Coast Guard: Status of Efforts to Improve Deepwater Program	 
Management and Address Operational Challenges (08-MAR-07,	 
GAO-07-575T).							 
                                                                 
The Coast Guard's Deepwater program is a 25-year, $24 billion	 
plan to replace or modernize its fleet of vessels and aircraft.  
While there is widespread acknowledgment that many of the Coast  
Guard's aging assets need replacement or renovation, concerns	 
exist about the acquisition approach the Coast Guard adopted in  
launching the Deepwater program. From the outset, GAO has	 
expressed concern about the risks involved with the Coast Guard's
acquisition strategy, and continues to review Deepwater program  
management. This statement discusses (1) the Coast Guard's	 
acquisition approach for the Deepwater program; (2) Coast Guard  
efforts to manage the program, hold contractors accountable, and 
control costs through competition; (3) the status of the Coast	 
Guard's efforts to acquire new or upgraded Deepwater assets; and 
(4) operational challenges the Coast Guard is facing because of  
performance and design problems with Deepwater patrol boats.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-575T					        
    ACCNO:   A66626						        
  TITLE:     Coast Guard: Status of Efforts to Improve Deepwater      
Program Management and Address Operational Challenges		 
     DATE:   03/08/2007 
  SUBJECT:   Competition					 
	     Contractors					 
	     Cost control					 
	     Equipment upgrades 				 
	     Military procurement				 
	     Military vessels					 
	     Procurement planning				 
	     Program evaluation 				 
	     Program management 				 
	     Risk assessment					 
	     Schedule slippages 				 
	     Ships						 
	     Strategic planning 				 
	     Coast Guard Deepwater Project			 
	     Fast Response Cutter				 
	     Long-Range Interceptor				 
	     National Security Cutter				 
	     Offshore Patrol Cutter				 
	     Short-Range Prosecutor				 

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GAO-07-575T

   

     * [1]Summary
     * [2]Background
     * [3]Coast Guard's Acquisition Approach to the Deepwater Program

          * [4]System of Systems
          * [5]Systems Integrator
          * [6]Performance-based Acquisition
          * [7]Deepwater Indicative of Broader, Systematic Acquisition Chal

     * [8]Preliminary Observations on Deepwater Program Management, Co

          * [9]Program Management

               * [10]Integrated Product Teams
               * [11]Human Capital
               * [12]Communication with Operations and Maintenance Personnel

          * [13]Concerns Remain with Holding Systems Integrator Accountable

               * [14]Award Fee Criteria
               * [15]Award Term Evaluation
               * [16]Establishing Criteria and Documenting Changes to the
                 Baselin

          * [17]Limited Knowledge of Cost Control Achieved Through Competiti

     * [18]Deepwater Asset Delivery Schedule Shows Mixed Results

          * [19]Assets That Are on or Ahead of Schedule as of January 2007

               * [20]Long-Range Interceptor
               * [21]Short-Range Prosecutor
               * [22]Maritime Patrol Aircraft
               * [23]Long-Range Surveillance Aircraft
               * [24]Medium-Range Recovery Helicopter
               * [25]Multi-Mission Cutter Helicopter
               * [26]National Security Cutter

          * [27]Deepwater Assets Behind Schedule as of January 2007

               * [28]Offshore Patrol Cutter
               * [29]Fast Response Cutter
               * [30]Vertical Unmanned Aerial Vehicle

     * [31]Performance and Design Problems Creating Operational Challen

          * [32]Performance Problems with the Converted 123-foot Patrol Boat
          * [33]Design Problems with the Fast Response Cutter

     * [34]GAO Contacts and Acknowledgments
     * [35]GAO's Mission
     * [36]Obtaining Copies of GAO Reports and Testimony

          * [37]Order by Mail or Phone

     * [38]To Report Fraud, Waste, and Abuse in Federal Programs
     * [39]Congressional Relations
     * [40]Public Affairs

Testimony

Before the Subcommittee on Coast Guard and Maritime Transportation,
Committee on Transportation and Infrastructure, House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 10:00 a.m. EST
Thursday, March 8, 2007

COAST GUARD

Status of Efforts to Improve Deepwater Program Management and Address
Operational Challenges

Statement of Stephen L. Caldwell, Acting Director Homeland Security and
Justice Issues

GAO-07-575T

Mr. Chairman and Members of the Committee:

Thank you for inviting me here today to discuss GAO's recent reviews of
Coast Guard's Deepwater program, a $24 billion effort to upgrade or
replace existing aircraft and vessels to ensure Coast Guard's ability to
meet its many missions. The Deepwater program is eventually to include 10
major classes of new or upgraded assets--5 major classes each of aircraft
and vessels. To carry out this effort, the Coast Guard has relied on an
acquisition strategy that gives responsibility to a contractor (systems
integrator) for designing, integrating, and delivering a number of
aircraft, vessels, and supporting communications equipment. Using a
systems integrator in this fashion means that the government is acquiring
management capacity it has historically maintained in house through a
service contract.

GAO has been involved in reviewing the Deepwater program since 2001, and
has informed Congress, the Department of Homeland Security (DHS), and the
Coast Guard of risks and challenges associated with the program.
Specifically, GAO has raised concerns related to the Coast Guard's
acquisition strategy for Deepwater, changes in the asset mix and delivery
schedules, as well as Coast Guard's ability to manage the program and
oversee the systems integrator's performance.^1 In March 2004, we made
recommendations to the Coast Guard to address three areas of concern:
improving program management, strengthening contractor accountability, and
promoting cost control through greater competition among potential
subcontractors.

Challenges associated with specific Deepwater assets have recently
received significant attention. For example, the Commandant made a
decision to remove the 123-foot patrol boats, a converted legacy asset,
from service on November 30, 2006 due to operational and safety concerns.
This decision has created operational gaps for those missions the patrol
boats perform and the Coast Guard is currently attempting to address this
through a number of different strategies.

^1 GAO, Coast Guard: Progress Being Made on Deepwater Project, but Risks
Remain, [41]GAO-01-564 (Washington, D.C.: May 2, 2001); GAO, Contract
Management: Coast Guard's Deepwater Program Needs Increased Attention to
Management and Contractor Oversight, [42]GAO-04-380 (Washington, D.C.:
Mar. 9, 2004).

This statement offers information on the Coast Guard's efforts to manage
the Deepwater program and address operational challenges that have arisen.
Specifically, it discusses:

           o the Coast Guard's acquisition approach for the Deepwater
           program;
           o Coast Guard efforts to manage the Deepwater program, hold
           contractors accountable, and control costs through competition;
           o the status of the Coast Guard's efforts to acquire new or
           upgraded Deepwater assets; and
           o operational challenges the Coast Guard is facing because of
           performance and design problems with Deepwater patrol boats.

The information noted in this testimony is based on our review of key
documents, including the 2005 Deepwater Acquisition Program Baseline;
schedule information provided by the Coast Guard; Coast Guard memoranda
regarding the 123-foot patrol boat conversion; and Coast Guard's human
capital plan, its award fee and award term documentation, and its
competition monitoring plan. We conducted interviews with Coast Guard
officials at agency headquarters in Washington, D.C.; officials in Coast
Guard's System Integration Program Office in Arlington, VA; and Coast
Guard contractor staff. In addition, we interviewed Coast Guard officials
during visits to the Pacific and Atlantic Area Commands and their
associated Maintenance and Logistics Commands and at the Coast Guard's
Aircraft Repair and Supply Center. Our work was conducted from August 2006
to February 2007 in accordance with generally accepted government auditing
standards. In addition, GAO has been reviewing the Deepwater program since
2001, and some of the information in this testimony comes from our earlier
work. Appendix I contains a list of related GAO products.

