Coast Guard
Preliminary Observations on the Condition of Deepwater Legacy Assets and Acquisition Management Challenges Gao ID: GAO-05-651T June 21, 2005In 2002, the Coast Guard began a multiyear, $19 billion to $24 billion acquisition program to replace or modernize its fleet of deepwater aircraft and cutters, so called because they are capable of operating many miles off the coast. For several years now, the Coast Guard has been warning that the existing fleet--especially cutters--was failing at an unsustainable rate, and it began studying options for replacing or modernizing the fleet more rapidly. Faster replacement is designed to avoid some of the costs that might be involved in keeping aging assets running for longer periods. This testimony, which is based both on current and past GAO work, addresses several issues related to these considerations: (1) changes in the condition of deepwater legacy assets during fiscal years 2000 through 2004; (2) actions the Coast Guard has taken to maintain and upgrade deepwater legacy assets; and (3) management challenges the Coast Guard faces in acquiring new assets, especially if a more aggressive schedule is adopted.
Available Coast Guard condition measures indicate that the Coast Guard's deepwater legacy aircraft and cutters are generally declining, but these measures are inadequate to capture the full extent of the decline in the condition of deepwater assets with any degree of precision. GAO's field visits and interviews with Coast Guard staff, as well as reviews of other evidence, showed significant problems in a variety of the assets' systems and equipment. The Coast Guard has acknowledged that it needs to develop condition measures that more clearly demonstrate the extent to which asset conditions affect mission capabilities, but such measures have not yet been finalized or implemented. The Coast Guard has taken several types of actions to help keep the deepwater legacy assets operational, but these actions, while helpful, may not fully address mission capability issues and may require additional funding. For example, to help meet mission requirements, Coast Guard staff are performing more extensive maintenance between deployments, but even so, aircraft and cutters continue to lose mission capabilities. One Coast Guard command is using a new approach to help sustain the oldest class of cutters, but this approach will likely require additional funds--something not included thus far in Coast Guard budget plans or requests. If the Coast Guard adopts a more aggressive acquisition schedule, it will likely continue to face a number of challenges that have already affected its ability to effectively manage the Deepwater program. GAO has warned that the Coast Guard's acquisition strategy, which relies on a prime contractor ("system integrator") to identify and deliver the assets needed, carries substantial risks. In 2004, well into the contract's second year, key components for managing the program and overseeing the system integrator's performance had not been effectively implemented. While the Coast Guard has been addressing these problems--for example, putting more emphasis on competition as a means to control costs--many areas have not been fully addressed. A more aggressive acquisition schedule would only heighten the risks.
GAO-05-651T, Coast Guard: Preliminary Observations on the Condition of Deepwater Legacy Assets and Aquisition Management Challenges
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Testimony before the Subcommittee on Fisheries and the Coast Guard,
Committee on Commerce, Science, and Transportation, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Tuesday, June 21, 2005:
Coast Guard:
Preliminary Observations on the Condition of Deepwater Legacy Assets
and Acquisition Management Challenges:
Statement of Margaret T. Wrightson,
Director, Homeland Security and Justice:
GAO-05-651T:
GAO Highlights:
Highlights of GAO-05-651T, a testimony before the Subcommittee on
Fisheries and the Coast Guard, Committee on Commerce, Science, and
Transportation, U.S. Senate:
Why GAO Did This Study:
In 2002, the Coast Guard began a multiyear, $19 billion to $24 billion
acquisition program to replace or modernize its fleet of deepwater
aircraft and cutters, so called because they are capable of operating
many miles off the coast. For several years now, the Coast Guard has
been warning that the existing fleet”especially cutters”was failing at
an unsustainable rate, and it began studying options for replacing or
modernizing the fleet more rapidly. Faster replacement is designed to
avoid some of the costs that might be involved in keeping aging assets
running for longer periods.
This testimony, which is based both on current and past GAO work,
addresses several issues related to these considerations:
(1) changes in the condition of deepwater legacy assets during fiscal
years 2000 through 2004;
(2) actions the Coast Guard has taken to maintain and upgrade deepwater
legacy assets; and
(3) management challenges the Coast Guard faces in acquiring new
assets, especially if a more aggressive schedule is adopted.
What GAO Found:
Available Coast Guard condition measures indicate that the Coast
Guard‘s deepwater legacy aircraft and cutters are generally declining,
but these measures are inadequate to capture the full extent of the
decline in the condition of deepwater assets with any degree of
precision. GAO‘s field visits and interviews with Coast Guard staff, as
well as reviews of other evidence, showed significant problems in a
variety of the assets‘ systems and equipment. The Coast Guard has
acknowledged that it needs to develop condition measures that more
clearly demonstrate the extent to which asset conditions affect mission
capabilities, but such measures have not yet been finalized or
implemented.
The Coast Guard has taken several types of actions to help keep the
deepwater legacy assets operational, but these actions, while helpful,
may not fully address mission capability issues and may require
additional funding. For example, to help meet mission requirements,
Coast Guard staff are performing more extensive maintenance between
deployments, but even so, aircraft and cutters continue to lose mission
capabilities. One Coast Guard command is using a new approach to help
sustain the oldest class of cutters, but this approach will likely
require additional funds”something not included thus far in Coast Guard
budget plans or requests.
If the Coast Guard adopts a more aggressive acquisition schedule, it
will likely continue to face a number of challenges that have already
affected its ability to effectively manage the Deepwater program. GAO
has warned that the Coast Guard‘s acquisition strategy, which relies on
a prime contractor (’system integrator“) to identify and deliver the
assets needed, carries substantial risks. In 2004, well into the
contract‘s second year, key components for managing the program and
overseeing the system integrator‘s performance had not been effectively
implemented. While the Coast Guard has been addressing these
problems”for example, putting more emphasis on competition as a means
to control costs”many areas have not been fully addressed. A more
aggressive acquisition schedule would only heighten the risks.
U. S. Coast Guard Deepwater Legacy Assets:
[See PDF for image]
[End of figure]
www.gao.gov/cgi-bin/getrpt?GAO-05-651T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Margaret Wrightson at
(415) 904-2200 or wrightsonm@gao.gov.
[End of section]
Madame Chairwoman and Members of the Subcommittee:
I am pleased to be here today to discuss our preliminary observations
on the condition of deepwater legacy assets;[Footnote 1] actions the
Coast Guard has taken to maintain, upgrade, and better manage these
assets; and management challenges the Coast Guard faces in acquiring
replacements for them. Deepwater legacy assets consist mainly of
aircraft and cutters capable of operating further out to sea, but
missions may begin at ports, waterways, and coasts and extend seaward
to wherever the Coast Guard is required to take action. The Coast Guard
uses these assets to perform a variety of missions, such as
interdicting illicit drug shipments or attempted landings by illegal
aliens, rescuing mariners in difficulty at sea, protecting important
fishing grounds, and responding to marine pollution. After the events
of September 11, 2001, these missions were expanded to include a
greater emphasis on ports, waterways, and coastal security. The Coast
Guard's expanded responsibilities caused changes in how the deepwater
legacy assets are used--for example, in conducting more security
patrols--and they also created a need to make adjustments in mission
requirements for assets that would be updated or built as part of the
long-term acquisition program.
Many deepwater legacy assets are at or approaching the end of their
estimated service lives. In 2002, the Coast Guard began a multiyear
Integrated Deepwater System acquisition program to replace or modernize
the legacy assets. The Coast Guard's new implementation plan estimates
the cost for the Deepwater program at $19 billion to $24 billion. From
fiscal years 2002 through 2005, the Coast Guard was appropriated nearly
$2.2 billion for the Deepwater program. This amount included close to
$1.3 billion for new acquisitions and $460.5 million for upgrades of
the legacy assets. Further, because the Coast Guard must continue to
operate the deepwater legacy assets until the new assets are acquired,
the Coast Guard has spent close to $594 million during fiscal years
2002 through 2004 to fund intermediate-and depot-level maintenance of
these assets.[Footnote 2]
The Administration is requesting $966 million for the Deepwater program
for fiscal year 2006--$242 million more than Congress appropriated for
the program last year. Part of this request ($239.5 million) is for
maintenance and upgrades to some deepwater legacy assets and is
predicated, in part, on the Coast Guard's assertion that its deepwater
legacy assets are "failing at an unsustainable rate." Faced with this
concern, the Coast Guard has studied options for replacing deepwater
legacy assets more rapidly than initially planned and thereby avoiding
some of the costs that might be involved in upgrading these assets
sufficiently to keep them running for longer periods. In the coming
years, both the Coast Guard and Congress will likely be considering the
advisability of such changes in the program.
