Status of Selected Aspects of the Coast Guard's Deepwater Program
(11-MAR-08, GAO-08-270R).					 
                                                                 
The Coast Guard is in the midst of the largest acquisition	 
program in its history--one that has experienced serious	 
performance and management problems. The Deepwater program is	 
intended to replace or modernize the Coast Guard's fleet of	 
vessels, aircraft, and information management capabilities in	 
order to carry out its missions along our coastlines and farther 
out at sea. Deepwater incorporates acquisition of 15 major	 
classes of new or upgraded assets--5 major classes each of	 
vessels and aircraft, and 5 other projects, including command,	 
control, communications, computers, intelligence, surveillance,  
and reconnaissance (C4ISR) systems. To carry out this		 
acquisition, the Coast Guard contracted with a system integrator,
Integrated Coast Guard Systems (ICGS). Since 2001, we have	 
reviewed the Deepwater program and have informed Congress, the	 
Department of Homeland Security (DHS), and the Coast Guard of the
risks and uncertainties inherent with such a large acquisition.  
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. In April 2006 and June 2007, we issued 
follow-on reports describing efforts the Coast Guard had taken to
address the recommendations. Congress asked us to determine (1)  
how decisions are made regarding whether to purchase assets under
the contract with ICGS or directly with another vendor; (2) the  
costs and performance trade-offs, if any, associated with the	 
Coast Guard's acquisition strategy for the Fast Response Cutter  
(FRC); (3) cost, schedule, and performance issues associated with
changes to the National Security Cutter (NSC); and (4) actions	 
the Coast Guard has taken to address the open recommendations	 
from our March 2004 report.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-270R					        
    ACCNO:   A81217						        
  TITLE:     Status of Selected Aspects of the Coast Guard's Deepwater
Program 							 
     DATE:   03/11/2008 
  SUBJECT:   Homeland security					 
	     Mission essential operations			 
	     Performance management				 
	     Performance measures				 
	     Risk assessment					 
	     Strategic planning 				 
	     Contract performance				 
	     Agency missions					 
	     Information management				 
	     Program management 				 
	     Tankers (Vessels)					 
	     Systems integration				 
	     Federal procurement				 
	     Procurement planning				 
	     Cost control					 
	     Cost overruns					 
	     Schedule slippages 				 
	     Coast Guard Deepwater Project			 

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GAO-08-270R

   

     * [1]Ordering Information.pdf

          * [2]Order by Mail or Phone

United States Government Accountability Office Washington, DC 20548

March 11, 2008

The Honorable Maria Cantwell Chair Subcommittee on Oceans, Atmosphere,
Fisheries, and Coast Guard Committee on Commerce, Science and
Transportation United States Senate

The Honorable Olympia J. Snowe Ranking Member Subcommittee on Oceans,
Atmosphere, Fisheries, and Coast Guard Committee on Commerce, Science and
Transportation United States Senate

Subject: Status of Selected Aspects of the Coast Guard's Deepwater Program

The Coast Guard is in the midst of the largest acquisition program in its
history--one that has experienced serious performance and management
problems. The Deepwater program is intended to replace or modernize the
Coast Guard's fleet of vessels, aircraft, and information management
capabilities in order to carry out its missions along our coastlines and
farther out at sea. Deepwater incorporates acquisition of 15 major classes
of new or upgraded assets--5 major classes each of vessels and aircraft,
and 5 other projects, including command, control, communications,
computers, intelligence, surveillance, and reconnaissance (C4ISR) systems.
To carry out this acquisition, the Coast Guard contracted with a system
integrator, Integrated Coast Guard Systems (ICGS).

Since 2001, we have reviewed the Deepwater program and have informed
Congress, the Department of Homeland Security (DHS), and the Coast Guard
of the risks and uncertainties inherent with such a large acquisition. 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. ^[3]1 In April 2006 and June
2007, we issued follow-on reports describing efforts the Coast Guard had
taken to address the recommendations.

You asked us to determine (1) how decisions are made regarding whether to
purchase assets under the contract with ICGS or directly with another
vendor; (2) the costs and performance trade-offs, if any, associated with
the Coast Guard's

1

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

                         GAO-08-270R Deepwater Program

acquisition strategy for the Fast Response Cutter (FRC); (3) cost,
schedule, and performance issues associated with changes to the National
Security Cutter (NSC); and (4) actions the Coast Guard has taken to
address the open recommendations from our March 2004 report.

