Coast Guard
Coast Guard Efforts to Improve Management and Address Operational Challenges in the Deepwater Program Gao ID: GAO-07-460T February 14, 2007The Coast Guard's Deepwater program is a 25-year, $24 billion plan to replace or modernize its fleet of vessels and aircraft. While there is widespread acknowledgment that many of the Coast Guard's aging assets need replacement or renovation, concerns exist about the acquisition approach the Coast Guard adopted in launching the Deepwater program. From the outset, GAO has expressed concern about the risks involved with the Coast Guard's acquisition strategy, and continues to review Deepwater program management. This statement discusses (1) the Coast Guard's acquisition approach for the Deepwater program; (2) previous GAO recommendations to the Coast Guard on Deepwater, highlighting the importance of Integrated Product Teams; and (3) operational challenges the Coast Guard is facing because of performance and design problems with Deepwater patrol boats.
In 2001, we described the Deepwater project as "risky" due to the unique, untried acquisition strategy for a project of this magnitude within the Coast Guard. The Coast Guard used a system-of-systems approach to replace deteriorating assets with a single, integrated package of aircraft, vessels, and unmanned aerial vehicles. The Coast Guard also used a system integrator--which can give the contractor extensive involvement in requirements development, design, and source selection of major system and subsystem subcontractors. The Deepwater program is also a performance-based acquisition, meaning that it is structured around the results to be achieved rather than the manner in which the work is performed. If performance-based acquisitions are not appropriately planned and structured, there is an increased risk that the government may receive products or services that are over cost estimates, delivered late, and of unacceptable quality. GAO's reported concerns and related recommendations in 2004 and in subsequent assessments in 2005 and 2006 have centered onthree main areas: program management, contractor accountability, and cost control through competition. In the area of program management, GAO's prior work has found that Integrated Product Teams--the Coast Guard's primary tool for managing the program and overseeing the contractor--have struggled to carry out their missions effectively. We have ongoing work reviewing Deepwater implementation and contract oversight and will continue to monitor the Coast Guard's implementation of our recommendations. In addition to these management issues, the Coast Guard is facing operational challenges because of performance and design problems with Deepwater patrol boats. Specifically, problems with the conversion of 110-foot patrol boats to 123-foot patrol boats ultimately led the Coast Guard to suspend all normal operations of its converted 123-foot patrol boats on November 30, 2006; the Coast Guard is now exploring options to address the resulting operational gaps. In February 2006, the Coast Guard suspended design work on the Fast Response Cutter (FRC)--which was intended to replace the patrol boats--due to design risks. In moving forward with the FRC acquisition, the Coast Guard will end up with two separate classes of FRCs--an outcome that has resulted in a slippage of the anticipated FRC delivery date.
GAO-07-460T, Coast Guard: Coast Guard Efforts to Improve Management and Address Operational Challenges in the Deepwater Program
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Testimony:
Before the Subcommittee on Oceans, Atmosphere, Fisheries, and Coast
Guard, Committee on Commerce, Science and Transportation, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 2:30 p.m. EST:
Wednesday, February 14, 2007:
Coast Guard:
Coast Guard Efforts to Improve Management and Address Operational
Challenges in the Deepwater Program:
Statement of Stephen L. Caldwell, Acting Director:
Homeland Security and Justice Issues:
GAO-07-460T:
GAO Highlights:
Highlights of GAO-07-460T, a testimony before the Subcommittee on
Oceans, Atmosphere, Fisheries, and Coast Guard, Committee on Commerce,
Science & Transportation, U.S. Senate
Why GAO Did This Study:
The Coast Guard‘s Deepwater program is a 25-year, $24 billion plan to
replace or modernize its fleet of vessels and aircraft. While there is
widespread acknowledgment that many of the Coast Guard‘s aging assets
need replacement or renovation, concerns exist about the acquisition
approach the Coast Guard adopted in launching the Deepwater program.
From the outset, GAO has expressed concern about the risks involved
with the Coast Guard‘s acquisition strategy, and continues to review
Deepwater program management.
This statement discusses (1) the Coast Guard‘s acquisition approach for
the Deepwater program; (2) previous GAO recommendations to the Coast
Guard on Deepwater, highlighting the importance of Integrated Product
Teams; and (3) operational challenges the Coast Guard is facing because
of performance and design problems with Deepwater patrol boats.
What GAO Found:
In 2001, we described the Deepwater project as ’risky“ due to the
unique, untried acquisition strategy for a project of this magnitude
within the Coast Guard. The Coast Guard used a system-of-systems
approach to replace deteriorating assets with a single, integrated
package of aircraft, vessels, and unmanned aerial vehicles. The Coast
Guard also used a system integrator”which can give the contractor
extensive involvement in requirements development, design, and source
selection of major system and subsystem subcontractors. The Deepwater
program is also a performance-based acquisition, meaning that it is
structured around the results to be achieved rather than the manner in
which the work is performed. If performance-based acquisitions are not
appropriately planned and structured, there is an increased risk that
the government may receive products or services that are over cost
estimates, delivered late, and of unacceptable quality.
GAO‘s reported concerns and related recommendations in 2004 and in
subsequent assessments in 2005 and 2006 have centered on three main
areas: program management, contractor accountability, and cost control
through competition. In the area of program management, GAO‘s prior
work has found that Integrated Product Teams”the Coast Guard‘s primary
tool for managing the program and overseeing the contractor” have
struggled to carry out their missions effectively. We have ongoing work
reviewing Deepwater implementation and contract oversight and will
continue to monitor the Coast Guard‘s implementation of our
recommendations.