The House Appropriations Committee recently requested information from
the Coast Guard about its revised Deepwater implementation plan.
Because the Coast Guard was unable to present information that the
Committee deemed satisfactory, the Committee recommended reducing the
Coast Guard's fiscal year 2006 Deepwater budget request of $966 million
by nearly 50 percent. In late May, the Coast Guard submitted
documentation to the Committee in an effort to comply with it's
request. As of early June 2005, the Coast Guard's fiscal year 2006
appropriation was still pending.
My testimony today addresses three issues related to these
considerations:
* Changes in the condition of deepwater legacy assets during fiscal
years 2000 through 2004;
* Actions the Coast Guard has taken to maintain, upgrade, and better
manage deepwater legacy assets; and:
* Management challenges the Coast Guard faces in acquiring new assets,
especially if a more aggressive schedule is adopted.
My testimony is based on past and current work for this subcommittee
and other congressional committees. Our current work included analyzing
data and condition measures[Footnote 3] used by the Coast Guard for
determining deepwater legacy assets' condition,[Footnote 4] reviewing
Coast Guard actions to maintain and upgrade the legacy assets, meeting
with operations and maintenance staff covering each type of deepwater
legacy aircraft and each class of deepwater legacy cutter, assessing
the improvements the Coast Guard is making in its management of the
Deepwater acquisition. We will be following up this testimony with a
written report that will contain additional, detailed information
related to the condition of deepwater legacy assets, and the actions
the Coast Guard is taking to maintain and upgrade them. As part of the
follow-on report, we will also further examine the Coast Guard's
management of the Deepwater program and follow up on recommendations
made in a prior GAO report.[Footnote 5] Our work was carried out in
accordance with generally accepted governmental auditing standards.
In summary, our work thus far shows the following:
* Coast Guard condition measures show that the deepwater legacy assets
generally declined between fiscal years 2000 and 2004, but the Coast
Guard's available condition measures are inadequate to capture the full
extent of the decline in the condition of deepwater assets with any
degree of precision. While there is no systematic, quantitative
evidence sufficient to demonstrate that deepwater legacy assets are
"failing at an unsustainable rate" as the Coast Guard has asserted,
this does not mean that the assets are able to perform their missions
safely, reliably, and at levels that meet or exceed Coast Guard
standards. Evidence we gathered in ways other than reviewing condition
measures, such as interviewing Coast Guard operations and maintenance
staff, showed significant problems in a variety of the assets'
systems[Footnote 6] and equipment that will need to be addressed if the
assets are to continue performing their missions at or near current
levels until replacement assets become operational. These problems are
not necessarily reflected in the condition measures. For example, the
Coast Guard's HH-65 helicopter consistently exceeded the Coast Guard's
primary condition measure during fiscal years 2000 through 2004, yet
its engine is being replaced because it lacks sufficient power to meet
mission requirements. The Coast Guard has acknowledged that it needs
measures that more clearly demonstrate the extent to which asset
conditions affect mission capabilities, but such measures have not yet
been finalized or implemented.
* The Coast Guard has taken several types of actions to keep existing
assets operational, but these actions, while helpful, may not fully
address mission capability issues and may require additional funding.
The Coast Guard now compiles information that can be used to better
identify and prioritize the maintenance or upgrade projects that need
to be done to keep existing assets operating. Coast Guard personnel,
according to evidence obtained during our site visits, are also
performing more maintenance on these assets than they have in the past-
-for example, spending additional time on maintenance when cutters are
in port between deployments. These additional maintenance efforts are
likely helping to prevent a more rapid decline in the condition of
these assets, but it is important to note that even so, cutters and
aircraft are still losing mission capabilities because of equipment and
system failures. The Coast Guard's Pacific Area Command, which is
heavily dependent on deteriorating 378-foot cutters, is attempting to
use new strategies to help sustain the operation of these cutters
through 2016, when they are currently scheduled to be fully replaced
with newer cutters. According to the Pacific Area Commander, however,
doing so is likely to require an additional infusion of funds--
something the Coast Guard has so far not included in its budget
requests or plans. Finally, in an effort to address our recommendations
for developing a more proactive approach for prioritizing the
maintenance and capability enhancement projects needed on its legacy
assets, the Coast Guard is developing a new system for providing more
objective data on where to best spend budget dollars to achieve the
greatest enhancements in mission capabilities.
* The Coast Guard's fiscal year 2006 budget request of $966 million for
the Deepwater program reflects significant revisions to the program's
requirements, capabilities, and schedule in light of the homeland
security mission. We have not yet analyzed the likely cost and schedule
impact of these revisions. However, if a more aggressive acquisition
schedule is adopted, the Coast Guard would likely continue to face a
number of management challenges that have already affected its ability
to effectively administer the Deepwater program. From the outset, we
have expressed concern about the risks involved with the Coast Guard's
acquisition strategy, which involves relying on a prime contractor (or
"system integrator") to identify the assets needed, using tiers of
subcontractors to design and build the actual assets. Last year, we
reported that well into the contract's second year, key components
needed to manage the program and oversee the system integrator's
performance had not been effectively implemented. We made a number of
recommendations in the areas of program management, contractor
accountability, and cost control through competition. While the Coast
Guard agreed with nearly all of these recommendations and has initiated
actions to address these problems, we remain concerned that the program
still carries major and inherent risks. Most of our recommendations
have not been fully addressed. Recent information shows continued
challenges in the areas of overall system integration, cost and
schedule management, and integrated product teams, which consist of
contractor and government personnel and are the Coast Guard's principal
tool for managing the Deepwater program. In our opinion, the
uncertainties associated with the proposed revisions to the Deepwater
program only heighten these risks.
Background:
As the lead federal agency for maritime homeland security within the
Department of Homeland Security, the Coast Guard is responsible for
homeland and nonhomeland security missions, including ensuring security
in ports and waterways and along coastlines, conducting search and
rescue missions, interdicting drug shipments and illegal aliens,
enforcing fisheries laws, and responding to reports of pollution. The
deepwater fleet, which consists of 186 aircraft and 88 cutters of
various sizes and capabilities, plays a critical role in all of these
missions. As shown in table 1, the fleet includes fixed-wing aircraft,
helicopters, and cutters of varying lengths.
Table 1: Deepwater Legacy Aircraft and Cutter Fleets (as of June 2005):
[See PDF for image]
[A] Because of scheduled depot-level maintenance and upgrades that the
deepwater aircraft have received or will receive, the service lives can
be extended beyond the original estimated service lives. For the HH-65
helicopter, a Coast Guard aviation official told us that the aircraft
had no original estimated service life in terms of flight hours, but
rather can continue to be operated as long as the structure of the
aircraft is sound.
[End of figure]
Some Coast Guard deepwater cutters were built in the 1960s.
Notwithstanding extensive overhauls and other upgrades, a number of the
cutters are nearing the end of their estimated service lives.
Similarly, while a number of the deepwater legacy aircraft have
received upgrades in engines, operating systems, and sensor equipment
since they were originally built, they too have limitations in their
operating capabilities.
In 1996, the Coast Guard began developing what came to be known as the
Integrated Deepwater System acquisition program as its major effort to
replace or modernize these aircraft and cutters. This Deepwater program
is designed to replace some assets--such as deteriorating cutters--with
new cutters and upgrade other assets--such as some types of
helicopters--so they can meet new performance requirements.[Footnote 7]
The Deepwater program represents a unique approach to a major
acquisition in that the Coast Guard is relying on a prime contractor--
the system integrator--to identify and deliver the assets needed to
meet a set of mission requirements the Coast Guard has
specified.[Footnote 8] In 2002, the Coast Guard awarded a contract to
Integrated Coast Guard Systems (ICGS) as the system integrator for the
Deepwater program. ICGS has two main subcontractors--Lockheed Martin
and Northrop Grumman--that in turn contract with other subcontractors.