To assess these aspects of the Deepwater program, we reviewed and analyzed
key Coast Guard documents, including the Deepwater Expenditure Plan and
the Acquisition Program Baseline. We reviewed Deepwater contract files,
plans, and reports, and reviewed cost estimates for the FRC and NSC. We
also conducted interviews with Coast Guard officials, including program
managers, contracting officials, and subject matter experts--such as staff
at the Engineering Logistics Center--to discuss acquisition planning
efforts and actions being taken by the Coast Guard and to obtain
information on shipbuilding. We compared the updated status of open
recommendations from our June 2007 report against current information
obtained from Deepwater documentation and interviews with Coast Guard
officials. We visited the shipyard in Pascagoula, Mississippi, where we
toured the NSCs that were under construction and interviewed officials
overseeing construction. We also met with contractor representatives and
interviewed the officials in the Pacific Area that will receive the NSC
upon completion. Finally, we interviewed representatives from the American
Bureau of Shipping to discuss shipbuilding certification standards.

We conducted this performance audit from September 2007 to March 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.

In summary, we found:

     o The Coast Guard has changed how decisions are made about purchasing
       Deepwater assets. It is moving from a "system-of-systems" acquisition
       model-- with the contractor, ICGS, as the system integrator--to a more
       traditional acquisition strategy in which the Coast Guard will take a
       more direct role and manage the acquisition of each asset separately.
     o The Coast Guard obligated approximately $35 million on the ICGS design
       for the FRC, but concerns prompted officials to put the acquisition on
       hold. To fill its urgent need for patrol boats, the Coast Guard plans
       to award a contract for a commercially available design of the FRC.
       Coast Guard officials said this approach will help ensure competition
       and meet their tight time frames. The new requirements for this design
       of the FRC have some differences. These include a top speed that is 2
       knots slower--28 instead of 30 knots--and allowance of a manual
       small-boat launch and recovery system that Coast Guard officials said
       is not as safe and requires more crew to operate than the preferred
       stern ramp system.
     o Changes to the NSC have had cost, schedule, and performance
       ramifications.

                      Page 2 GAO-08-270R Deepwater Program

     o The estimated costs for the first three ships have generally doubled
       from the initial projected costs due to a number of contributing
       factors, including requirements changes as a result of September 11,
       Hurricane Katrina damages, and some program management actions by the
       Coast Guard.
     o Delivery of the ship could be delayed. An aggressive trial schedule
       leaves little time for dealing with the unexpected, and most
       certifications have yet to be completed.
     o Coast Guard officials expect the ship to meet all performance
       parameters, but will not know for certain until the ship undergoes
       trials. Further, Coast Guard engineers have concerns that most of the
       ship's available weight margin has been consumed during construction,
       meaning that subsequent changes to the ship will require additional
       redesign and engineering to offset the additional weight.

o We have closed two of the five open recommendations from our previous
report, pertaining to the Coast Guard's use of models and metrics to
measure the contractor's progress toward improving operational
effectiveness and establishing criteria for when to adjust the total
ownership cost baseline. The Coast Guard has taken actions on the three
recommendations that remain open, such as designating Coast Guard
officials as the lead on integrated product teams, developing a draft
maintenance and logistics plan for the Deepwater assets, and potentially
eliminating the award term provision from the ICGS contract. However, at
this time, the actions are not sufficient to allow us to close them.

We briefed your staff on the general status of these topics in November
2007. As agreed at that time, we are following up with additional
information, which provides more detail on the topics covered in the
briefing.

We provided a draft of this report to DHS and the Coast Guard for review
and comment. The Coast Guard agreed with our findings and DHS also
concurred. Regarding our discussion under objective one of the enclosure,
about the Coast Guard's move away from the ICGS contract and the
system-of-systems model, the Coast Guard stated that its approach to the
Deepwater Program "has not changed." It stated that it still uses a
systems approach to determine solutions to meet Surveillance, Detection,
Classification, Identification, and Prosecution. In a subsequent
discussion, Coast Guard officials clarified their point, saying that,
while they are moving to a more traditional, asset-by-asset acquisition
strategy, they will continue to place emphasis on ensuring a common
operating picture among the individual assets. The Coast Guard also
provided some additional information on various aspects of the Deepwater
Program. The written comments are reproduced in appendix I.

