current and previous acquisition plans, cost estimates, status reports,
    schedules, promised functionality, earned value management (EVM)2 data,
    and cost analyses. We also interviewed key officials and contractors. To
    evaluate the viability of the USCG's revised cost estimate and
    implementation schedule, we analyzed program cost and schedule documents,
    cost estimating methodologies, and changes to development and deployment
    plans. To identify factors that could affect the program baseline in the
    future, we assessed the prime contractor's performance related to cost and
    schedule. We applied established earned value analysis techniques to data
    from contractor cost performance reports that spanned a 26-month
    period-from October 2003 to December 2005-to show trends in cost and
    schedule performance and to estimate the likely costs at the completion of
    the prime contract. To evaluate the impact of Rescue 21's implementation
    delay, we reviewed reports on legacy system failures and anticipated
    failures and interviewed field officials responsible for overseeing legacy
    system operations at 11 field units, the Maintenance and Logistic Commands
    for the Pacific and Atlantic Areas, and Rescue 21 users at the two initial
    operating regions.

    2EVM is a project management tool that integrates the investment scope of
    work with schedule and cost elements for investment planning and control.
    This method compares the value of work accomplished during a given period
    with that of the work expected in the period. Differences in expectations
    are measured in both cost and schedule variances. The Office of Management
    and Budget (OMB) requires agencies to use EVM as part of their
    performance-based management system for any investment under development
    or with system improvements under way.

    We performed our work at USCG headquarters and at selected field units and
    communications centers from December 2005 through March 2006, in
    accordance with generally accepted auditing standards.

    In summary, we made the following major points in our briefing:

               o  Key factors that contributed to Rescue 21 cost overruns and
               schedule delays were shortcomings in requirements management,
               project monitoring, risk management, contractor cost and schedule
               estimation and delivery, and executive-level oversight. Among the
               points we made were that USCG did not effectively use EVM data to
               measure performance and take corrective actions; USCG, while
               identifying, analyzing, and prioritizing risks, did not always
               mitigate and communicate risks; and USCG stated that it had an
               executive oversight process that included semiannual and key
               decision point reviews. However, there is no evidence that these
               reviews of Rescue 21 occurred before 2005. USCG agreed that
               improvements need to be made in the management of the Rescue 21
               project, and it is taking steps to address some of these issues.
               o  The USCG's current acquisition cost estimate of $710.5 million
               is not viable: based on our analysis of contractor performance
               trends and the renegotiation of 91 contract items for site
               deployment, we forecast a cost overrun of approximately $161
               million, which will likely bring total acquisition costs to $872
               million, unless critical changes are made. Also, the USCG's
               schedule is uncertain because of the continuing contract item
               renegotiations and decisions regarding vessel asset tracking
               functionality. Finally, these additional factors may increase
               costs and delay schedules: (1) the variability of costs for tower
               preparation and construction and (2) site reorganization.3 USCG
               realizes that it needs to improve its cost and schedule management
               and has plans to complete an integrated baseline review for the
               contract items as they are renegotiated; however, a date for
               completing this review has not been established.
               o  The delays in deploying Rescue 21 could have several effects:
               (1) key functionality, such as improved direction finding and
               improved coverage, will not be available for a significant period
               of time; (2) legacy equipment may fail, requiring costly repairs;
               and (3) legacy equipment may require upgrades to address coverage
               gaps and other operational issues. For example, USCG instituted a
               moratorium on upgrades to the legacy system because Rescue 21 was
               to replace the equipment. However, despite the moratorium,
               according to USCG officials, some field units have upgraded their
               legacy systems to address operational challenges. Upgrades such as
               these would result in higher costs, especially at field units
               scheduled for implementation at a later date.

               To more effectively manage the remaining development and
               deployment of Rescue 21, we recommend that the Commandant of USCG
               ensure that USCG executive-level management implements the
               following three recommendations:

               o  Oversee the project's progress toward cost and schedule
               milestones and management of risks.
               o  Establish a milestone to complete Rescue 21's integrated
               baseline review, to include all renegotiated contract items.
               o  Use the results of this baseline review to complete a revised
               cost and schedule estimate.

               In providing written comments on a draft to this report, the
               Department of Homeland Security's (DHS) Director of the
               Departmental GAO/Office of the Inspector General Liaison Office
               concurred with our recommendations and stated that USCG would
               continue to aggressively pursue the recommendations in the GAO
               report in order to ensure that Rescue 21 provides critical
               life-saving capabilities and that the acquisition is effectively
               managed. DHS stated that it was currently addressing our
               recommendations and provided examples of efforts to date.
               Specifically, DHS and USCG increased oversight with quarterly flag
               officer/vice president-level program reviews and periodic DHS
               Joint Requirements Council and Investment Review Board reviews in
               October 2005 and plan to initiate monthly progress reviews of the
               project schedule beginning in June 2006.