Summary

In 2001, we described the Deepwater program as "risky" due to the unique,
untried acquisition strategy for a project of this magnitude within the
Coast Guard. The Coast Guard used a system-of-systems approach to replace
deteriorating assets with a single, integrated package of aircraft,
vessels, and unmanned aerial vehicles to be linked through systems that
provide command, control, communications, computer, intelligence,
surveillance, and reconnaissance (C4ISR), and supporting logistics. In a
system-of-systems, the delivery of Deepwater assets are interdependent,
thus schedule slippages and uncertainties associated with potential
changes in the design and capabilities of any one asset increases the
overall risk that the Coast Guard might not meet its expanded homeland
security missions within given budget parameters and milestone dates. The
Coast Guard also used a systems integrator--which can give the contractor
extensive involvement in requirements development, design, and source
selection of major system and subsystem subcontractors. The Deepwater
program is also a performance-based acquisition, meaning that it is
structured around the results to be achieved rather than the manner in
which the work is performed. If performance-based acquisitions are not
appropriately planned and structured, there is an increased risk that the
government may receive products or services that are over cost estimates,
delivered late, and of unacceptable quality.

In 2004 and in subsequent assessments in 2005 and 2006, we reported
concerns about the Deepwater program related to three main areas--program
management, contractor accountability, and cost control. The Coast Guard's
ability to effectively manage the program has been challenged by staffing
shortfalls and poor communication and collaboration among Deepwater
program staff, contractors, and field personnel who operate and maintain
the assets. Despite documented problems in schedule, performance, cost
control, and contract administration, measures for holding the contractor
accountable resulted in an award fee of $4 million (of the maximum $4.6
million) for the first year. Through the first 4 years of the Deepwater
contract, the systems integrator received award fees that ranged from 87
percent to 92 percent of the total possible award fee (scores that ranged
from "very good" to "excellent" based on Coast Guard criteria), for a
total of over $16 million. Further, the program's ability to control
Deepwater costs is uncertain given the Coast Guard's lack of detailed
information on the contractor's competition decisions. While the Coast
Guard has taken some actions to improve program outcomes, our assessment
of the program and its efforts to address our recommendations continues,
and we plan to report on our findings later this year.

Of the 10 classes of upgraded or new Deepwater aircraft and vessels, the
delivery record for first-in-class assets (that is, the first of multiple
aircraft or vessels to be delivered within each class) is mixed.
Specifically, 7 of the 10 asset classes are on or ahead of schedule. Among
these, five first-in-class assets have been delivered on or ahead of
schedule; and two others remain on schedule but their planned delivery
dates are in 2009 or beyond. Three Deepwater asset classes are currently
behind schedule due to various problems related to designs, technology, or
funding. For example, the Fast Response Cutter (a new vessel), which had
been scheduled for first-in-class delivery in 2007, has been delayed by at
least 2 years in part because work on its design was suspended until
technical problems related to its hull and other issues can be addressed.
The Vertical Unmanned Aerial Vehicle (a new aircraft), which had also been
scheduled for delivery in 2007, has been delayed by 6 years due to
evolving technological developments, among other things. In addition, the
Offshore Patrol Cutter, which had a planned delivery date in 2010, has now
been delayed by 5 years.

The Coast Guard is facing operational challenges because of performance
and design problems with Deepwater patrol boats. Specifically, the
conversion of legacy 110-foot patrol boats to upgraded 123-foot patrol
boats was stopped at eight hulls (rather than the entire fleet of 49) due
to deck cracking, hull buckling, and shaft alignment problems. These
patrol boat conversion problems ultimately led the Coast Guard to suspend
all normal operations of the eight converted 123-foot patrol boats on
November 30, 2006. The Coast Guard is now exploring options to address the
resulting short-term operational gaps. There have also been design
problems with the new Fast Response Cutter (FRC), intended to replace all
110-foot and 123-foot patrol boats. In February 2006, the Coast Guard
suspended design work on the FRC due to design risks, such as excessive
weight and horsepower requirements.^2 According to the Coast Guard, it has
decided to acquire two classes of FRCs in an effort to not delay delivery
of the FRCs further. One class is to be based on an adapted design from a
patrol boat already on the market and another class is to be redesigned to
address the problems in the original FRC design plans. As with the
123-foot patrol boats, the Coast Guard is looking at options to address
these long-term operational gaps.

Background

The Coast Guard is the lead federal agency for maritime security within
DHS. The Coast Guard is responsible for a variety of missions, including
ensuring ports, waterways, and coastline security; conducting search and
rescue missions; interdicting illicit drug shipments and illegal aliens;
and enforcing fisheries laws. In 1996, in order to continue carrying out
its responsibilities and operations, the Coast Guard initiated the
Deepwater program to replace or upgrade its aging vessels, aircraft, and
other essential equipment.

As originally conceived, Deepwater was designed around producing aircraft
and vessels 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--and the original 2002 Deepwater program was
focused on those traditional missions. After the terrorist attacks on
September 11, 2001, the Coast Guard was also assigned homeland security
missions related to protection of ports, waterways, and coastal areas.
Based on its revised mission responsibilities, the Coast Guard updated its
Deepwater Acquisition Program Baseline in November 2005. The new baseline
contained changes in the balance between new assets to be acquired and
legacy assets to be upgraded and adjusted the delivery schedule and costs
for many of these assets. Overall, the Deepwater acquisition schedule was
lengthened by 5 years, with the final assets now scheduled for delivery in
2027.

^2 GAO, Coast Guard: Status of Deepwater Fast Response Cutter Design
Efforts, [43]GAO-06-764 (Washington, D.C.: June 23, 2006).

Upon its completion, the Deepwater program is to consist of 5 new classes
of vessels, 1 new class of fixed-wing aircraft, 1 new class of unmanned
aerial vehicles, 2 classes of upgraded helicopters, and 1 class of
upgraded fixed-wing aircraft.^3 The 215 new vessels consist of five new
asset classes--the National Security Cutter (NSC), Offshore Patrol Cutter
(OPC), Fast Response Cutter (FRC), Long-Range Interceptor (LRI), and
Short-Range Prosecutor (SRP). The 240 aircraft are composed of two new
aircraft classes, the Vertical Unmanned Aerial Vehicle (VUAV) and the
Maritime Patrol Aircraft (MPA); and three upgraded asset classes--the
Long-Range Surveillance Aircraft (LRS), Medium-Range Recovery Helicopter
(MRR), and the Multi-Mission Cutter Helicopter (MCH).

Table 1 provides an overview, by asset class, of the Deepwater vessels to
be acquired and table 2 provides an overview of the Deepwater aircraft to
be acquired or upgraded. As noted in Table 1, the 140-foot FRC was
designated as a replacement vessel for the 110-foot and 123-foot patrol
boats.

^3 In addition to these asset classes, Coast Guard plans to procure
surveillance data from another unmanned aerial vehicle, the RQ-4A. Because
this is not to be acquired as a capital investment, we do not include it
among the assets to be acquired or upgraded.