We are providing copies of this correspondence and attachment to
interested congressional committees, the Secretary of Homeland Security,
and the Commandant of the Coast Guard. We will also make copies available
to others upon request. In [4]addition, this report will be available on
the GAO Web site at http://www.gao.gov.

                      Page 3 GAO-08-270R Deepwater Program

Should you or your staff have any questions, please contact me at (202)
512-4841 or [5]by e-mail at [email protected]. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. Key contributors to this report were Michele
Mackin, Assistant Director; Tatiana Winger; Martin G. Campbell; Maura
Hardy; Melissa Jaynes; Heddi Nieuwsma; Scott Purdy; Raffaele Roffo; and
Sylvia Schatz.

John P. Hutton, Director Acquisition and Sourcing Management

Enclosure

(120680)

                      Page 4 GAO-08-270R Deepwater Program

Status of Selected Aspects of the Deepwater Program

The Deepwater program has been in development since the mid-1990s, when
the Coast Guard began planning a recapitalization program to replace or
modernize aging or technologically obsolete "deepwater" assets--those used
for missions that generally occur beyond 50 miles from shore. Rather than
using a traditional acquisition approach of replacing individual classes
of assets, the Coast Guard chose a system-of-systems strategy, managing
the program as a single integrated package. To execute this acquisition
approach, the Coast Guard decided to use a system integrator--a private
sector contractor responsible for designing, building, and integrating the
various assets to meet projected deepwater operational requirements at the
lowest possible cost, either directly or through subcontractors.
Furthermore, the Coast Guard pursued a performance-based
acquisition--setting broad performance requirements for the program but
allowing the system integrator some latitude in meeting the requirements.
The Coast Guard's three main goals for its Deepwater program were to
improve operational effectiveness, reduce total ownership costs, and
satisfy the customers, i.e., the users.

Between 1998 and 2001, three industry teams^1 competed to identify and
provide the assets needed--including cutters, aircraft, helicopters,
logistics, and C4ISR--to meet Coast Guard requirements. Each team was made
up of shipbuilders; aircraft manufacturers; and manufacturers of
electronic, communication, and other equipment needed for the deepwater
system. The competition for the Deepwater base contract was nearing
completion when the September 11 terrorist attacks occurred. Nevertheless,
Coast Guard officials decided to move forward with the contract award to
avoid delaying replacement of deteriorating assets, although they knew at
the time that there would be changes to their mission. In June 2002, the
Coast Guard awarded a system integrator contract to Integrated Coast Guard
Systems (ICGS)--a business entity led and jointly owned by Lockheed Martin
and Northrop Grumman Ship Systems. The award was an IDIQ contract with a
5-year base period and five potential additional award terms of up to 5
years each.

From 2005 to 2006, the Coast Guard worked to rebaseline the Deepwater
program to reflect its post-9/11 mission. The Deepwater Acquisition
Program Baseline, approved by the Department of Homeland Security (DHS) in
May 2007, reflects the changes. In June 2007, the Coast Guard awarded ICGS
its first award term extension, 43 months of the potential 60 months,
based on the government's assessment of the contractor's performance.

The industry teams were led by Litton/Avondale Industries, Lockheed Martin
Naval Electronics and Surveillance Systems, and Science Applications
International Corporation.

U.S. Government Accountability Office

Decisions to Purchase from ICGS versus Other Vendors

The Coast Guard is moving away from the ICGS contract and the system-
of-systems model, with the contractor as system integrator, to a more
traditional acquisition strategy, where the Coast Guard will manage the
acquisition of each asset separately. In a series of reports since 2001,
we have noted the risks inherent in the systems integrator approach to the
Deepwater program and have made a number of recommendations intended to
improve the Coast Guard's management and oversight. We specifically
focused on the need to improve program management, contractor
accountability, and cost control. We, as well as the DHS Inspector General
and others, have also noted problems in specific acquisition efforts,
notably the National Security Cutter (NSC) and the 110-Foot Patrol Boat
Modernization, which was permanently halted due to operational and safety
concerns.