               Regarding the cost of Rescue 21, DHS stated that it had recently
               revised its acquisition program baseline. The revised total
               acquisition cost for Rescue 21 is $730.2 million, which was
               achieved by adjusting several performance parameters and
               terminating the contractor's option to provide vessel subsystem
               components. DHS plans to achieve this capability through other
               means. However, we continue to stress the importance of our
               recommendation that calls for the completion of an integrated
               baseline review. If performed correctly, an integrated baseline
               review will provide insight into the risks associated with the
               $730.2 million estimate and the extent to which the estimate is
               achievable.

               DHS agreed that USCG has responsibilities for managing schedule
               delays and cost overruns in major acquisition projects and with
               our findings regarding the contractor's inability to manage cost
               and schedule. DHS stated that the root cause for the systems
               deployment delays and costs overruns was poor estimates and failed
               performance by the contractor. The department, however, raised
               concerns with four of our findings regarding USCG management and
               oversight and provided us with some additional information
               regarding these findings that did not fully address our concerns.
               Therefore, we continue to believe that shortcomings in USCG's
               management and oversight of Rescue 21 contributed to cost overruns
               and schedule delays. USGC concerns and our response associated
               with each of the four areas follows.

               First, DHS stated that our findings on requirements management are
               not consistent with our previously reported 2003 findings that
               USCG did have a process for managing requirements and it cited
               various requirements management documents. Our current finding
               states that USCG did not follow rigorous requirements management
               processes for Rescue 21-not that the USCG did not have a
               process-and is therefore consistent with our previous report. DHS
               also stated that testing revealed that requirements were clearly
               defined. However, as stated in our briefing, a USCG usability and
               operability assessment of Rescue 21 stated that most of the
               operational advancements envisioned for the project were not
               achieved, and these problems could have been avoided by including
               user requirements in the contract. DHS's response also cites
               software and hardware defects that can be attributed to
               shortcomings in requirements management, providing further support
               for our finding that USCG did not follow a rigorous requirements
               management process.

               Second, DHS disagreed with our finding that they did not
               effectively use EVM data to measure performance and take
               corrective actions. Evidence showing USCG actions to address
               schedule delays from EVM data was not provided to us during our
               review. On May 8, 2006, 6 weeks after the briefing on March 27,
               2006, DHS provided documentation showing that some actions were
               taken by USCG in 2004. However, this is nearly a year after the
               EVM data began showing schedule slippages in March 2003 and after
               the Rescue 21 project missed its initial operating capability date
               of September 2003. Further, DHS stated that the contractor
               undertook a significant reorganization of its management structure
               in response to its concerns related to cost and schedule
               performance. Because this information was not mentioned to us
               during our discussions with either USCG or the contractor during
               our review, on May 15, 2006, we contacted both the contractor's
               Rescue 21 project manager and contract manager to clarify the
               reorganization statement. These individuals told us that changes
               in contracting personnel were due to internal movement between
               ongoing contracts and did not constitute a reorganization.

               Third, DHS disagreed with our finding that risks were not always
               mitigated and communicated. DHS stated that there were various
               reports and meetings where risks were reported and discussed.
               Documentation for some of these reports and meetings was provided
               to us on May 8, 2006. Furthermore, as stated in the briefing,
               there were examples of risks that were not effectively mitigated
               or communicated. The Human System Interface (HSI) work group
               referred to in the agency's response was established only in 2005,
               after Rescue 21 had shown significant HSI issues in its final
               operational testing and evaluation phase. Effective risk
               management would have identified and addressed risks earlier in
               the system life cycle.

               Finally, DHS disagreed with our finding that there was no evidence
               to support its statement that there was executive-level management
               oversight prior to 2005. During our review, DHS cited a list of
               semiannual and key decision point reviews, dating from 2002 to
               2005; however, as stated in our briefing, it did not provide
               evidence of the pre-2005 briefings. On May 8, 2006, DHS provided
               some evidence that these meetings occurred; however, based on our
               review of the documentation, it was unclear which executives
               attended these meetings and, therefore, whether the appropriate
               executives were in attendance. Furthermore, the department did not
               provide evidence showing executive direction to mitigate risks or
               address problems. Finally, the department stated that it had
               increased oversight in October 2005 by establishing quarterly flag
               officer/vice president-level program reviews and periodic DHS
               Joint Requirements Council and Investment Review Board reviews.
               This additional oversight provides further support for our finding
               on the lack of executive level oversight prior to 2005. DHS also
               challenged our finding that executive-level monitoring of the risk
               mitigation activities that resulted from the 2005 meetings did not
               occur, citing various monitoring activities that occurred.
               However, it did not provide evidence of the monitoring activities.