Table 1: Deepwater Vessel Classes to be Acquired

Table 2: Deepwater Aircraft Classes to be Upgraded or Acquired

Since 2001, we have reviewed the Deepwater program and have informed
Congress, DHS, and Coast Guard of the problems, risks, and uncertainties
inherent with such a large acquisition that relies on a systems integrator
to identify the assets needed and then using tiers of subcontractors to
design and build the assets. In March 2004, we made recommendations to the
Coast Guard to address three broad areas of concern: improving program
management, strengthening contractor accountability, and promoting cost
control through greater competition among potential subcontractors (see
table 3). ^4

4 [44]GAO-04-380

Table 3: Status of GAO Recommendations to the U.S. Coast Guard Regarding
Management of the Deepwater Program, as of April 28, 2006

                     Recommendations to the                 
Areas of concern  U.S. Coast Guard                   Recommendation status
Key components    Put in place a human               Partially
of management     capital plan to ensure             implemented^a (human
and oversight     adequate staffing of               capital plan was
                     the Deepwater program              revised)
                     Improve integrated     Partially   
                     product teams (IPTs)   implemented 
                     responsible for                    
                     managing the program               
                     by providing better                
                     training, approving                
                     charters for                       
                     sub-IPTs, and                      
                     improving systems for              
                     sharing information                
                     between teams                      
                     Provide field          Partially   
                     operators and          implemented 
                     maintenance personnel              
                     with timely                        
                     information and                    
                     training on how the                
                     transition to                      
                     Deepwater assets will              
                     occur and how                      
                     maintenance                        
                     responsibilities are               
                     to be divided between              
                     the systems                        
                     integrator and Coast               
                     Guard personnel                    
Procedures for    Develop measurable                 Implemented
ensuring          award fee criteria                     
contractor        consistent with                        
accountability    guidance from the                      
                     Office of Federal                      
                     Procurement Policy                     
                     Provide for better     Implemented 
                     input from U.S. Coast              
                     Guard performance                  
                     monitors                           
                     Hold the systems       Implemented 
                     integrator                         
                     accountable in future              
                     award fee                          
                     determinations for                 
                     improving                          
                     effectiveness of the               
                     IPTs                               
                     Establish a baseline   Will not be 
                     for determining        implemented 
                     whether the                        
                     acquisition approach               
                     is costing the                     
                     government more than               
                     the traditional asset              
                     replacement approach               
                     Establish a time       Partially   
                     frame for when the     implemented 
                     models and metrics                 
                     will be in place with              
                     the appropriate                    
                     degree of fidelity to              
                     be able to measure                 
                     contractor's progress              
                     toward improving                   
                     operational                        
                     effectiveness                      
                     Establish criteria to  Partially   
                     determine when to      implemented 
                     adjust the project                 
                     baseline and document              
                     the reasons for                    
                     change                             
Control of        For subcontracts over              Implemented
future costs      $5 million awarded by                  
through           the systems integrator                 
competition       to the two major                       
                     subcontractors,                        
                     require notification                   
                     to the Coast Guard                     
                     about decision to                      
                     perform the work                       
                     in-house rather than                   
                     contracting it out                     
                     Develop a              Partially   
                     comprehensive plan     implemented 
                     for holding the                    
                     systems integrator                 
                     accountable for                    
                     ensuring adequate                  
                     competition among                  
                     suppliers                          

Source: [45]GAO-04-380 and [46]GAO-06-546 .

Note: ^a  While the Coast Guard has revised its human capital plan, it has
not yet addressed the rest of the recommendation, which is to ensure
adequate staffing for the Deepwater program.

Coast Guard's Acquisition Approach to the Deepwater Program

In 2001, we described the Deepwater program as "risky" due to the unique,
untried acquisition strategy for a project of this magnitude within the
Coast Guard. The approach included the development of a system-of-systems,
a single systems integrator, and a performance-based contract.

System of Systems

Rather than using the traditional approach of replacing classes of ships
or aircraft through a series of individual acquisitions, the Coast Guard
chose to use a system-of-systems acquisition strategy that would replace
its deteriorating assets with a single, integrated package of aircraft,
vessels, and unmanned aerial vehicles, to be linked through systems that
provide C4ISR, and supporting logistics.^5 Through this approach, the
Coast Guard hoped to avoid "stovepiping" the acquisition of vessels and
aircraft, which might lead to a situation where they could not operate
optimally together.

Despite the Coast Guard's intention to avoid stovepiping in the
acquisition process, we found that the Deepwater program has not been as
integrated as hoped. Our past work on Deepwater noted that decisions on
aircraft were made by one subcontractor, while decisions regarding vessels
were made by another subcontractor. These separate lines of
decision-making 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. Our more recent
work on the Fast Response Cutter (FRC)--which is discussed in more detail
later--indicated that changes in the design and delivery date for the FRC
could affect the operations of the overall system-of-systems approach.
Because the delivery of Deepwater assets are interdependent within the
system-of-systems acquisition approach, schedule slippages and
uncertainties associated with potential changes in the design and
capabilities of the new assets have increased the risks of the Coast Guard
failing to meet its expanded homeland security missions within given
budget parameters and milestone dates.

Systems Integrator

In June 2002, the Coast Guard awarded the Deepwater contract to Integrated
Coast Guard Systems (ICGS). ICGS--a business entity jointly owned by
Northrop Grumman and Lockheed Martin--is responsible for designing,
constructing, deploying, supporting, and integrating the Deepwater assets
to meet Coast Guard requirements.

^5 C4ISR refers to command, control, communications, computer,
intelligence, surveillance, and reconnaissance.

Government agencies have turned to the systems integrator approach when
they believe they do not have the in-house capability to design, develop,
and manage complex acquisitions.^6 This type of business arrangement can
give the contractor extensive involvement in requirements development,
design, and source selection of major system and subsystem subcontractors.
Giving contractors more control and influence over the government's
acquisitions in a systems integrator role creates a potential risk that
program decisions and products could be influenced by the financial
interest of the contractor--which is accountable to its
shareholders--which may not match the primary interest of the government,
maximizing its return on taxpayer dollars. The systems integrator
arrangement creates an inherent risk, as the contractor is given more
discretion to make certain program decisions. Along with this greater
discretion comes the need for more government oversight and an even
greater need to develop well-defined outcomes at the outset.

Performance-based Acquisition

The Deepwater program has been designated as a performance-based
acquisition. When buying services, federal agencies are currently required
to employ--to the maximum extent feasible--this concept, wherein
acquisitions are structured around the results to be achieved as opposed
to the manner in which the work is to be performed. That is, the
government specifies the outcome it requires while leaving the contractor
to propose decisions about how it will achieve that outcome.
Performance-based contracts for services are required to include a
performance work statement; measurable performance standards (i.e., in
terms of quality, timeliness, quantity, etc.) as well as the method of
assessing contractor performance against these standards; and performance
incentives, where appropriate. If performance-based acquisitions are not
appropriately planned and structured, there is an increased risk that the
government may receive products or services that are over cost estimates,
delivered late, and of unacceptable quality.

^6 This management approach of using a systems integrator has been used on
other government programs that require system-of-systems integration, such
as the Army's Future Combat System, a networked family of weapons and
other systems.