The Coast Guard has recognized that it needs to increase government
oversight and has begun to transfer system integration and program
management responsibilities back to the Coast Guard. It has begun taking
formal steps to reclaim authority over decision making and to more closely
monitor program outcomes.

The Coast Guard has also

     o begun to competitively purchase one asset (the Fast Response Cutter-B)
       and plans to competitively purchase other assets outside of the ICGS
       contract;
     o expanded the role of third parties, including the U.S. Navy, to
       perform independent cost assessments and program technical analyses;
       and
     o reorganized and consolidated the acquisition function to strengthen
       its ability to manage projects.

Additionally, because the IDIQ contract minimum was met during the 5year
base term, the government is under no further obligation to use the
contract. Coast Guard officials said that they are currently evaluating
whether to continue to use the ICGS contract for efforts that are already
under way, such as the NSC, versus contracting directly with the
subcontractors. Further, they may continue to use the ICGS contract for
certain efforts, such as logistics.

                     U.S. Government Accountability Office

Status of the Fast Response Cutter's (FRC) Cost, Schedule, and Performance

Since the FRC-A acquisition effort began, the Coast Guard obligated
approximately $35 million to ICGS for the design of this asset, but a
viable design has not been produced. Coast Guard officials told us that at
this time design efforts remain suspended; they do not expect to incur any
additional costs related to the FRC-A. The original estimate for the fleet
of 58 FRC-As was approximately $3.2 billion.

Due to high risk and uncertain cost savings, Coast Guard officials
recommended to the Commandant that the Coast Guard not pursue acquisition
of an FRC-A design that includes unproven composite hull technology. The
officials told us this recommendation was largely based on a third-party
analysis that found the composite technology unlikely to meet the desired
35-year service life under the Coast Guard's operational conditions.
Therefore, officials believe that the use of the proposed composite
materials would not offset high initial acquisition costs, as ICGS had
initially proposed.

In June 2007, the Coast Guard issued an RFP for the design, construction,
and delivery of a modified commercially available patrol boat for the
FRC-B. The Coast Guard estimated, in late 2006, that the total acquisition
cost for 12 FRC-Bs would be $593 million. Coast Guard officials do not
plan to update cost estimates for the FRC-B until after the contract is
awarded. The Coast Guard is currently evaluating proposals and expects to
award the FRC-B contract in the third quarter of fiscal year 2008, with
the lead cutter to be delivered in 2010. Coast Guard officials stated that
their goal is still to acquire 12 FRC-Bs by 2012. The contract will
include a 2-year base period for the design and production of the lead
cutter and six 1-year option periods. The first option period includes 3
low-rate initial production cutters, and the subsequent five option
periods include an option of 4 or 6 cutters each. The Coast Guard intends
to award a fixed price contract for design and construction of the FRC-B,
with the potential to acquire a total of 34 cutters.

Regarding performance, there are some key differences in the FRC-B, as
outlined in the RFP, compared with the requirements for the FRC-A. One
difference is speed--the Coast Guard lowered the minimum requirement for
sprint speed from 30 knots for the FRC-A to 28 for the FRC-B. Another
pertains to onboard small boat launch-and-recovery mechanisms: the initial
design for the FRC-A included a stern ramp launch. This capability is not
required on the FRC-B. However, Coast Guard officials expressed a
preference for the stern ramp launch-and-recovery system because it would
be safer and require fewer crew to operate than a manual alternative.
Coast Guard officials said that eliminating these design requirements
would ensure more competition on the open market and meet their urgent
need for patrol boats.

U.S. Government Accountability Office

Status of National Security Cutter (NSC): Cost

The NSC's projected costs have increased compared to the initial baseline,
as shown in table 1.

Table 1: Cost Growth for NSC 1 - 3 (Dollars in millions)

                                        NSC 1        NSC 2        NSC 3       
Design                                      $67.7                          
Build                                       264.4       $200.7      $189.2 
Govt. furnished equipment (GFE)              52.8         50.0        40.0 
Initial projected costs (2002)             $384.9       $250.7      $229.2 
Requirements changes                         75.9         60.0        60.0 
Hurricane Katrina                            40.0         44.4        38.7 
Economic changes                             58.3         69.9        86.8 
Structural enhancements                      40.0         30.0        16.0 
Other GFE                                    41.5         40.7        73.9 
Current projected costs (2008)             $640.7       $495.7      $504.6 

Source: Coast Guard.