The resulting program is designed to provide an improved, integrated
system of aircraft, cutters, and unmanned aerial vehicles to be linked
effectively through systems that provide command, control,
communications, computer, intelligence, surveillance, reconnaissance,
and supporting logistics. We have been reviewing the Deepwater program
for several years. In recent reports we have pointed out difficulties
the Coast Guard has been having in managing the Deepwater program and
ensuring that the acquisition schedule is up to date and on
schedule.[Footnote 9]
The existing schedule calls for acquisition of new assets under the
Coast Guard's Deepwater program to occur over an approximately 20-year
period. By 2007, for example, the Coast Guard is to receive the first
National Security Cutter, which will have the capability to conduct
military missions related to homeland security. Plans call for 6 to 8
of these cutters to replace the 12 existing 378-foot cutters. However,
in order to carry out its mission effectively, the Coast Guard will
also need to keep all of the deepwater legacy assets operational until
they can be replaced or upgraded.
Deepwater Legacy Assets Show General Decline in Condition, but Current
Measures Do Not Capture True Extent:
Coast Guard condition measures show that the deepwater legacy assets
generally declined between 2000 and 2004, but the Coast Guard's
available condition measures are inadequate to capture the full extent
of the decline in the condition of deepwater assets with any degree of
precision. Other evidence we gathered, such as information from
discussions with maintenance personnel, point to conditions that may be
more severe than the available measures indicate. The Coast Guard
acknowledges that it needs better condition measures but has not yet
finalized or implemented such measures.
Coast Guard's Condition Measures Show General Decline in Deepwater
Assets, with Some Fluctuations:
During fiscal years 2000 through 2004, the Coast Guard's various
condition measures show a general decline, although there were year-to-
year fluctuations (see table 2). For deepwater legacy aircraft, a key
summary measure of the condition--the availability index (the
percentage of time aircraft are available to perform their missions)--
showed that except for the HU-25 medium-range surveillance aircraft,
the assets continued to perform close to or above fleet availability
standards over the 5-year period. In contrast, other condition measures
for aircraft, such as cost per flight hour and labor hours per flight
hour, generally reflected some deterioration. For cutters, a key
summary measure of condition--percent of time free of major
casualties[Footnote 10]--fluctuated but generally remained well below
target levels. The number of major casualties generally rose from
fiscal years 2000 through 2003, and then dropped slightly in fiscal
year 2004.[Footnote 11]
Table 2: Synopsis of Deepwater Legacy Assets' Condition:
Deepwater legacy asset: HC-130 aircraft;
Synopsis of general asset condition: The percentage of time the HC-130
fleet was available to perform missions nearly met or exceeded the
Coast Guard's target level during fiscal years 2000 through 2003, but
dropped below the target level in fiscal year 2004.
Deepwater legacy asset: HU-25 aircraft;
Synopsis of general asset condition: The percentage of time the HU-25
fleet was available to perform missions varied from year to year, but
was consistently below the Coast Guard's target level during fiscal
years 2000 through 2004.
Deepwater legacy asset: HH-60 aircraft;
Synopsis of general asset condition: The percentage of time the HH-60
fleet was available to perform missions met or was just below the Coast
Guard's target level during fiscal years 2000 though 2004.
Deepwater legacy asset: HH-65 aircraft;
Synopsis of general asset condition: The percentage of time the HH-65
fleet was available to perform missions consistently exceeded the Coast
Guard's target level during fiscal years 2000 through 2004.
Deepwater legacy asset: 378-foot high-endurance cutters;
Synopsis of general asset condition: The percentage of time the 378-
foot cutter fleet has operated free of deficiencies in mission-
essential equipment remained substantially below the Coast Guard's
target level during fiscal years 2000 through 2004.
Deepwater legacy asset: 270-foot and 210-foot medium-endurance cutters;
Synopsis of general asset condition: The percentage of time the 210-
foot and 270-foot cutter fleets have operated free of deficiencies in
mission-essential equipment was well below the Coast Guard's target
level during fiscal years 2000 through 2004, but showed slight
improvement in fiscal year 2004.
Deepwater legacy asset: 110-foot and 123-foot patrol boats[A];
Synopsis of general asset condition: The percentage of time the patrol
boat fleet has operated free of deficiencies in mission-essential
equipment was below but near the Coast Guard's target level during
fiscal years 2000 and 2001, but declined in more recent years.
Source: GAO analysis of data provided by the U.S. Coast Guard.
[A] Data on the 123-foot patrol boats were not compiled until fiscal
year 2004. That year's data were added to the 110-foot patrol boat data
to arrive at totals for the patrol boat fleet.
[End of table]
Another, albeit less direct, measure of an asset's condition is
deferred maintenance--the amount of scheduled maintenance that must be
postponed on an asset in order to pay for unscheduled repairs. Such
deferrals can occur when the Coast Guard does not have enough money to
absorb unexpected maintenance expenditures and still perform all of its
scheduled maintenance, thus creating a backlog. For example, in spring
2004, while on a counter-drug mission, the 210-foot cutter Active
experienced problems in the condition of its flight deck that were to
be corrected during its scheduled depot-level maintenance. However,
because of a shortage of maintenance funds, the maintenance was
deferred and the flight deck not repaired. As a result, the cutter lost
50 percent of its patrol time, since the required support helicopters
could not take off from or land on it.
As table 3 shows, deferred maintenance does not show a clear pattern
across all classes of deepwater legacy assets. For the deepwater legacy
aircraft, the overall amount of estimated deferred maintenance
increased each year during fiscal years 2002 through 2004, from $12.3
million to about $24.6 million. However, most of the increase came for
one type of asset, the HH-60 helicopter, and the increase came mainly
from shortening the interval between scheduled depot-level maintenance
from 60 months to 48 months--thereby increasing the scheduled
maintenance workload--and not from having to divert money to deal with
unscheduled maintenance. For the deepwater cutters, the amount of
estimated deferred maintenance increased from fiscal year 2002 to 2003,
but then dropped significantly in fiscal year 2004. The decrease in
fiscal year 2004 came mainly because (1) the Coast Guard ceased
maintenance on an icebreaker, thus freeing up some maintenance funds;
and (2) the Coast Guard also received additional operational and
maintenance funding, allowing it to deal with both scheduled and
unscheduled maintenance. Thus, the drop in the estimate of deferred
maintenance costs for fiscal year 2004 is not necessarily an indicator
that the condition of the legacy assets was improving; it could result
from the Coast Guard having more money to address the maintenance
needs.
Table 3: Estimated Costs for Deferred Maintenance of Deepwater Legacy
Aircraft and Cutters, Fiscal Years 2002-2004:
Deepwater asset: HC-130;
Fiscal year 2002: $4,691,000;
Fiscal year 2003: $7,016,000;
Fiscal year 2004: $5,737,000.
Deepwater asset: HU-25;
Fiscal year 2002: 0;
Fiscal year 2003: $201,000;
Fiscal year 2004: 0.
Deepwater asset: HH-60;
Fiscal year 2002: $7,630,000;
Fiscal year 2003: $9,436,000;
Fiscal year 2004: $18,824,000.
Deepwater asset: HH-65;
Fiscal year 2002: 0;
Fiscal year 2003: 0;
Fiscal year 2004: 0.
Deepwater asset: Subtotal for aircraft;
Fiscal year 2002: $12,321,000;
Fiscal year 2003: $16,653,000;
Fiscal year 2004: $24,561,000.
Deepwater asset: 378-foot cutters;
Fiscal year 2002: $2,556,000;
Fiscal year 2003: $8,135,000;
Fiscal year 2004: $3,000,000.
Deepwater asset: 270-foot cutters;
Fiscal year 2002: $2,070,000;
Fiscal year 2003: $870,000;
Fiscal year 2004: 0.