Deepwater Indicative of Broader, Systematic Acquisition Challenges

Some of the problems the Coast Guard is experiencing with the Deepwater
program are similar to problems we have reported on in other complex,
developmental systems.^7 These problems stem from:

           o Program requirements that are set at unrealistic levels, then
           changed frequently as recognition sets in that they cannot be
           achieved. As a result, too much time passes; threats may change;
           and/or members of the user and acquisition communities may simply
           change their minds. The resulting program instability causes cost
           escalation, schedule delays, fewer quantities, and reduced
           contractor accountability.
           o Program decisions to move into design and production without
           adequate standards or knowledge.
           o Contracts, especially service contracts, that often do not have
           measures in place at the outset in order to control costs and
           facilitate accountability.
           o Contracts that typically do not accurately reflect the
           complexity of projects or appropriately allocate risk between the
           contractors and the taxpayers.
           o Agency acquisition workforces that are challenged because of
           size, skills, insufficient knowledge, and succession planning.
           o Incentive and award fees that are often paid based on contractor
           efforts versus positive results, such as cost, quality, and
           schedule.
           o Inadequate government oversight that results in little to no
           accountability for recurring and systemic problems.

Preliminary Observations on Deepwater Program Management, Contractor
Accountability, and Cost Control

Since the inception of the Deepwater program, we have expressed concerns
about the risks involved with the Coast Guard's system-of-systems
acquisition approach and the Coast Guard's ability to manage and oversee
the program. Our concerns have centered on three main areas: program
management, contractor accountability, and cost control through
competition. We have made a number of recommendations to improve the
program--most of which the Coast Guard has agreed with and is working to
address. However, while actions are under way, a project of this magnitude
will likely continue to experience other problems as more becomes known.

Program Management

In 2004, we reported that the Coast Guard had not effectively implemented
key components needed to manage and oversee the systems integrator.
Specifically, we reported at that time and subsequently on issues related
to integrated product teams (IPT), the Coast Guard's human capital
strategy, and communication with field personnel (individuals responsible
for operating and maintaining the assets). Our preliminary observations on
the Coast Guard's progress in improving these program management areas,
based on our ongoing work, follow.

^7 GAO, High Risk Series: An Update, [47]GAO-07-310 (Washington, D.C.:
January 2007).

  Integrated Product Teams

In 2004, we found that IPTs, the Coast Guard's primary tool for managing
the Deepwater program and overseeing the contractor, had not been
effective due to changing membership, understaffing, insufficient
training, lack of authority for decision making, and inadequate
communication. We recommended the Coast Guard take actions to address IPT
effectiveness. We subsequently reported that IPT decision-making was to a
large extent stovepiped, and some teams lacked adequate authority to make
decisions within their realm of responsibility.^8 Coast Guard officials
stated that they believed collaboration among the subcontractors was
problematic and that the systems integrator wielded little influence to
compel decisions among them. For example, proposed design changes to
assets under construction were submitted as two separate proposals from
both subcontractors rather than one coherent plan. More recently, Coast
Guard performance monitors reported this approach complicated the
government review of design changes because the two proposals often
carried overlapping work items, thereby forcing the Coast Guard to act as
the systems integrator in those situations. Although some efforts have
been made to improve the effectiveness of the IPTs--such as providing them
with more timely charters and entry-level training--our preliminary
observations are that more improvements are needed.

Despite changes to the metrics, the Coast Guard's ability to assess IPT
performance continues to be problematic. Former assessments of IPT
effectiveness simply focused on measures such as frequency of meetings,
attendance, and training. As a result, IPTs received positive assessments
while the assets under their realm of responsibility--such as the National
Security Cutter--were experiencing problems. While the Coast Guard's new
IPT measurements include outcome-based metrics, such as cost and schedule
performance of assets, Deepwater's overall program management quarterly
reports, which are prepared by Coast Guard in collaboration with ICGS,
show that the connection between IPT performance and program results
continues to be misaligned.^9 For example, the first quarterly report to
incorporate the new measurements, covering the period October to December
2006, indicates that the IPTs' performance for all domains is "on-schedule
or non-problematic" even while some assets' cost or schedule performance
is rated "behind schedule or problematic."^10 Further, even though the
Deepwater program is addressing fundamental problems surrounding the
123-foot patrol boat and FRC, IPTs no longer exist for these assets. In
some cases, Coast Guard officials stated they have established work groups
outside of the existing IPT structure to address identified issues and
problems related to assets, such as the NSC.

^8 GAO, Coast Guard: Progress Being Made on Addressing Legacy Asset
Condition Issues and Program Management, but Acquisition Challenges
Remain, [48]GAO-05-757 (Washington, D.C.: July 22, 2005).

  Human Capital

We also reported in 2004 that the Coast Guard had not adequately staffed
its program management function for Deepwater. Although its Deepwater
human capital plan set a goal of a 95 percent or higher "fill rate"
annually for both military and civilian personnel, funded positions were
below this goal. We recommended that the Coast Guard follow the procedures
in its Deepwater human capital plan to ensure that adequate staffing was
in place and that turnover of Coast Guard military personnel was
proactively addressed. The Coast Guard subsequently revised its Deepwater
human capital plan in February 2005 to emphasize workforce planning,
including determining needed knowledge, skills, and abilities and
developing ways to leverage institutional knowledge as staff rotate out of
the program. We reported in 2005 that the Coast Guard also took some
short-term steps to improve Deepwater program staffing, such as 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.

However, more recently we have learned that while the Coast Guard has
revised a human capital plan, key human capital management objectives
outlined in the revised plan have not been fully implemented. Thus, key
human capital management objectives outlined in the revised plan have not
been accomplished and the staffing levels needed to accomplish the known
workload have not been achieved. In one example, a manager cited the need
for five additional staff per asset under his domain to satisfy the
current workload in a timely manner: contracting officer's technical
representative, scheduler, cost estimator, analyst, and configuration
manager. Further, a February 2007 independent analysis found that the
Coast Guard does not possess a sufficient number of acquisition personnel
or the right level of experience needed to manage the Deepwater
program.^11 The Coast Guard has identified an acquisition structure
re-organization that includes human capital as one component of the
reform.

^9 The program management reports were produced on a monthly basis in the
past; now they are produced on a quarterly basis.

^10 IPTs are focused on the development and fielding of a particular
product (e.g., the NSC) and are organized by domain. Examples of domains
are air, surface, C4ISR, and legacy assets.

  Communication with Operations and Maintenance Personnel

In 2004, we found that the Coast Guard had not adequately communicated to
operations and maintenance personnel in field locations about decisions on
how the new and old assets were to be integrated during the transition and
whether Coast Guard or systems integrator personnel--or both--would be
responsible for maintenance. We recommended that the Coast Guard provide
timely information and training on the transition to Deepwater assets. In
2006, we reported that the Coast Guard had taken some steps to improve
communications between Deepwater program and field personnel, including
having field personnel as members on some IPTs. However, we continued to
express concerns that field personnel were not receiving important
information regarding training, maintenance, and integration of new
Deepwater assets.