Note: Economic changes include, for example, escalation of material/labor

and some costs associated with settling the REA. Other GFE includes

certifications, tests, and training. For NSC 3, other GFE also includes

additional government oversight.

Requirements changes to address post-9/11 needs are one of the main
reasons for the cost increases. The new requirements include

     o expanded interoperability with the Department of Defense, DHS, and
       local first responders;
     o increased self-defense and survivability, including chemical,
       biological, and radiological measures;
     o increased flight capability via longer and enhanced flight deck;
     o upgraded weapon systems; and
     o improved classified communication capabilities.

Another contributing factor was Hurricane Katrina, which not only caused
considerable damage to the shipyard, including tooling, equipment, shops,
and other facilities, but also caused an exodus of the experienced
workforce. The overall number of shipworkers declined significantly,
causing the contractor to use more overtime hours. The loss of workers, in
turn, considerably disrupted the ship's learning curve, which normally
results in greater efficiencies in production of subsequent ships.

However, some of the increase can be attributed to Coast Guard actions.
For example, the contractor used the Coast Guard's failure to precisely
execute the contract according to the implementation plan as basis for
requesting an equitable adjustment. Furthermore, even though the Coast
Guard's own technical staff raised fatigue life concerns--later confirmed
by a U.S. Navy study--during the design phase, the decision was made to
proceed with production of the first two NSCs and enhance the structure

  ^later. U.S. Government Accountability Office

                        Status of NSC: Delivery Schedule

The first NSC was initially projected for delivery in 2006, but slipped to
August 2007 after the 9/11 requirements changes. However, delivery was
again delayed until April 2008. It is uncertain at this time whether the
new delivery date will be met due to several factors involving testing,
certifications, and other areas of technical risk.

Machinery trials occurred in early December and builder's trials occurred
February 8 - 11, 2008. The current schedule leaves little margin for
delay. Acceptance trials are scheduled to begin April 7, 2008. The
contract requires 30 days between acceptance trials and ship delivery, but
the scheduled dates for these events are about 3 weeks apart. The Coast
Guard and the contractor are aware of the discrepancy; however, no
decision has been made on how to resolve this issue. The Coast Guard will
have to either extend the delivery date of the ship to meet the
requirement or waive it. Our prior work has shown that event-driven rather
than scheduledriven decisions are preferable, thus it may be in the best
interest of the Coast Guard to delay acceptance of the first NSC until a
number of these issues are resolved.

Of the 987 certification standards, ICGS was to submit documentation on
892 for review and acceptance by the Coast Guard Technical Authority.
Almost all remain outstanding. In addition, the Coast Guard and contractor
differed in their understanding of the number of certifications for which
ABS was responsible. Northrop Grumman had contracted with ABS to certify
60 standards; however, the Coast Guard believed ABS was responsible for
84. According to Coast Guard officials, the issue has been resolved and
ABS will now be responsible for 86 certifications. Further, for NSC 3 and
later ships, ABS will be responsible for about 200 certifications. Other
third parties will certify 11 of the standards.

The Coast Guard has identified 13 issues pertaining to C4ISR and Hull,
Mechanical, and Electrical as risk areas, 8 of which have moderate to high
risk of occurrence or impact if not resolved. One of these relates to the
results of the July 2007 visual TEMPEST inspection, conducted by a team of
Coast Guard officials. The team reported hundreds of discrepancies, over
40 percent of which pertain to cable grounding and separation, such as
cables intended for classified information not being adequately separated
from those intended for nonclassified information. Coast Guard officials
told us that they requested the test be done earlier than usual so that
issues could be identified and corrected sooner.

Coast Guard and Navy personnel noted that having open issues with a
ship--particularly for the first in class--at the time of delivery is
normal. After acceptance, the Coast Guard plans to conduct operational
testing at sea for approximately 2 years, during which time open issues
can be resolved. The ship will officially become operational thereafter,
which, based on the current schedule, will be March 2010.