Deepwater asset: 210-foot cutters;
Fiscal year 2002: $786,000;
Fiscal year 2003: $1,137,000;
Fiscal year 2004: 0.
Deepwater asset: 110-foot patrol boats;
Fiscal year 2002: $1,618,000;
Fiscal year 2003: $1,961,000;
Fiscal year 2004: $500,000.
Deepwater asset: Subtotal for cutters;
Fiscal year 2002: $7,030,000;
Fiscal year 2003: $12,103,000;
Fiscal year 2004: $3,500,000.
Total for all deepwater legacy assets;
Fiscal year 2002: $19,351,000;
Fiscal year 2003: $28,756,000;
Fiscal year 2004: $28,061,000.
Source: U.S. Coast Guard:
Note: The Coast Guard estimates the cost for aircraft deferred
maintenance by multiplying a percentage of average depot maintenance
costs by the number of aircraft overdue for depot maintenance
overhauls, plus the annual cost for extension inspections each year.
The Coast Guard generally does not track deferred maintenance costs by
cutter class, but compiled these data at GAO's request for fiscal years
2002 through 2004. The Coast Guard estimated the costs of only the
planned cutter maintenance that had to be deferred to the following
year and not the amount of maintenance that should have been conducted
and was not funded.
[End of table]
Current Condition Measures Not Robust Enough to Clearly Link Condition
with Effect on Mission Capabilities:
At the time we began our work, the Coast Guard's condition measures
were not sufficiently robust to systematically link assets' condition
with degradation in mission capabilities. As we discussed with Coast
Guard officials, without such condition measures, the extent and
severity of the decline in the existing deepwater legacy assets and
their true condition cannot be fully determined. As a result, the
picture that emerges regarding the condition of the deepwater legacy
assets based on current Coast Guard condition measures should be viewed
with some caution. While there is no systematic, quantitative evidence
sufficient to demonstrate that deepwater legacy assets its deepwater
legacy assets are "failing at an unsustainable rate" as the Coast Guard
has asserted, this does not mean the assets are in good condition or
have been performing their missions safely, reliably and at levels that
meet or exceed Coast Guard standards. We identified two factors that
need to be considered to put these condition measures in proper
context.
The first factor deals with limitations in the measures themselves.
Simply put, the Coast Guard's measures of asset condition do not fully
capture the extent of the problems. As such, they may understate the
decline in the legacy assets' condition. More specifically, Coast Guard
measures focus on events, such as flight mishaps or equipment
casualties, but do not measure the extent to which these and other
incidents degrade mission capabilities. Here are two examples in which
the Coast Guard's current measures are not sufficiently robust to
systematically capture degradation in mission capabilities:
* The surface search radar system on the HC-130 long-range surveillance
aircraft, called the APS-137 radar, is subject to frequent failures and
is quickly becoming unsupportable, according to Coast Guard staff with
whom we met. Flight crews use this radar to search for vessels in
trouble and to monitor ships for illegal activity, such as transporting
illicit drugs or illegal immigrants. When the radar fails, flight crews
are reduced to looking out the window for targets, greatly reducing
mission efficiency and effectiveness. A flight crew in Kodiak, Alaska,
described this situation as being "like trying to locate a boat looking
through a straw." Mission capability degradations such as these are not
reflected in the Coast Guard's current condition measures.
* The 378-foot cutter Jarvis recently experienced a failure in one of
its two main gas turbines shortly after embarking on a living marine
resources and search and rescue mission. While Jarvis was able to
accomplish its given mission, albeit at reduced speeds, this casualty
rendered the cutter unable to respond to any emergency request it might
have received--but did not in this case--to undertake a mission
requiring higher speeds, such as drug interdiction. The Coast Guard
condition measures are not robust enough to capture these distinctions
in mission capability.
The second factor that needs to be kept in mind is the compelling
nature of the other evidence we gathered apart from the Coast Guard's
condition measures. This evidence, gleaned from information collected
during our site visits and discussions with maintenance personnel,
indicated deteriorating and obsolete systems and equipment as a major
cause of the reduction in mission capabilities for a number of
deepwater legacy aircraft and cutters. Such problems, however, are not
captured by the Coast Guard's condition measures. One example of this
involves the HH-65 short-range recovery helicopter. While this
helicopter consistently exceeded availability standards established by
the Coast Guard over the 5-year period we examined, it is currently
operating with underpowered engines that have become increasingly
subject to power failures. As a result, Coast Guard pilots employ a
number of work arounds, such as dumping fuel or leaving the rescue
swimmer on scene if the load becomes too heavy. Further, because of
increasing safety and reliability problems, the Coast Guard has also
implemented a number of operational restrictions--such as not allowing
the helicopter to land on helipads--to safeguard crew and passengers
and prevent mishaps until all of the fleet's engines can be replaced.
The Coast Guard has recently recognized the need for improved measures
to more accurately capture data on the extent to which its deepwater
legacy assets are degraded in their mission capabilities, but as of
April 2005, such measures had not yet been finalized or implemented.
Subsequent to our inquiries regarding the lack of condition and mission
capability measures, Coast Guard naval engineers reported that they had
begun developing a "percent of time fully mission capable" measure to
reflect the degree of mission capability, as well as measures to track
cutter readiness. We agree that measures like this are needed--and as
soon as possible. Further, current plans call for the measure, if
approved, to be used for cutters, but not for aircraft. Consequently,
even if this measure were to be implemented across the Coast Guard,
there would still be no measure to address degradation in mission
capabilities for aircraft. We will be exploring this issue further in
our follow-on report.
Actions to Maintain, Upgrade, and Better Manage Deepwater Legacy Assets
Are Under Way, but Condition Issues Remain:
The Coast Guard has taken several actions to maintain, upgrade, and
better manage its deepwater legacy assets. These include establishing a
compendium of information for making decisions regarding maintenance
and upgrades; performing more extensive maintenance between
deployments; applying new business rules and strategies, at the Pacific
Area Command, to better sustain the 378-foot high-endurance cutters
through 2016; and exploring additional strategies for prioritizing the
maintenance and capability enhancement projects needed on its legacy
assets in an effort to provide more objective data on where to best
spend budget dollars to achieve the greatest enhancements in mission
capabilities. These additional efforts are likely helping to prevent a
more rapid decline in the condition of these assets, but condition
problems continue, and the efforts will likely involve additional
costs.
Compendium of Needs Is Being Compiled and Used:
Since 2002, the Coast Guard has annually issued a Systems Integrated
Near Term Support Strategy compendium. Among other things, this
compendium consolidates information needed to make planning and
budgeting decisions regarding maintenance and upgrades to sustain
legacy assets. Its purpose is to serve as a tool for senior Coast Guard
management in setting priorities and planning budgets. From this
strategic document, the Coast Guard has identified a number of upgrades
to improve the capabilities of the deepwater legacy aircraft and
cutters. The most recent compendium (for fiscal year 2006) lists more
than $1 billion worth of upgrades to the deepwater legacy assets. The
planned upgrades identified in the compendium that have been approved
and received initial funding account for an estimated $856 million the
Coast Guard anticipates it will need to complete those projects. The
approved upgrades for deepwater legacy assets are shown in table 4.
Table 4: Approved Upgrades for Deepwater Legacy Aircraft and Cutters:
Deepwater asset: HC-130 aircraft;
Synopsis of planned upgrades: The Coast Guard is beginning to replace
aircraft's dated and difficult to support surface search radar system;
Estimated costs and time frames of upgrades: The radar system
replacement is projected to cost $78 million and be completed in fiscal
year 2008. A total of $9 million has been allocated to date.
Deepwater asset: HH-60 aircraft;
Synopsis of planned upgrades: The Coast Guard has begun a service life
extension plan and a replacement of the obsolete avionics suite;
Estimated costs and time frames of upgrades: The service life extension
program is estimated to cost $16 million and be completed by fiscal
year 2009. The avionics replacement program is projected to cost $121
million and be completed by fiscal year 2010. A total of $32.8 million
has been allocated to date for these upgrades.