During our ongoing work, the field personnel involved in operating and
maintaining the assets and Deepwater program staff we interviewed
expressed continued concern that maintenance and logistics plans had not
been finalized. Another official commented that there continues to be a
lack of clarity defining roles and responsibilities between the Coast
Guard and systems integrator for maintenance and logistics. Coast Guard
officials stated in fall 2006 that the systems integrator was
contractually responsible for developing key documents related to plans
for the maintenance and logistics for the NSC and Maritime Patrol
Aircraft. However, Deepwater program officials stated that because the
Coast Guard was not satisfied with the level of detail provided in early
drafts of these plans, it was simultaneously developing "interim" plans
that it could rely on while the systems integrator continued to develop
its own versions.

^11 Defense Acquisition University, Quick Look Study: United States Coast
Guard Deepwater Program, (Fort Belvoir, VA.): Feb. 5, 2007

Concerns Remain with Holding Systems Integrator Accountable

Our 2004 review revealed that the Coast Guard had not developed
quantifiable metrics to hold the systems integrator accountable for its
ongoing performance. For example, the process by which the Coast Guard
assessed performance to make the award fee determination after the first
year of the contract lacked rigor. At that time, we also found that the
Coast Guard had not yet begun to measure contractor performance against
Deepwater contract requiremets--the information it would need by June 2006
to decide whether to extend the systems integrator's contract award term
by up to another 5 years. Additionally, we noted that the Coast Guard
needed to establish a solid baseline against which to measure progress in
lowering total ownership cost--one of the three overarching goals of the
Deepwater program. Furthermore, the Coast Guard had not developed criteria
for potential adjustments to the baseline.

  Award Fee Criteria

In 2004 we found the first annual award fee determination was based
largely on unsupported calculations. Despite documented problems in
schedule, performance, cost control, and contract administration
throughout the first year, the program executive officer awarded the
contractor an overall rating of 87 percent, which fell in the "very good"
range as reported by the Coast Guard award fee determining official. This
rating resulted in an award fee of $4 million of the maximum $4.6 million.
The Coast Guard continued to report design, cost, schedule, and delivery
problems, and evaluation of the systems integrator's performance continued
to result in award fees that ranged from 87 percent to 92 percent of the
total possible award fee (with 92 percent falling into the "excellent"
range), or $3.5 to $4.8 million annually, for a total of over $16 million
the first 4 years on the contract.

The Coast Guard continues to refine the award fee criteria under which it
assesses the systems integrator's performance. The current award fee
criteria demonstrate the Coast Guard's effort to use both objective and
subjective measures and to move toward clarity and specificity with the
criteria being used. For example, the criteria include 24 specific
milestone activities and dates to which the systems integrator will be
held accountable for schedule management. However, we recently observed
two changes to the criteria that could affect the Coast Guard's ability to
hold the contractor accountable. First, the current award fee criteria no
longer contain measures that specifically address IPTs, despite a
recommendation we made in 2004 that the Coast Guard hold the systems
integrator accountable for IPT effectiveness. The Coast Guard had agreed
with this recommendation and, as we reported in 2005, it had incorporated
award fee metrics tied to the systems integrator's management of
Deepwater, including administration, management commitment, collaboration,
training, and empowerment of the IPTs. Second, a new criterion to assess
both schedule and cost management states that the Coast Guard will not
take into account milestone or cost impacts determined by the government
to be factors beyond the systems integrator's control. However, a Coast
Guard official stated that there are no formal written guidelines that
define what factors are to be considered as being beyond the systems
integrator's control, what process the Coast Guard is going to use to make
this determination, or who is ultimately responsible for making those
determinations.

  Award Term Evaluation

The Deepwater program management plan included three overarching goals of
the Deepwater program: increased operational effectiveness, lower total
ownership cost, and customer satisfaction to be used for determining
whether to extend the contract period of performance, known as the award
term decision. We reported in 2004 that the Coast Guard had not begun to
measure the systems integrator's performance in these three areas, even
though the information was essential to determining whether to extend the
contract after the first 5 years.^12 We also reported that the models the
Coast Guard was using to measure operational performance lacked the
fidelity to capture whether improvements may be due to Coast Guard or
contractor actions, and program officials noted the difficulty of holding
the contractor accountable for operational effectiveness before Deepwater
assets are delivered. We made a recommendation to Coast Guard to address
these issues.

According to a Coast Guard official, the Coast Guard evaluated the
contractor subjectively for the first award term period in May 2006, using
operational effectiveness, total ownership costs, and customer
satisfaction as the criteria. The result was a new award term period of 43
of a possible 60 months. To measure the system's operational
effectiveness, the Coast Guard has developed models to simulate the effect
of the Deepwater assets' capabilities on its ability to meet its missions
and to measure the "presence" of those assets. However, in its assessment
of the contractor, the Coast Guard assumed full operational capability of
assets and communications and did not account for actual asset operating
data. Furthermore, the models still lacked the fidelity to capture whether
operational improvements are attributable to Coast Guard or contractor
actions. As a result the contractor received credit for factors that may
have been beyond its control--although no formal process existed for
approving such factors. Total ownership cost was difficult to measure,
thus the contractor was given a neutral score, according to Coast Guard
officials.^13 Finally, the contractor was rated "marginal" in customer
satisfaction.

^12 An award term contract is a contract in which the contractor is
rewarded for excellent performance with an extension of the contract
period instead of an additional fee.

The Coast Guard has modified the award term evaluation criteria to be used
to determine whether to grant a further contract extension after the
43-month period ends in January 2011. The new criteria incorporate more
objective measures.

           o While the three overall Deepwater program objectives
           (operational effectiveness, total ownership costs, and customer
           satisfaction) carried a weight of 100 percent under the first
           award term decision, they will represent only about a third of the
           total weight for the second award term decision. The criteria
           include items such as new operational effectiveness measures that
           will include an evaluation of asset-level key performance
           parameters, such as endurance, operating range, and detection
           range.

           o The new award term criteria have de-emphasized measurement of
           total ownership cost, concentrating instead on cost control.
           Program officials noted the difficulty of estimating ownership
           costs far into the future, while cost control can be measured
           objectively using actual costs and earned value data. In 2004, we
           recommended that the Coast Guard establish a total ownership cost
           baseline that could be used to periodically measure whether the
           Deepwater system-of-systems acquisition approach is providing the
           government with increased efficiencies compared to what it would
           have cost without this approach. Our recommendation was consistent
           with the cost baseline criteria set forth in the Deepwater program
           management plan. The Coast Guard agreed with the recommendation at
           the time, but subsequently told us it does not plan to implement
           it.

  Establishing Criteria and Documenting Changes to the Baseline

Establishing a solid baseline against which to measure progress in
lowering total ownership cost is critical to holding the contractor
accountable. The Coast Guard's original plan, set forth in the Deepwater
program management plan, was to establish as its baseline the dollar value
of replacing assets under a traditional, asset-by-asset approach as the
"upper limit for total ownership cost." In practice, the Coast Guard
decided to use the systems integrator's estimated cost of $70.97 billion
plus 10 percent (in fiscal year 2002 dollars) for the system-of-systems
approach as the baseline. In 2004, we recommended that the Coast Guard
establish criteria to determine when the total ownership cost baseline
should be adjusted and ensure that the reasons for any changes are
documented.

^13 The award term determination rated total ownership cost as "good."