U.S. Government Accountability Office

                           Status of NSC: Performance

Key performance parameters for the NSC were first defined in the
Acquisition Program Baseline submitted for DHS approval in November 2006.
Coast Guard officials explained that the key performance parameters were
derived from performance specification requirements that had been in place
before contract award.

The key performance parameters for the NSC are shown below:

                    Parameter                   Threshold          Objective  
Sprint speed (knots)                                28              31     
Patrol speed (knots)                                      15               
Operating range-nautical miles (NM)                     12,000             
Detection range-NM                                       11.7              
Continuous efficient operations (sea state)      Mid 5          Through 6  
Operational availability                          0.80             0.90    

Source: Coast Guard.

The key performance parameters have not been changed due to post-9/11
mission requirements. Coast Guard officials expect the NSC to meet the
current threshold parameters, but they will not know for certain until the
ship undergoes sea trials.

However, the Coast Guard's Engineering Logistics Center officials
expressed concern about the ship's weight margin. Ship designs typically
include a margin for additional weight to accommodate service enhancements
during the ship's service life. The officials noted that most of the
available weight margin has already been consumed during construction--not
including the fatigue life structural enhancements. The officials further
noted that subsequent changes to the ship will cost more than they would
have otherwise due to additional redesign and engineering that may be
necessary to offset the additional weight. Coast Guard officials noted,
however, that a mitigation strategy is in place and adjustments are being
made that will increase the service life weight margin.

                     U.S. Government Accountability Office

                      Status of Prior GAO Recommendations

GAO's 2004 recommendation     Status we              Status as of December 
                                   reported in June     2007 (following pages 
                                 2007                 contain additional      
                                                      detail)                 
Program management                                                         

A) In collaboration with the system integrator, take the necessary steps
to make Integrated Product Teams (IPT) effective including: (1) training
IPT members in a timely manner, (2) chartering the sub-IPTs, and (3)
making improvements to the electronic information system that would result
in better information sharing among IPT members (government and ICGS) who
are geographically dispersed.

Partially implemented: The Coast Guard had taken over IPT leadership and
planned to update the program management plan to reflect changing roles
and responsibilities between the Coast Guard and ICGS.

Partially implemented: The Coast Guard is in the process of restructuring
IPTs and chartering new ones. With decreased reliance on ICGS, chartering
sub-IPTs and improving the current electronic information system may
become less of an issue.

B) As Deepwater assets begin to be delivered to operational units, ensure
that field operators and maintenance personnel are provided with timely
information and training on how the transition will occur and how
maintenance responsibilities are to be divided between system integrator
and Coast Guard personnel.

Contractor accountability                                                  
C) Based on the current schedule  Partially           Closed: overcome by  
for delivery of Deepwater assets, implemented: Key    events. The Coast    
establish a time frame for when   performance         Guard is no longer   
the models and metrics will be in parameters were     using operational    
place with the appropriate degree added to criteria   effectiveness to     
of fidelity to be able to measure for measuring       measure contractor   
the contractor's progress toward  operational         performance.         
improving operational             effectiveness;                           
effectiveness.                    however, the models                      
                                     still lacked the                         
                                     fidelity to                              
                                     attribute                                
                                     improvements to the                      
                                     contractor or the                        
                                     Coast Guard.                             
                                     Partially           Closed: implemented. 
D) Establish criteria to          implemented: DHS    DHS approved the     
determine when the total          had not approved    Coast Guard's        
ownership cost (TOC) baseline     the Coast Guard's   Acquisition Program  
should be adjusted and ensure     most recent         Baseline for         
that the reasons for any changes  baseline update     Deepwater, which     
are documented.                   (Nov.               includes             
                                     2006).              criteria for TOC     
                                                         adjustments, in May  
                                                         2007.                

Partially implemented: The Coast Guard was reaffirming its role as
technical authority and became the default provider of maintenance and
logistics.

Partially implemented: The Coast Guard has taken over maintenance and
logistics responsibilities for the assets and plans to use contractor
support on an asneeded basis. However, the Commandant instruction
formalizing this decision has not yet been issued.

                        Cost control through competition

E) Develop a comprehensive plan for holding the system integrator
accountable for ensuring an adequate degree of competition among
secondtier suppliers in future program years. This plan should include
metrics to measure outcomes and consideration of how these outcomes will
be taken into account in future award fee decisions.