Deepwater asset: HH-65 aircraft;
Synopsis of planned upgrades: Serious safety and reliability problems
with the engine led the Coast Guard to place operational restrictions
on the HH-65 fleet in October 2003;
Estimated costs and time frames of upgrades: The Coast Guard plans to
re-engine 84 HH-65 aircraft at a projected cost of $349 million, now
estimated to be completed by February 2007. A total of $160.7 million
has been allocated to date.
Deepwater asset: 270-foot and 210-foot medium-endurance cutters;
Synopsis of planned upgrades: During fiscal year 2005 these cutters are
to enter a legacy asset sustainment project known as the Mission
Effectiveness Program (MEP) aimed at increasing their service lives
until their replacement by a new cutter. The MEP includes upgrading
major engineering subsystems such as evaporators, sewage systems, and
gyrocompasses;
Estimated costs and time frames of upgrades: The MEP is projected to
cost a total of $292 million and to be completed by fiscal year 2015.
The medium-endurance cutters will ultimately be replaced by the
Offshore Patrol Cutter. A total of $12.5 million has been allocated to
date.
Total;
Estimated costs and time frames of upgrades: $856 million total needed
to fund these projects, of which $215 million has been allocated to
date.
Source: GAO analysis of data provided by the U.S. Coast Guard.
Note: While no funds have been allocated for upgrades to the HU-25
aircraft, the 378-foot cutters, or the 110-foot and 123-foot patrol
boats, since all of these deepwater legacy assets are scheduled to be
replaced, each of these assets has upgrades listed in the Systems
Integrated Near Term Support Strategy compendium. The HU-25 aircraft
has an engine replacement project estimated to cost $78.1 million; the
378-foot cutter has an MEP estimated to cost $137.8 million; and the
patrol boats have three projects--replacement of the fin stabilizer
system that is estimated to cost $10.4 million, an MEP that is
estimated to cost $162 million, and replacement of the ship service
generators that is estimated to cost $20.7 million. If the Coast Guard
were to request funding for all of these sustainment projects, it would
cost an additional $409 million.
[End of table]
Among the projects already begun is the re-engining of the HH-65
helicopters to increase the helicopter's power and capabilities. The
Coast Guard is also upgrading several other aviation systems in an
effort to improve aircraft capabilities. Enhancements are also planned
for certain classes of deepwater cutters. For example, during this
fiscal year, the Coast Guard is to begin a maintenance effectiveness
project on the 210-foot and 270-foot cutters. This project includes
replacing major engineering subsystems with the goal of extending the
cutters' service lives until their replacement by the Offshore Patrol
Cutter. Of the $856 million total estimated costs needed for the
planned upgrades to the deepwater legacy assets listed above, $215
million has been allocated through fiscal year 2005 and the Coast Guard
has requested another $217.3 million in its fiscal year 2006 budget.
The remaining estimated costs of $423.7 million would have to be funded
beyond fiscal year 2006.
Increasing Amounts of Maintenance Are Being Performed, but Loss of
Mission Capabilities Continues:
Coast Guard personnel consistently reported to us that crew members
have to spend increasingly more time between missions to prepare for
the next deployment. For example, to prevent further corrosion-related
problems, air station maintenance personnel at the locations we visited
said they have instituted additional measures, such as washing and
applying fluid film to the aircraft prior to each deployment. Similar
accounts were told by personnel working on cutters. For example,
officers of the 270-foot cutter Northland told us that because of dated
equipment and the deteriorating condition of its piping and other
subsystems, crew members have to spend increasingly more time and
resources while in port to prepare for their next deployment. While we
could not verify these increases in time and resources because the
Coast Guard does not capture data on these additional maintenance
efforts, the need for increasing amounts of maintenance was a message
we consistently heard from the operations and maintenance personnel
with whom we met.
Such efforts are likely helping to prevent a more rapid decline in the
condition of these deepwater legacy assets, but it is important to note
that even with the increasing amounts of maintenance, these assets are
still losing mission capabilities because of deteriorating equipment
and system failures. For example, in fiscal year 2004, one 378-foot
cutter lost 98 counterdrug mission days because of a number of patrol-
ending casualties--including the loss of ability to raise and lower
boats and run major electrical equipment--requiring $1.2 million in
emergency maintenance. Another 378-foot cutter lost 27 counterdrug
mission days in the fall of 2004 when it required emergency dry-dock
maintenance because of hydraulic oil leaking into the reduction gear.
New Initiative for Maintaining 378-Foot Cutters Is Under Way:
One effort is under way at the Coast Guard's Pacific Area Command to
improve maintenance practices for the 378-foot cutters.[Footnote 12]
Pacific Area Command officials have recognized that a different
approach to maintaining and sustaining legacy cutters may be needed
and, as a first step, they have undertaken an initiative applying what
they refer to as "new business rules and strategies" to better maintain
the 378-foot high-endurance cutters through 2016. Under the original
Deepwater proposal, the final 378-foot cutter was to be decommissioned
in 2013, but by 2005, that date had slipped to 2016. To help keep these
cutters running through this date, Pacific Area Command officials are
applying such rules and strategies as (1) ensuring that operations and
maintenance staffs work closely together to determine priorities, (2)
recognizing that maintaining or enhancing cutter capabilities will
involve trade-off determinations, and (3) accepting the proposition
that with limited funding not all cutters will be fully capable to
perform all types of missions. Pacific Area Command officials believe
that in combination, these principles and strategies will result in
more cost-effective maintenance and resource allocation decisions--
recognizing that difficult decisions will still have to be made to
balance maintenance and operations.
The Pacific Area Command's new initiative has the potential for
assisting the Coast Guard in making more informed choices regarding the
best use of their resources, but the approach will likely require that
the Coast Guard allocate additional maintenance funds. In particular,
the Pacific Area Commander told us that in order for the 378-foot
cutters to be properly maintained until their replacements become
operational; the Coast Guard will have to provide additional funding
for sustaining the 378-foot cutters. So far, the Coast Guard's budget
plans or requests do not address this potential need.
Coast Guard is Developing a Strategy to Better Prioritize Upgrades and
Maximize Asset Capabilities:
In the past, we have recommended that the Coast Guard develop a long-
term strategy to set and assess levels of mission performance.[Footnote
13] We found this was an important step for the Coast Guard to take
because it links mission performance levels to measurable outputs and
goals so that the Coast Guard can better decide how limited budget
dollars should be spent. The Coast Guard has recently begun to apply
the principles behind such a strategy to (1) better prioritize the
projects needed to upgrade legacy assets that will be part of the
Deepwater program and (2) obtain the greatest overall mix of
capabilities for its assets within its budget in order to maximize
mission performance. The tool it is developing is called the Capital
Asset Management Strategy (CAMS).
CAMS, once fully implemented, is expected to help the Coast Guard to
better manage its assets by linking funding decisions to asset
condition. Unlike the Coast Guard's current compendium, CAMS is
designed to provide analyses on the capability trade-offs for upgrades
and maintenance projects across asset classes, thereby allowing the
Coast Guard to determine which combination of projects will provide the
most capability for the dollars invested. For example, when trying to
decide among potential project upgrades such as a HC-130 weather radar
replacement, an HH-65 sliding cabin door replacement, or a 110-foot
patrol boat fin stabilizer replacement, CAMS, once fully implemented,
could provide the program managers with a recommended mix of project
upgrades that would achieve the greatest capability enhancements based
on the available budget.
CAMS analyses are to be based on legacy asset condition and readiness
data, asset retirement and replacement timelines, asset degradation
estimates, project production rates, cost data, and mission utility
rankings. Mission utility rankings will grade an asset's importance to
specific missions, such as search and rescue or counterdrug operations.
Rankings may also be assigned to an asset's critical subsystems, or may
be altered based on an asset's geographic location. For example, a 378-
foot cutter may be critical to the success of fisheries patrols in the
Pacific, but may not be as important for alien/migrant interdiction
operations in the Caribbean. In addition, the Coast Guard plans to rank
its missions based on their relative importance.[Footnote 14] Each of
these elements is to form the basis for recommendations regarding which
combination of upgrade and maintenance projects will provide the
greatest enhancements to fleet capabilities.