Since then, the Coast Guard established a process that would require DHS
approval for adjustments to the total ownership cost baseline. The
Deepwater Program Executive Officer maintains authority to approve
baseline revisions at the asset or domain level. However, depending on the
severity of the change, these changes are also subject to review and
approval by DHS. In November 2005, the Coast Guard increased the total
ownership cost baseline against which the contractor will be evaluated to
$304 billion.^14 Deepwater officials stated that the adjustment was the
result of incorporating the new homeland security mission requirements and
revising dollar estimates to a current year basis. Although the Coast
Guard is required to provide information to DHS on causal factors and
propose corrective action for a baseline breach of 8 percent or more, the
8 percent threshold has not been breached because the threshold is
measured against total program costs and not on an asset basis.^15 For
example, the decision to stop the conversion of the 49 110-foot patrol
boats after 8 hulls did not exceed the threshold; nor did the damages and
schedule delay to the NSC attributed to Hurricane Katrina. During our
ongoing work, Coast Guard officials acknowledged that only a catastrophic
event would ever trigger a threshold breach. According to a Coast Guard
official, DHS approval is pending on shifting the baseline against which
the systems integrator is measured to an asset basis.

Limited Knowledge of Cost Control Achieved Through Competition

Our 2004 report also had recommendations related to cost control through
the use of competition. We reported that, although competition among
subcontractors was a key mechanism for controlling costs, the Coast Guard
had neither measured the extent of competition among the suppliers of
Deepwater assets nor held the systems integrator accountable for taking
steps to achieve competition.^16 As the two first-tier subcontractors to
the systems integrator, Lockheed Martin and Northrop Grumman have sole
responsibility for determining whether to provide the Deepwater assets
themselves or hold competitions--decisions commonly referred to as "make
or buy." We noted that the Coast Guard's hands-off approach to make-or-buy
decisions and its failure to assess the extent of competition raised
questions about whether the government would be able to control Deepwater
program costs.

^14 For a variety of reasons, including the Coast Guard's expanded
homeland security mission, the baseline was increased from $70.97 billion
plus 10 percent (fiscal year 2002 dollars) to $304 billion (fiscal year
2006 dollars).

^15 According to DHS officials, a baseline breach occurs when a cost or
schedule threshold is exceeded or when a performance threshold cannot be
met.

The Coast Guard has taken steps to establish a reporting requirement for
the systems integrator to provide information on competition on a
semi-annual basis. The systems integrator is to provide detailed plans,
policies, and procedures necessary to ensure proper monitoring, reporting,
and control of its subcontractors. Further, reports are to include total
procurement activity, the value of competitive procurements, and the
subcontractors' name and addresses. The systems integrator provided the
first competition report in October 2006. However, because the report did
not include the level of detail required by Coast Guard guidelines, a
Coast Guard official deemed that the extent of competition could not be
validated by the information provided and a request was made to the
systems integrator for more information. We will continue to assess the
Coast Guard's efforts to hold the systems integrator accountable for
ensuring an adequate degree of competition.

Deepwater Asset Delivery Schedule Shows Mixed Results

Our review of available data show that as of January 2007, of the 10
classes of Deepwater assets to be acquired or upgraded, 4 are ahead of
schedule; 3 remain on schedule (but for 1 of these, design problems have
arisen); and 3 are behind scheduled delivery and face design, funding, or
technology challenges. Using the 2005 Deepwater Acquisition Program
Baseline as the baseline, figure 1 indicates, for each asset class,
whether delivery of the first-in-class (that is, the first of several to
be produced in its class) is ahead of schedule, on schedule, or behind
schedule, as of January 2007.

^16 See [49]GAO-04-380 .

Figure 1: Comparison of the Estimated Delivery Dates for the
First-in-Class Deepwater Assets from the 2005 Deepwater Acquisition
Baseline and as of January 2007

Among the Deepwater assets, 3 of the 5 aircraft classes are upgrades to
existing legacy systems, and these are all on or ahead of schedule; 1 new
aircraft class is ahead of schedule; and the remaining new aircraft class
is 6 years behind schedule. With respect to Deepwater vessels, all 5 asset
classes are new, and of these, 2 are behind schedule, and a third, while
on schedule, faces structural modifications. The remaining 2 new maritime
assets are small vessels that are on or ahead of schedule at this time.

Assets That Are on or Ahead of Schedule as of January 2007

The status of each asset class, and our preliminary observations on the
factors affecting their status, is discussed below.

  Long-Range Interceptor

The LRI is a 36-foot small boat that is to be carried and deployed on each
NSC and OPC. Coast Guard has one LRI on contract for delivery in August
2007, to match delivery of the first NSC.

  Short-Range Prosecutor

According to the Coast Guard, the SRP is on schedule at this time and 8
have been delivered to date. Coast Guard is currently planning to pursue
construction and delivery of the remaining SRPs outside of the systems
integrator contract. By doing so, the Coast Guard expects to achieve a
cost savings.

  Maritime Patrol Aircraft

The MPA is a commercial aircraft produced in Spain that is being acquired
to replace the legacy HU-25 aircraft and will permit the Coast Guard to
carryout missions such as search and rescue, marine environmental
protection, and maritime security. The first MPA was delivered to the
Coast Guard in December 2006 and the second and third are due for delivery
by April 2007. Pilots and aircrew participated in training classes in
Spain, and Coast Guard is to take responsibility for the development and
implementation of MPA's maintenance and logistics.

  Long-Range Surveillance Aircraft

The LRS is an upgraded legacy fixed-wing aircraft that includes 6 C-130Js
and 16 C-130Hs. The first aircraft entered the modification process in
January 2007, and five additional aircraft are to be modified by July
2008. In fiscal year 2008, funding has been requested to upgrade the
C-130H radar and avionics, and for the C-130J fleet introduction.

  Medium-Range Recovery Helicopter

The MRR is an upgraded legacy HH-60 helicopter. It began receiving a
series of upgrades beginning in fiscal year 2006, which will continue into
fiscal year 2012, including the service life extension program and radar
upgrades.

  Multi-Mission Cutter Helicopter

The MCH is an upgraded legacy HH-65 helicopter. According to Coast Guard
officials, the MCH assets will not have a single delivery date, as the
process involves three phases of upgrades. Phase I is the purchase and
delivery of new engines and engine control systems, Phase II is a
service-life extension program, and Phase III includes communications
upgrades. A Coast Guard official stated that 84 of the 95 HH-65s should be
re-engined by June 2007, and all 95 should be finished by October 2007.
The fiscal year 2008 congressional budget justification states that Phase
II began in fiscal year 2007 and will end in fiscal year 2014, and that
Phase III is to begin in fiscal year 2008 and is to end in fiscal year
2014.

  National Security Cutter

According to Coast Guard documentation, the first NSC is on schedule for
delivery in August 2007 despite required modifications regarding its
structural integrity. In particular, the Coast Guard Commandant recently
stated that internal reviews by Coast Guard engineers, as well as by
independent analysts, have concluded that the NSC, as designed, will need
structural reinforcement to meet its expected 30-year service life. In
addition, the DHS Office of Inspector General recently reported that the
NSC design will not achieve a 30-year service life based on an operating
profile of 230 days underway per year in general Atlantic and North
Pacific sea conditions and added that Coast Guard technical experts
believe the NSC's design deficiencies will lead to increased maintenance
costs and reduced service life.^17

To address the structural modifications of the NSC, Coast Guard is taking
a two-pronged approach. First, Coast Guard is working with contractors to
enhance the structural integrity of the hulls of the remaining six NSCs
that have not yet been constructed. Second, after determining that the
NSC's deficiencies are not related to the safe operation of the vessel in
the near term, Coast Guard has decided to address the structural
modifications of the hulls of the first two cutters as part of planned
depot-level maintenance after they are delivered. The Commandant stated
that he decided to delay the repairs to these hulls to prevent further
delays in construction and delivery.