Partially implemented: The Coast Guard did not have information from ICGS
to determine the level of competition achieved and planned to perform
additional analyses to gain insight on the level of competition.

Partially implemented. The Coast Guard has decreased its reliance on ICGS,
moving toward full and open competition, and intends to eliminate award
term evaluation criteria from the current contract with ICGS. The ICGS
contract no longer contains award fee provisions.

                     U.S. Government Accountability Office

Take Steps to Make Integrated Product Teams Effective

The Coast Guard is in the process of restructuring the IPTs, which remain
a key program management tool. Coast Guard program managers, rather than
ICGS representatives, now chair the IPTs. The IPTs' current role is to
discuss options for problem solving related to cost, schedule, and
performance objectives, but the program manager is ultimately responsible
for making decisions. In addition to evaluating and rechartering some
existing IPTs, the Coast Guard has organized two new ones and is in the
process of establishing several others.

Since the Coast Guard will now chair IPTs, the chartering of sub-IPTs to
clarify roles and responsibilities is no longer an issue. Coast Guard
officials plan to use working groups established under the authority of
the IPTs to address specific issues. Working groups are more informal and
can come together and disband on an as-needed basis.

Finally, the electronic information system, built and managed by ICGS, is
still used as a tool used to share information among geographically
dispersed IPT members--specifically, ICGS and the Coast Guard. However,
with the decreasing reliance on ICGS as the system integrator, this
particular contractor-led electronic information-sharing system may become
less integral to effective management of the Deepwater program.

Due to the ongoing chartering, restructuring, and re-evaluation of the
roles and responsibilities of the IPTs within the new construct of the
Deepwater program, this recommendation remains open as partially
implemented.

                     U.S. Government Accountability Office

Provide Information on Maintenance and Logistics Responsibilities

In June 2007, we reported that the Coast Guard announced it was assuming
the role of the default provider of maintenance and logistics,
supplemented by contractors as necessary. The Coast Guard is still
formalizing its assumption of maintenance and logistics responsibilities.
The Coast Guard technical authority is developing a commandant instruction
that outlines policies, processes, roles, and responsibilities for
maintenance and logistics support for Deepwater assets. The Coast Guard
plans for Deepwater assets to follow the same maintenance program--
already familiar to Coast Guard maintenance personnel---as its other
assets. However, the Coast Guard expects that some areas, such as command,
control, communications, and computer electronics, will require contractor
support until Coast Guard personnel can be trained or new personnel can be
hired to fill these roles

Because the Coast Guard has not yet issued the final commandant
instruction that assigns maintenance and logistics responsibilities to
Coast Guard personnel instead of ICGS, we are leaving this recommendation
open as partially implemented. Once the instruction that addresses our
recommendation is issued, we plan to close this recommendation as
implemented.

                     U.S. Government Accountability Office

Establish Time Frame for Measuring Operational Effectiveness

The Coast Guard has drafted revised award term criteria and no longer
plans to measure operational effectiveness. Instead, the Coast Guard is
considering criteria--primarily subjective and objective measures of cost,
schedule, and performance--that would measure past performance for work on
Deepwater assets. The model will no longer be used to measure contractor
performance. In fact, in June 2007, the Coast Guard transferred possession
of the model to the research and development group for use in business
case and force structure analyses.

Because the Coast Guard is no longer using operational effectiveness as a
measure of contractor performance, this recommendation has been overcome
by events and we consider it closed.

                     U.S. Government Accountability Office

Establish Criteria for Changing Total Ownership Cost Baseline

We previously reported that in November 2005, the Coast Guard had
increased the total ownership cost baseline to $304 billion.^1 We noted,
however, that although the Coast Guard was required to provide information
to DHS for a baseline cost breach of 8 percent or more, the 8 percent
threshold had not been breached because the threshold was measured against
total program costs and not on an asset basis. At the time, Coast Guard
officials acknowledged that only a catastrophic event would trigger such a
breach.

In November 2006, the Coast Guard submitted a revised Acquisition Program
Baseline (APB) to DHS that set forth criteria for baseline adjustments.
DHS approved the document in May 2007. The APB includes criteria for
baseline adjustments to cost, schedule and performance for the total
system or individual asset classes and states that breaches will be
reported in accordance with DHS policy. See table 3.