CAMS recommendations are not intended to be a replacement for the
budget development process, but rather are to augment the information
currently provided to decision-makers and be reviewed by several
internal Coast Guard officials before final funding decisions are made.
Further, in order to prevent user "gaming"--making assumptions in such
a way as to assure a positive recommendation or outcome for a
particular project--the Coast Guard is developing a series of job aids,
manuals and training courses to ensure data consistency.
Coast Guard officials expect to have the CAMS fully implemented by
September 2005 and intend to use it while developing the Coast Guard's
fiscal year 2008 budget submission. Although it is too soon to assess
the effectiveness of CAMS, we view this approach as a good faith effort
toward knowledge-based budgeting for legacy asset sustainment.
Management Challenges Faced in Acquiring New Assets Remain Significant:
Since the inception of the Deepwater program, we have expressed
concerns about the degree of risk in the acquisition approach and the
Coast Guard's ability to manage and oversee the program. Last year, we
reported that, well into the contract's second year, key components
needed to manage the program and oversee the system integrator's
performance had not been effectively implemented.[Footnote 15] We also
reported that the degree to which the program was on track could not be
determined, because the Coast Guard was not updating its
schedule.[Footnote 16] We detailed needed improvements in a number of
areas, shown in table 5. These concerns have a direct bearing on any
consideration to increase the program's pace. Because the Coast Guard
was having difficulty managing the Deepwater program at the pace it had
anticipated, increasing the pace by attempting to speed the acquisition
would only complicate the problem.
Table 4: Summary of Deepwater Areas Needing Management Attention as
Reported by GAO:
Area of concern: Key components of management and oversight are not
effectively implemented;
Recommendations to the U.S. Coast Guard:
* Improve integrated product teams responsible for managing the program
by providing better training, approving charters, and improving systems
for sharing information between teams;
* Ensure adequate staffing of the Deepwater program;
* Provide field personnel with guidance and training on transitioning
to new Deepwater assets;
* Update the original acquisition schedule to support future budget
requests, starting with the fiscal year 2006 request.
Area of concern: Procedures for ensuring contractor accountability are
inadequate;
Recommendations to the U.S. Coast Guard:
* Develop measurable award fee criteria consistent with guidance from
the Office of Federal Procurement Policy;
* Provide for better input from technical representatives;
* Hold system integrator accountable for improving effectiveness of
integrated product teams;
* Establish a time frame for putting steps in place to measure
contractor's progress toward improving operational effectiveness;
* Establish a baseline for determining whether the acquisition approach
is costing the government more than a traditional asset replacement
approach;
* Establish criteria to determine when to adjust the project baseline
and document the reasons for change.
Area of concern: Control of future costs through competition remains at
risk because of weak oversight;
Recommendations to the U.S. Coast Guard:
* Develop a comprehensive plan for holding the system integrator
accountable for ensuring adequate competition among suppliers.
Recommendations to the U.S. Coast Guard:
* For subcontracts over $5 million awarded by the system integrator to
the two major subcontractors, require notification to the Coast Guard
about decisions to perform the work in- house rather than contracting
it out.
Source: Developed by GAO from our reports GAO-04-380 and GAO-04-695.
[End of table]
The Coast Guard agreed with nearly all of our recommendations and has
made progress in implementing some of them. In most cases, however,
while actions are under way, management challenges remain that are
likely to take some time to fully address.
Improvement of Program Management and Contractor Oversight Is Mixed:
We have seen mixed success in the Coast Guard's efforts to improve
management of the program and contractor oversight. All four areas of
concern--improving integrated project teams (IPT) , ensuring adequate
staff for the program, planning for human capital requirements for
field units receiving new assets, and updating the program's schedule-
-have yet to be fully addressed.
Strengthening Integrated Product Teams:
Although the Deepwater program has made some efforts to improve the
effectiveness of IPTs, we continue to see evidence that more
improvements are needed for the teams to do their jobs effectively.
These teams, the Coast Guard's primary tool for managing the program
and overseeing the contractor, are generally chaired by a subcontractor
representative and consist of members from subcontractors and the Coast
Guard. The teams are responsible for overall program planning and
management, asset integration, and overseeing delivery of specific
Deepwater assets. Since our March 2004 report, the teams have been
restructured, and 20 teams have charters setting forth their purpose,
authority, and performance goals. And new, entry-level training is
being provided to team members.
Despite this progress, however, the needed changes are not yet
sufficiently in place. A recent assessment by the Coast Guard of the
system integrator's performance found that roles and responsibilities
in some teams continue to be unclear. Decision making is to a large
extent stovepiped, and some teams still lack adequate authority to make
decisions within their realm of responsibility. One source of
difficulty for some team members has been the fact that each of the two
major subcontractors has used its own databases and processes to manage
different segments of the program. Decisions on air assets are made by
Lockheed Martin, while decisions regarding surface assets are made by
Northrop Grumman. This approach can lessen the likelihood that a
"system of systems" outcome will be achieved. Officials told us that
more attention is being paid to taking a systemwide approach and that
the Coast Guard has emphasized the need to ensure that the two major
subcontractors integrate their management systems.
Ensuring Adequate Staffing for the Deepwater Program:
The Coast Guard has taken steps to more fully staff the Deepwater
program, with mixed effects. In February 2005, the Deepwater program
executive officer approved a revised human capital plan. The plan
emphasizes workforce planning, including determining needed knowledge,
skills, and abilities and developing ways to leverage institutional
knowledge as staff rotate out of the program. This analysis is intended
to help determine what gaps exist between needed skills and existing
skills and to develop a plan to bridge these gaps. The Coast Guard has
also taken some short-term steps to improve Deepwater program staffing,
hiring contractors to assist with program support functions, shifting
some positions from military to civilian to mitigate turnover risk, and
identifying hard-to-fill positions and developing recruitment plans
specifically for them. Finally, the Deepwater program and the Coast
Guard's acquisition branch have begun using an automated system for
forecasting military rotation cycles, a step Deepwater officials
believe will help with long-range strategic workforce planning and
analysis.
Despite these actions, however, vacancies remain in the program, and
some metrics that may have highlighted the need for more stability in
the program's staff have been removed from the new human capital plan.
As of January 2005, 244 positions were assigned to the program, but
only 206 of these were filled, a 16 percent vacancy rate. A year ago,
209 staff were assigned to the program. Further, the new human capital
plan removes a performance goal that measured the percentage of billets
filled at any given time. Coast Guard officials acknowledged that the
prior plan's goal of a 95 percent or higher fill rate was unduly
optimistic and was a poor measure of the Coast Guard's ability to meet
its hiring goals. For example, billets for military personnel who plan
to rotate into the program in the summer are created at the beginning
of the budget year, leading the metric to count those positions as
vacant from the beginning of the budget year until summer. Other
performance metrics that were included in the prior plan to measure
progress in human capital issues have also been removed. For example,
to help ensure that incoming personnel received acquisition training
and on-the-job training, a billet was included in the prior plan to
serve as a floating training position that replacement personnel could
use for a year before the departure of military incumbents. This
position was never funded, and the new plan removes the billet.
Improving Communication with Personnel Who Will Use the New Assets:
The Coast Guard recognizes the critical need to inform the operators
who are to use the Deepwater assets of progress in the program, and
officials stated that, on the basis of our recommendations, they have
made a number of improvements in this area. A November 2004 analysis of
the Deepwater program's communication process, conducted in
coordination with the National Graduate School, found that the
communication and feedback processes were inadequate. Emphasis has now
been placed on outreach to field personnel, with a multipronged
approach involving customer surveys, face-to-face meetings, and
presentations. We have not yet evaluated the effectiveness of the new
approach.