               DHS also provided technical comments that were incorporated in
               this report where appropriate. DHS's written comments are
               reprinted in appendix II.

               We are sending copies of this report to the Secretary of Homeland
               Security, the Commandant of the United States Coast Guard, and
               other interested parties. We will make copies available to others
               on request. In addition, the report will be available at no charge
               on the GAO Web site at http://www.gao.gov .

               If you or your staff have any questions concerning this report,
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               pownerd@gao.gov or Stephen L. Caldwell at (202) 512-9610 or by
               e-mail at caldwells@gao.gov .

               David A. Powner David A. Powner Director, Information Technology
               Management Issues

               Stephen L. Caldwell Acting Director, Homeland Security and Justice
               Issue

               David A. Powner, (202) 512-9286 Stephen L. Caldwell, (202)
               512-9610

               In addition to the contacts named above, Joel Aldape, Lisa Canini,
               Carol Cha, Nancy Glover, Dawn Hoff, Tonia Johnson, George
               Kovachick, Freda Paintsil, Karl Seifert, and Kim Zelonis made key
               contributions to this report.

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    3USCG is currently reorganizing its field units into new, integrated, and
    standardized organizations referred to as sectors.

                          Recommendations for Executive Action

                           Agency Comments and Our Evaluation

    Appendix I: Briefing Slides Appendix I: Briefing Slides

    Appendix II: Comments from the Department of Homeland Security Appendix
    II: Comments from the Department of Homeland Security

    Appendix III: GAO Appendix III: GAO Contacts and Staff Acknowledgments

                                      GAO Contacts

                                 Staff Acknowledgments

    (310814)

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    Highlights of GAO-06-62 3, a report to congressional committees

    May 2006

    UNITED STATES COAST GUARD

    Improvements Needed in Management and Oversight of Rescue System
    Acquisition

    Search and rescue-one of the United States Coast Guard's (USCG) oldest
    missions and highest priorities-involves minimizing loss of life, injury,
    and property damage by aiding people and boats in distress. In September
    2002, USCG contracted to replace its search and rescue communications
    system-installed in the 1970s-with a new system known as Rescue 21.
    However, the acquisition and initial implementation of Rescue 21 has
    resulted in significant cost overruns and schedule delays.

    GAO's objectives in reviewing the Rescue 21 program were to (1) assess the
    reasons for the significant cost overruns and implementation delays; (2)
    evaluate the viability of the revised cost and schedule estimates; and (3)
    evaluate the impact of the implementation delays.

    What GAO Recommends

    GAO recommends that the Commandant of USCG ensure that executive-level
    management oversees Rescue 21's progress toward cost and schedule
    milestones and manages risks; establishes milestones to complete an
    integrated baseline review; and develops revised cost and schedule
    estimates. The Department of Homeland Security agreed with the
    recommendations and has begun to implement them; however, the department
    expressed concerns with selected aspects of the report.

    Key factors that contributed to Rescue 21 cost overruns and schedule
    delays were inadequacies in requirements management, project monitoring,
    risk management, contractor cost and schedule estimation and delivery, and
    executive-level oversight (see table). Accordingly, the estimated total
    acquisition cost for Rescue 21 has increased from $250 million in 1999 to
    $710.5 million in 2005, and the timeline for achieving full operating
    capability has been delayed from 2006 until 2011. USCG officials agreed
    that improvements need to be made to the management of the Rescue 21
    project, and they are taking steps to address some of these issues.

    USCG's current acquisition cost estimate of $710.5 million is not viable.
    Our analysis of contractor performance trends indicates that additional
    overruns will likely bring the total acquisition cost to $872 million,
    unless critical changes are made. Additionally, USCG's schedule is
    uncertain due to on-going contract item renegotiations and pending
    decisions regarding vessel asset tracking functionality. Finally, further
    cost increases may result from the variability of costs for tower
    preparation and construction. To improve its current cost and schedule
    estimates, USCG plans to complete an integrated baseline review after
    contract items are renegotiated; however, a date for completing this
    review has not been established.

    The delays in deploying Rescue 21 could affect sites awaiting
    modernization. For example, key functionality, such as improved direction
    finding and improved coverage, will not be available for a significant
    period of time, and legacy equipment may fail, requiring costly repairs
    and upgrades to address coverage gaps and other operational issues.

    Key Factors in Rescue 21 Cost Overruns and Schedule Delays

    Source: GAO.
    *** End of document. ***