  Table 3: Criteria for Baseline Adjustments

Key parameter threshold for adjustment                                     
Cost          Total system or asset class acquisition, construction, and   
                 improvement cost                                             
                 increases exceeding 8 percent                                
Performance   Any mission, system or asset class performance parameters    
                 not met or                                                   
                 are anticipated to fail to meet the threshold key            
                 performance parameter                                        
Schedule      Any system schedule baseline or asset class key schedule     
                 parameter                                                    
                 slip by more than 180 days                                   

Source: Coast Guard documentation.

Since then, the Coast Guard has reported two cost breaches to DHS: one for
the NSC and another for an aviation asset, the C-130J Missionization
Project. For the NSC, the breach was reported upon submission of the
individual APB for the NSC in September 2007.^2 The total acquisition cost
increased from $3.45 billion to $3.97 billion, which was attributed to the
structural/fatigue enhancements to the ship, the impact of the shipyard
strike, and C4ISR cost growth. With respect to the C-130J missionization
project, a November 2007 notification memorandum provides that the
estimate at completion is now projected to be 10 to 20 percent over the
original contract price of $117.95 million because of parallel design and
installation activities resulting in rework, among other things. The Coast
Guard committed to providing a revised APB and remediation plan within 30
days of the notification that will include a root cause analysis,
identification of corrective actions, and a plan for monitoring future
progress. At this time, the revised APB and remediation plan have not been
finalized.

Given the fact that criteria for adjusting the baseline have been
incorporated in the Deepwater ABP and approved by DHS, we are closing this
recommendation as implemented.

^1 GAO, Coast Guard: Status of Efforts to Improve Deepwater Program
Management and Address Operational Challenges, GAO-07-575T (Washington,
D.C.: Mar. 8, 2007). The Coast Guard is planning to develop individual
APBs for each asset.

                     U.S. Government Accountability Office

Hold System Integrator Accountable for Competition among Subcontractors
(Make-or-Buy Decisions)

The Coast Guard has taken steps to increase its insight into make-or-buy
decisions for Deepwater assets under the ICGS contract. In 2005, the Coast
Guard asked ICGS to notify the government of make-or-buy decisions of $10
million or more. However, in December 2006, the Coast Guard reported that
contractor data were inadequate to determine the level of competition
achieved. Subsequently, the June 2007 award term modification incorporated
a formal requirement for reporting make-or-buy decisions. ICGS must submit
a make-or-buy plan that outlines rationale and justification for each DTO
proposal that contains work items or work efforts priced at more than $5
million and/or that would typically require company management review
because of complexity, cost, need for large quantities, or requirement for
additional production facilities. The rationale should consider overall
benefit to the government, including:

(1)
           long-term and/or near-term cost benefit;

(2)
           adequacy of considerations made in the make-or-buy determination;

(3)
           impacts on product performance;

(4)
           present and future supportability, maintenance and/or upgrade
           potential; and

(5)
           proprietary data or other restrictions that could limit pursuit of
           future cost-effective alternatives.

The Coast Guard is putting less emphasis on the subcontractor competition
issue due to the move away from using the ICGS contract and more toward
full and open competition. In fact, Coast Guard officials told us that
because of potential legislation that would prohibit them from using ICGS
as the system integrator, they are considering eliminating award term
provisions from the contract.

In addition, the Coast Guard no longer uses award fees under the ICGS
contract. However, it has incorporated an incentive fee for the NSC.

We are leaving this recommendation open as partially implemented pending
Coast Guard documentation regarding the award term provision.

                     U.S. Government Accountability Office

                              Related GAO Products

Coast Guard: Challenges Affecting Deepwater Asset Deployment and
Management and Efforts to Address Them, GAO-07-874 (Washington, D.C.: June
18, 2007).

Coast Guard: Status of Efforts to Improve Deepwater Program Management and
Address Operational Challenges, GAO-07-575T (Washington, D.C.: Mar. 8,
2007).

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

Coast Guard: Changes to Deepwater Plan Appear Sound, and Program
Management Has Improved, but Continued Monitoring Is Warranted,
[6]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, GAO-05-757 (Washington, D.C.: July 22, 2005).

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

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

                     U.S. Government Accountability Office

References

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