Human capital requirements for the Deepwater program--such as crew
numbers and schedules, training, and support personnel--will have an
increasing impact on the program's ability to meet its goals as the
pace at which assets are delivered to field units picks up. Recent
assessments by Coast Guard performance monitors show this to be an area
of concern.[Footnote 17] Coast Guard officials have expressed concern
about whether the system integrator is appropriately considering human
capital in systems engineering decisions. The system integrator is
required to develop a workforce management plan for Deepwater, as well
as "human factors engineering" plans for each Deepwater asset and for
the overall system of systems. The Coast Guard rejected the
contractor's workforce management plan and several of the proposed
human factors engineering plans as being inadequate. The rejections
were due, in part, to the lack of an established and integrated system-
level engineering approach that shows how issues relating to human
capabilities and limitations of actually performing with the system
will be approached. One performance monitor noted that, as of late
2004, requirements for staffing and training of maintenance facilities
and organizations had yet to be determined. According to the Coast
Guard, emphasis on a contractor's approach to addressing human capital
considerations is necessary to ensure that Deepwater goals are met,
especially as they pertain to operational effectiveness and total
ownership cost.
Updating the Acquisition Schedule:
The Coast Guard has recently undertaken efforts to update the original
2002 Deepwater acquisition schedule--an action that we suggested in our
June 2004 report.[Footnote 18] The original schedule had milestone
dates showing when work on an asset would begin and when delivery would
be expected, as well as the integrated schedules of critical linkages
between assets, but we found that the Coast Guard was not maintaining
an updated and integrated version of the schedule.[Footnote 19] As a
result, the Coast Guard could not demonstrate whether individual
components and assets were being integrated and delivered on schedule
and in critical sequence. As recently as October 2004, Deepwater
performance monitors likewise expressed concern that the Coast Guard
lacked adequate visibility into the program's status and that lack of
visibility into the schedules for component-level items prevented
reliable forecasting and risk analysis. The Coast Guard has since taken
steps to update the outdated schedule and has indicated that it plans
to continue to update the schedule each month for internal management
purposes and semiannually to support its budget planning efforts. We
think this is an important step toward improving the Coast Guard's
management of the program because it provides a more tangible picture
of progress as well as a baseline for holding contractors accountable.
We will continue to work closely with the Coast Guard to ensure
progress is made and to monitor how risks are mitigated.
Procedures for Ensuring System Integrator Accountability Are More
Rigorous, but Concerns Remain:
We have seen progress in terms of the rigor with which the Coast Guard
is periodically assessing the system integrator's performance, but
concerns remain about the broader issues of accountability for
achieving the overarching goals of minimizing total ownership costs and
maximizing operational effectiveness.
Improving Criteria for Assessing Performance:
Improvements continue to be made to the criteria for assessing the
system integrator's performance. In March 2004, we reported that the
process for assessing performance against specific contract tasks
lacked rigor. The criteria for doing so have since been revised to more
clearly reflect those that are objective, (that is, measured through
automated tools against established metrics), and those that are
subjective, meaning the narrative comments by Coast Guard performance
monitors. Weights have been assigned to each set of evaluation factors,
and the Coast Guard continues to refine the distribution of the weights
to reach an appropriate balance between automated results and the
eyewitness observations of the performance monitors. Coast Guard
officials told us that they have also provided additional guidance and
training to performance monitors. We found that efforts have been made
to improve the consistency of the format used for their input in
assessments of the system integrator's performance. Coast Guard
officials said that they are continuing to make improvements to ensure
that performance monitors' relevant observations are appropriately
considered in making award fee determinations.
It is important to note that although performance monitor comments are
considered subjective, they are valuable inputs to assessing the system
integrator's performance, particularly when they are tied to measurable
outcomes. It will be necessary for the Coast Guard to continue refining
the award fee factors as the program progresses. In some cases, we
noted that the performance monitors' assessments differed vastly from
the results of automated, data-driven assessments. For example, while
schedule management is discussed in the Coast Guard's most recent
assessment of the system integrator's performance as a major area of
challenge and risk, the objective measure showed 100 percent compliance
in this area. Another metric assesses the extent to which integrated
product teams consider the impact of their decisions on the overall
cost and effectiveness of the Deepwater program. Performance monitors
reported that because system-level guidance had not been provided to
the teams responsible for specific assets, they had a limited ability
to see the whole picture and understand the impact of decisions on
total ownership costs and operational effectiveness. However, the
automated measure was again 100 percent compliance. Coast Guard
officials said that, in some cases, the data-driven metrics do not
accurately reflect the contractor's performance. For the next award fee
assessment, Deepwater officials plan to revise the metrics and place
more weight on the performance monitors' input, while ensuring that it
is based on measurable outcomes.
Holding the System Integrator Accountable for Effectiveness of Project
Teams:
Changes have been made to the award fee metrics that place additional
emphasis on the system integrator's responsibility for making
integrated project teams effective. Award fee criteria now incorporate
specific aspects of how the integrator is managing the program,
including administration, management commitment, collaboration,
training, and empowerment of these teams. However, as discussed above,
concerns remain about whether the teams are effectively accomplishing
their goals.
Evaluation of Operational Effectiveness and Total Ownership Cost:
While the Coast Guard has developed models to measure the system
integrator's performance in operational effectiveness and total
ownership costs, concrete results have not yet emerged. Minimizing
total ownership costs and maximizing operational effectiveness are two
of the overarching goals of the Deepwater program. The system
integrator's performance in these two areas will be a critical piece of
information when the Coast Guard makes a decision about whether to
award the contractor the first contract option period of 5 years.
Initial decision making is to start next year.
With regard to the operational effectiveness of the program, measuring
the system integrator's impact has yielded limited results to date
because few of the new assets are operational. The Coast Guard has
developed modeling capabilities to simulate the effect of the new
capabilities on its ability to meet its missions. However, until
additional assets become operational, progress toward this goal will be
difficult to determine.
With regard to total ownership costs, the Coast Guard does not plan to
implement our recommendation. It has not adhered to its original plan,
set forth in the Deepwater program management plan, of establishing as
its baseline a cost not to exceed the dollar value of replacing the
assets under a traditional approach (e.g., on an asset-by-asset basis
rather than a system-of-systems approach). Although a cost baseline
consistent with the program management plan's approach was initially
established, this number has not been rebaselined, as has the system
integrator's cost estimate baseline, and is not being used to evaluate
the contractor's progress in holding total ownership costs down. In
practice, the baseline being used to measure total ownership cost is
the system integrator's own cost estimate. As we reported in March
2004, we believe that measuring the system integrator's cost growth
compared with its own cost proposal will tell the government nothing
about whether it is gaining efficiencies by turning to the system of
systems concept.
Establishing Criteria and Documenting Changes to the Baseline:
Coast Guard officials stated that the contract total ownership cost and
operational effectiveness baseline is adjusted based on approved
decision memorandums from the Agency Acquisition Executive, the Vice
Commandant of the Coast Guard.
Coast Guard Has Taken Steps to Hold the System Integrator Accountable
for Competition:
The Coast Guard reported taking steps to address our recommendations
concerning cost control through competition. Our recommendations
pertained to competition among second-tier suppliers and notification
of "make" decisions.[Footnote 20]
* Competition among second-tier suppliers. Coast Guard officials told
us that in making the decision about whether to award the first
contract option, the government will specifically examine the system
integrator's ability to control costs by assessing the degree to which
competition is fostered at the major subcontractor level. The
evaluation will consider the subcontractors' project management
structure and processes to control costs, as well as how market surveys
of similar assets and major subsystems are implemented. The Coast Guard
is focusing its attention on those areas that were priced after the
initial competition for the Deepwater contract was completed, such as
the HH-65 re-engining and the C-130J missionization.[Footnote 21] For
example, a new process implemented for the C-130J missionization was a
requirement for competition in subcontracting and government approval
of all subcontracts exceeding $2 million in order for the Coast Guard
to monitor the integrator's competition efforts.
* Notification of make decisions. According to the Federal Acquisition
Regulation, the prime contractor is responsible for managing contract
performance, including planning, placing, and administering
subcontracts as necessary to ensure the lowest overall cost and
technical risk to the government. When "make-or-buy programs" are
required, the government may reserve the right to review and agree on
the contractor's make-or-buy program when necessary to ensure
negotiation of reasonable contract prices, among other things. We
recommended that the Coast Guard be notified of make decisions over $5
million in order to facilitate controlling costs through competition.
