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

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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,
           please contact David A. Powner at (202) 512-9286 or by e-mail at
           [email protected] or Stephen L. Caldwell at (202) 512-9610 or by
           e-mail at [email protected] .

           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. ***