Deepwater Assets Behind Schedule as of January 2007

  Offshore Patrol Cutter

Coast Guard officials have stated that further work on the development of
the OPC is on hold and the Coast Guard did not request funding for the OPC
in fiscal years 2007 or 2008. Delivery of the first OPC has been delayed
by 5 years--from 2010 to 2015.

  Fast Response Cutter

Concerns about the viability of the design of the FRC have delayed the
delivery of the first FRC by at least 2 years. Coast Guard suspended
design work on the FRC in late February 2006 because of design risks.
Because the Coast Guard has suspended design work, Coast Guard officials
now estimate that the first FRC delivery will slip to fiscal year 2010, at
the earliest

  Vertical Unmanned Aerial Vehicle

According to the Coast Guard, evolving technological developments and the
corresponding amount of funding provided in fiscal year 2006 have delayed
the delivery of the VUAV by 6 years--from 2007 to 2013. As a result, the
Coast Guard has adjusted the VUAV development plan. The fiscal year 2008
DHS congressional budget justification indicates that the Coast Guard does
not plan to request funding for the VUAV through fiscal year 2012. Coast
Guard originally intended on matching the NSC and VUAV delivery dates so
that the VUAV could be launched from the NSC to provide surveillance
capabilities beyond the cutter's visual range or sensors. However, with
the delay in the VUAV's development schedule, it no longer aligns with the
NSC's initial deployment schedule. Specifically, Coast Guard officials
stated that the VUAV will not be integrated with the NSC before fiscal
year 2013, 6 years later than planned. Coast Guard officials stated that
they are discussing how to address the operational impacts of having the
NSC operate without the VUAV. In addition, Coast Guard officials explained
that since the time of the original contract award, the Department of
Defense has progressed in developing a different unmanned aerial
vehicle--the Fire Scout--that Coast Guard officials say is more closely
aligned with Coast Guard needs. Coast Guard has issued a contract to an
independent third party to compare the capabilities of its planned VUAV to
the Fire Scout.

^17 DHS OIG-07-23.

Performance and Design Problems Creating Operational Challenges

In addition to the overall management problems, there have been problems
with the performance and design of Deepwater patrol boats and its
replacement vessel, the FRC, that pose significant operational challenges
for the Coast Guard.

Performance Problems with the Converted 123-foot Patrol Boats

Between January 2001 and November 2006, numerous events led up to the
failure of the Coast Guard's bridging strategy to convert the legacy
110-foot patrol boats into 123-foot patrol boats. In January 2001, an
independent study found that the 110-foot patrol boats based in south
Florida and Puerto Rico were experiencing severe hull corrosion and that
their structural integrity was deteriorating rapidly.^18 To address these
issues, the Coast Guard's original (2002) Deepwater plan included a
strategy to convert all 49 of the 110-foot patrol boats into 123-foot
patrol boats and to strengthen the hulls. Also, the plan was to provide
additional capabilities, such as stern launch and recovery capabilities
and enhanced C4ISR. While Coast Guard originally planned to convert all 49
of its 110-foot patrol boats to 123-foot patrol boats, it halted the
patrol boat conversion program after 8 boats because of continued deck
cracking, hull buckling, and the inability of these converted patrol boats
to meet post-September 11, 2001 mission requirements. The Commandant then
decided to remove these 8 converted boats from service on November 30,
2006 because of operational and safety concerns.

^18 CSC Advanced Marine, Evaluation of the 110' WPB Class Cutter Fleet
(January 2001).

The Coast Guard is taking actions to mitigate the operational impacts
resulting from the removal of the 123-foot patrol boats from service.
Specifically, in recent testimony, the Commandant of the Coast Guard
stated that Coast Guard has taken the following actions:

           o multi-crewing certain 110-foot patrol boats with crews from the
           123-foot patrol boats that have been removed from service so that
           patrol hours for these vessels can be increased;
           o deploying other Coast Guard vessels to assist in missions
           formerly performed by the 123-foot patrol boats; and
           o securing permission from the U.S. Navy to continue using
           179-foot cutters on loan from the Navy for an additional 5 years
           (these were originally to be returned to the Navy in 2008) to
           supplement the Coast Guard's patrol craft.

Design Problems with the Fast Response Cutter

The FRC--which was intended as a long-term replacement for the legacy
110-foot patrol boats--has experienced design problems that have
operational implications. As we recently reported, the Coast Guard
suspended design work on the FRC due to design risks such as excessive
weight and horsepower requirements.^19 Specifically, beginning in January
2005, Coast Guard engineers raised concerns about the viability of the FRC
design (which involved building the FRC's hull, decks, and bulkheads out
of composite materials rather than steel). Then, in February 2006, the
Coast Guard suspended FRC design work after an independent design review
by third-party consultants demonstrated, among other things, that the FRC
would be far heavier and less efficient than a typical patrol boat of
similar length, in part, because it would need four engines to meet Coast
Guard speed requirements

To address the design problems and schedule delays that have occurred with
the FRC, the Coast Guard is proceeding with a "dual-path approach" for
acquiring new patrol boats. The first component of the dual-path approach
is to have the Deepwater systems integrator purchase a commercial
off-the-shelf patrol boat design that can be adapted for Coast Guard use.
The purpose of designing the first class of FRCs based on an adaptation of
a patrol boat already on the market is to expedite delivery. According to
Coast Guard officials, unlike the original plans, this FRC class is not
expected to meet all performance requirements originally specified, but is
intended as a way to field an FRC more quickly than would otherwise occur
and that can, therefore, serve as an interim replacement for the
deteriorating fleet of 110-foot patrol boats.

^19 [50]GAO-06-764 .

The second component of the dual-path approach would be to completely
redesign an FRC to address the problems in the original FRC design plans.
However, due to continuing questions about the feasibility of its planned
composite hull, the Coast Guard has delayed a decision about its
development or acquisition until it receives results from a business case
analysis comparing the use of composite versus steel hulls., as well as a
study by DHS's Science and Technology Directorate on composite hull
technology. Until recently, the Coast Guard anticipated delivery of the
redesigned FRC in 2010. However, the decision to not request funding for
this redesigned FRC in fiscal year 2008, and to await the results of both
studies before moving forward, will likely further delay delivery of the
redesigned FRC. In regard to the suspension of FRC design work, as of our
June 2006 report, Coast Guard officials had not yet determined how changes
in the design and delivery date for the FRC would affect the operations of
the overall system-of-systems approach.

Mr. Chairman, this concludes my testimony. I would be happy to respond to
any questions Members of the Committee may have.

GAO Contacts and Acknowledgments

For further information about this testimony, please contact Stephen L.
Caldwell, Acting Director, Homeland Security and Justice, (202) 512-9610,
[email protected] ; or John Hutton, Acting Director, Acquisition and
Sourcing Management, (202) 512-4841, [email protected] .