We suggested the $5 million threshold because Lockheed Martin, one of
the major subcontractors, considers that amount to be the threshold for
considering its suppliers major. The Coast Guard has asked the system
integrator, on a voluntary basis, to provide notification one week in
advance of a make decision of $10 million or more based on the criteria
in the Federal Acquisition Regulation.[Footnote 22] According to Coast
Guard officials, to date, no make decision has exceeded $10 million
since the request was made. The details implementing this
recommendation have not yet been worked out, such as specifically who
in the Coast Guard will monitor the subcontractors' make decisions to
ensure that the voluntary agreement is complied with.
Concluding Observations:
Our work to date suggests the costly and important Deepwater program
will need constant monitoring and management attention to successfully
accomplish its goals. In this respect, we identified three points that
should be kept in mind in considering how to proceed with the program.
* First, the need to replace or upgrade deteriorating legacy assets is
considerable. While the Coast Guard is making progress on developing
(1) measures that better demonstrate how the deteriorating condition of
the legacy assets impact on mission capabilities and (2) a strategy to
better prioritize upgrades and maximize capabilities, it is clear that
the deepwater legacy assets are insufficient for meeting all of the
Coast Guard's missions.
* Second, although the need to replace and upgrade assets is strong,
there still are major risks in the Coast Guard's acquisition approach.
The cost increases and schedule slippages that have already occurred
are warning signs. We will continue to work with the Coast Guard to
determine how best to manage these risks so that the Deepwater missions
can be accomplished in the most cost-effective way.
* Third, there are signs that as the Deepwater program moves ahead, the
Coast Guard will continue to report more problems with sustaining
existing assets, together with the attendant need for additional
infusions of funding to deal with them. Some of these problems, such as
those on the 378-foot cutters, are included in the compendium the Coast
Guard uses to set sustainment priorities and plan budgets, but the
Coast Guard has not allocated funds because the problems pertain to
assets that are among the first to be replaced. However, projects to
address these problems are nevertheless likely to be needed. We will
continue to work with the Coast Guard to determine if there is a more
systematic and comprehensive approach to keeping the Congress abreast
of the potential bill for sustaining these assets.
Mr. Chairman and Members of the Subcommittee, this completes my
prepared statement. I would be happy to respond to any questions that
you or other Members of the Subcommittee may have at this time.
Contacts and Acknowledgements:
For information about this testimony, please contact Margaret
Wrightson, Director, Homeland Security and Justice Issues, at (415) 904-
2200, or wrightsonm@gao.gov. Other individuals making key contributions
to this testimony include Steven Calvo, Jerry Clark, Christopher
Conrad, Adam Couvillion, Michele Fejfar, Geoffrey Hamilton, Julie
Leetch, Michele Mackin, Christopher Miller, Stan Stenersen, and Linda
Kay Willard.
FOOTNOTES
[1] For purposes of this testimony, we use the term "legacy assets" to
refer to the existing fleet of deepwater aircraft and cutters. These
legacy assets include the HC-130H, HU-25, HH-60, and HH-65 aircraft and
the 378-foot high-endurance cutters, the 210-foot and 270-foot medium-
endurance cutters, and the 110-foot and 123-foot patrol boats. We did
not include the 213-foot Acushnet, the 230-foot Storis, or the 282-foot
Alex Haley as part of our analyses of the deepwater legacy assets
because they are one-of-a-kind vessels.
[2] Intermediate-level and depot-level maintenance include repairs and
upgrades that are too time-consuming or complicated to be performed at
the unit level. For aircraft, this would include repairing,
overhauling, or rebuilding parts, components, and end items and
emergency manufacturing of unavailable parts. For cutters, intermediate-
and depot-level maintenance would include preventive or corrective
maintenance, as well as a major overhaul or complete rebuild of parts,
assemblies, and end items; as well as major hull repairs, general
modifications, and testing.
[3] To assess the reliability of the Coast Guard's data and condition
measures, we questioned knowledgeable officials and reviewed existing
documentation about the data and the systems that produced the data. We
determined that the data were sufficiently reliable for the purposes of
this testimony.
[4] In assessing the condition of deepwater aircraft and cutters for
this testimony, we analyzed what Coast Guard officials told us were the
best available condition measures. For deepwater aircraft, we reviewed
the availability index (percentage of time aircraft were available to
complete missions), cost per flight hour, labor hours per flight hour,
programmed flight hours per year, scheduled versus unscheduled
maintenance expenditures, and estimated deferred maintenance. For
cutters, we reviewed the number of major casualties, the percent of
time free of major casualties, scheduled versus unscheduled
maintenance, and estimated deferred maintenance. We also reviewed data
on mishaps and the dispatch reliability index for aircraft, and lost
cutter days and unscheduled maintenance days for cutters. We did not
use data on these measures, though, because the data were either not
relevant to our analysis, incomplete, not available for the entire time
period covered by our review, or not sufficiently reliable for our
purposes.
[5] GAO, Contract Management: Coast Guard's Deepwater Program Needs
Increased Attention to Management and Contractor Oversight, GAO-04-380
(Washington, D.C.: March 9, 2004).
[6] For purposes of this testimony, we use the term "systems" to
include all the electrical; mechanical; heating, ventilation, and air
conditioning; and other systems on the deepwater assets.
[7] Current plans call for the Coast Guard to replace all of its
deepwater legacy cutters and patrol boats, beginning with the 378-foot
cutters. The Coast Guard also plans to replace the HU-25 aircraft, but
will upgrade the existing HC-130 aircraft and HH-60 and HH-65
helicopters to extend their service lives.
[8] The mission requirements include such things as the ability to (1)
respond to 90 percent of all distress incidents within 2 hours; (2)
detect and track targets of any material such that the probability of
detection is at least 90 percent for small targets, such as a person in
the water or a single-engine civil aircraft; and (3) respond to
National Emergency Response Operations within 48 hours.
[9] See GAO, Coast Guard: Deepwater Program Acquisition Schedule Update
Needed, GAO-04-695 (Washington, D.C.: June 14, 2004); Coast Guard: Key
Management and Budget Challenges for Fiscal Year 2005 and Beyond, GAO-
04-636T (Washington, D.C.: April 7, 2004); and GAO-04-380.
[10] A casualty is a deficiency in mission essential equipment; a major
casualty causes the major degradation or loss of at least one primary
mission.
[11] However, major casualties for the 378-foot high-endurance cutters
continued to increase in 2004.
[12] The Pacific Area Command is responsible for operations covering 74
million square miles, ranging from South America, north to the Arctic
Circle and west to the Far East.
[13] GAO, Coast Guard: Comprehensive Blueprint Needed to Balance and
Monitor Resource Use and Measure GAO, Coast Guard: Strategy Needed for
Setting and Monitoring Levels of Effort for All Missions (GAO-03-155,
Washington, D.C.: November 12, 2002).
[14] A mission's relative importance will be determined by Coast Guard
operational decision makers. These determinations will not be static,
but rather will be reviewed and revised to reflect changing priorities.
[15] GAO-04-380.
[16] GAO-04-695.
[17] Performance monitors are contracting officers' technical
representatives, who represent the contracting officer in monitoring
the contractor's performance.
[18] GAO-04-695.
[19] Not maintaining a current and integrated schedule lessens the
Coast Guard's ability to monitor the system integrator's performance
and take early action to resolve risks that could become problems
later. Maintaining such a schedule is an industry best practice; the
Department of Defense is required to do so in order to be able to
report any breaches in cost, schedule, or performance targets.
[20] A "make item" means an item or work effort to be produced or
performed by the prime contractor or its affiliates, subsidiaries, or
divisions.
[21] The C-130J missionization, planned for the Coast Guard's six C-
130J aircraft, is intended to modify and install mission-essential
equipment to convert the aircraft into C-130J long-range surveillance
maritime patrol aircraft.
[22] Federal Acquisition Regulation §15.407-2, "Make or Buy Programs."