Other individuals making key contributions to this testimony include Penny
Berrier Augustine, Amy Bernstein, Christopher Conrad, Adam Couvillion,
Kathryn Edelman, Melissa Jaynes, Crystal M. Jones, Michele Mackin, Jessica
Nierenberg, Raffaele Roffo, Leslie Sarapu, Karen Sloan, and Jonathan R.
Tumin.

Related GAO Products

Coast Guard: Preliminary Observations on Deepwater Program Assets and
Management Challenges, [53]GAO-07-446T (Washington, D.C.: February 15,
2007).

Coast Guard: Coast Guard Efforts to Improve Management and Address
Operational Challenges in the Deepwater Program, [54]GAO-07-460T
(Washington, D.C.: February 14, 2007).

Homeland Security: Observations on the Department of Homeland Security's
Acquisition Organization and on the Coast Guard's Deepwater Program,
[55]GAO-07-453T (Washington, D.C.: February 8, 2007).

Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts,
[56]GAO-06-764 (Washington, D.C.: June 23, 2006).

Coast Guard: Changes to Deepwater Plan Appear Sound, and Program
Management Has Improved, but Continued Monitoring is Warranted,
[57]GAO-06-546 (Washington, D.C.: Apr. 28, 2006).

Coast Guard: Progress Being Made on Addressing Deepwater Legacy Asset
Condition Issues and Program Management, but Acquisition Challenges
Remain, [58]GAO-05-757 (Washington, D.C.: Jul. 22, 2005).

Coast Guard: Preliminary Observations on the Condition of Deepwater Legacy
Assets and Acquisition Management Challenges, [59]GAO-05-651T (Washington,
D.C.: Jun. 21, 2005).

Coast Guard: Preliminary Observations on the Condition of Deepwater Legacy
Assets and Acquisition Management Challenges, [60]GAO-05-307T (Washington,
D.C.: Apr. 20, 2005).

Coast Guard: Deepwater Program Acquisition Schedule Update Needed,
[61]GAO-04-695 (Washington, D.C.: Jun. 14, 2004).

Contract Management: Coast Guard's Deepwater Program Needs Increased
Attention to Management and Contractor Oversight, [62]GAO-04-380
(Washington, D.C.: Mar. 9, 2004).

Coast Guard: Actions Needed to Mitigate Deepwater Project Risks,
[63]GAO-01-659T (Washington, D.C.: May 3, 2001).

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

(440596)

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For more information, contact Stephen L. Caldwell at (202) 512-9610 or
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Highlights of [72]GAO-07-575T , a report to before the Subcommittee on
Coast Guard and Maritime Transportation, Committee on Transportation and
Infrastructure, U.S. House of Representatives

March 8, 2007

COAST GUARD

Status of Efforts to Improve Deepwater Program Management and Address
Operational Challenges

The Coast Guard's Deepwater program is a 25-year, $24 billion plan to
replace or modernize its fleet of vessels and aircraft. While there is
widespread acknowledgment that many of the Coast Guard's aging assets need
replacement or renovation, concerns exist about the acquisition approach
the Coast Guard adopted in launching the Deepwater program. From the
outset, GAO has expressed concern about the risks involved with the Coast
Guard's acquisition strategy, and continues to review Deepwater program
management.

This statement discusses (1) the Coast Guard's acquisition approach for
the Deepwater program; (2) Coast Guard efforts to manage the program, hold
contractors accountable, and control costs through competition; (3) the
status of the Coast Guard's efforts to acquire new or upgraded Deepwater
assets; and (4) operational challenges the Coast Guard is facing because
of performance and design problems with Deepwater patrol boats.

[73]What GAO Recommends

This testimony contains no recommendations. In 2004, GAO made 11
recommendations on management and oversight, contractor accountability,
and cost control through competition. In addition, in April 2006 we
reported that progress had been made, but continued monitoring was
warranted.

In 2001, we described the Deepwater program as "risky" due to the unique,
untried acquisition strategy for a project of this magnitude. The Coast
Guard used a system-of-systems approach to replace deteriorating assets
with a single, integrated package of assets. The Coast Guard also used a
system integrator--which relies on a contractor for requirements
development, design, and source selection of major system and subsystem
subcontractors. The Deepwater program is also a performance-based
acquisition, meaning that it is structured around the results to be
achieved rather than the manner in which the work is performed. If
performance-based acquisitions are not appropriately planned and
structured, there is an increased risk that the government may receive
products or services that are over cost estimates, delivered late, and of
unacceptable quality.

From the program's outset, GAO has raised concerns about the risks
involved with the Coast Guard's Deepwater acquisition strategy. In 2004,
GAO reported that program management, contractor accountability, and cost
control were all challenges, and made recommendations in these areas. The
Coast Guard has taken some actions to address these issues.

Of the 10 classes of upgraded or new Deepwater aircraft and vessels, the
delivery record for first-in-class assets (that is, the first asset to be
delivered within each class) is mixed. Specifically, 7 of the 10 asset
classes are on or ahead of schedule, while 3asset classes are currently
behind schedule due to various problems related to designs, technology, or
funding.

The Coast Guard is facing operational challenges because of performance
and design problems with Deepwater patrol boats. Specifically, in November
2006, performance problems led the Coast Guard to suspend all normal
operations of the 123-foot patrol boats that had been converted from
110-foot patrol boats. In addition, in February 2006, the Coast Guard
suspended design work on the Fast Response Cutter, due to design risks
that has led to a delivery delay for the vessel.

Deepwater Vessel and Aircraft Classes

References

Visible links
  41. http://www.gao.gov/cgi-bin/getrpt?GAO-01-564
  42. http://www.gao.gov/cgi-bin/getrpt?GAO-04-380
  43. http://www.gao.gov/cgi-bin/getrpt?GAO-06-764
  44. http://www.gao.gov/cgi-bin/getrpt?GAO-04-380
  45. http://www.gao.gov/cgi-bin/getrpt?GAO-04-380
  46. http://www.gao.gov/cgi-bin/getrpt?GAO-06-546
  47. http://www.gao.gov/cgi-bin/getrpt?GAO-07-310
  48. http://www.gao.gov/cgi-bin/getrpt?GAO-05-757
  49. http://www.gao.gov/cgi-bin/getrpt?GAO-04-380
  50. http://www.gao.gov/cgi-bin/getrpt?GAO-06-764
  53. http://www.gao.gov/cgi-bin/getrpt?GAO-07-446T
  54. http://www.gao.gov/cgi-bin/getrpt?GAO-07-460T
  55. http://www.gao.gov/cgi-bin/getrpt?GAO-07-453T
  56. http://www.gao.gov/cgi-bin/getrpt?GAO-06-764
  57. http://www.gao.gov/cgi-bin/getrpt?GAO-06-546
  58. http://www.gao.gov/cgi-bin/getrpt?GAO-05-757
  59. http://www.gao.gov/cgi-bin/getrpt?GAO-05-651T
  60. http://www.gao.gov/cgi-bin/getrpt?GAO-05-307T
  61. http://www.gao.gov/cgi-bin/getrpt?GAO-04-695
  62. http://www.gao.gov/cgi-bin/getrpt?GAO-04-380
  63. http://www.gao.gov/cgi-bin/getrpt?GAO-01-659T
  64. http://www.gao.gov/cgi-bin/getrpt?GAO-01-564
  72. http://www.gao.gov/cgi-bin/getrpt?GAO-07-575T
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