In addition to these management issues, the Coast Guard is facing
operational challenges because of performance and design problems with
Deepwater patrol boats. Specifically, problems with the conversion of
110-foot patrol boats to 123-foot patrol boats ultimately led the Coast
Guard to suspend all normal operations of its converted 123-foot patrol
boats on November 30, 2006; the Coast Guard is now exploring options to
address the resulting operational gaps. In February 2006, the Coast
Guard suspended design work on the Fast Response Cutter (FRC)”which was
intended to replace the patrol boats”due to design risks. In moving
forward with the FRC acquisition, the Coast Guard will end up with two
separate classes of FRCs”an outcome that has resulted in a slippage of
the anticipated FRC delivery date.
What GAO Recommends:
GAO made 11 recommendations in 2004 in the areas of management and
oversight, contractor accountability, and cost control through
competition. In April 2006, we reported that the Coast Guard had
implemented five of the recommendations, had begun to address five
other recommendations, and declined to implement one recommendation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-460T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Stephen Caldwall at (202)
512-9610 or caldwells@gao.gov.
[End of section]
Madame Chair and Members of the Subcommittee:
Thank you for inviting me here today to discuss our reviews of the U.S.
Coast Guard's $24 billion Deepwater program. While there is widespread
acknowledgment that many of the Coast Guard's aging assets need
replacement or renovation, concerns also exist about the acquisition
approach the Coast Guard adopted in launching the Deepwater program.
From the outset, we have expressed concern about the risks involved
with the Coast Guard's acquisition strategy.[Footnote 1] The subsequent
changes in the Deepwater asset mix and delivery schedules only
increased these concerns. In 2004, 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 2] Accordingly, we made 11 recommendations to
address three broad areas of concern: improving program management,
strengthening contractor accountability, and promoting cost control
through greater competition among potential subcontractors.
My statement today will discuss our prior work on the Coast Guard's
Deepwater program. Specifically, I will discuss:
* the Coast Guard's acquisition approach for the Deepwater program;
* previous GAO recommendations to the Coast Guard on Deepwater,
highlighting the importance of Integrated Product Teams; and:
* operational challenges the Coast Guard is facing because of
performance and design problems with Deepwater patrol boats.
This testimony is based on our prior work on the Deepwater program.
That work was conducted in accordance with generally accepted
government auditing standards. We have ongoing work across all of the
issues discussed in this statement.
Summary:
In 2001, we described the Deepwater program as "risky" due to the
unique, untried acquisition strategy for a project of this magnitude
within the Coast Guard. The Coast Guard used a system-of-systems
approach to replace deteriorating assets with a single, integrated
package of aircraft, vessels, and unmanned aerial vehicles, to be
linked through systems that provide command, control, communications,
computer, intelligence, surveillance, and reconnaissance (C4ISR), and
supporting logistics. In a system-of-systems, the delivery of Deepwater
assets are interdependent, thus schedule slippages and uncertainties
associated with potential changes in the design and capabilities of any
one asset could increase the overall risks that the Coast Guard might
not meet its expanded homeland security performance requirements within
given budget parameters and milestone dates. The Coast Guard also used
a system integrator--which can give the contractor extensive
involvement in requirements development, design, and source selection
of major system and subsystem subcontractors. The Deepwater program is
also a performance-based acquisition, meaning that it is structured
around the results to be achieved rather than the manner in which the
work is performed. If performance-based acquisitions are not
appropriately planned and structured, there is an increased risk that
the government may receive products or services that are over cost
estimates, delivered late, and of unacceptable quality.
Our reported concerns and related recommendations in 2004 and in
subsequent assessments in 2005 and 2006 have centered on three main
areas: program management, contractor accountability, and cost control
through competition. In the area of program management, among other
things, our prior work has found that Integrated Product Teams (IPTs)-
-the Coast Guard's primary tool for managing the program and overseeing
the contractor--have struggled to effectively carry out their missions.
We recommended that, among other things, Coast Guard improve the IPTs
by initiating actions to establish timely charters and training. In
terms of contractor accountability, in 2004 we found that the Coast
Guard had not developed quantifiable metrics to hold the system
integrator accountable for its ongoing performance, the process by
which the Coast Guard assessed performance after the first year of the
contract lacked rigor, and the Coast Guard had not begun to measure the
system integrator's performance on the three overarching goals of the
Deepwater program--maximizing operational effectiveness, minimizing
total ownership costs, and satisfying the customer. Thus, one
recommendation we made for improving contractor accountability was to
devise a time frame for measuring the contractor's progress toward
improving operational effectiveness. We also reported in 2004 that,
although competition among subcontractors was a key vehicle for
controlling costs, the Coast Guard had neither measured the extent of
competition among the suppliers of Deepwater assets nor held the system
integrator accountable for taking steps to achieve competition.
Consequently, we recommended that Coast Guard develop a plan to hold
the contractor accountable for ensuring adequate competition among
suppliers. While we recognize that the Coast Guard has taken steps to
address our findings and recommendations, aspects of the Deepwater
program will require continued attention.
In addition to the Deepwater program management issues discussed above,
the Coast Guard is facing operational challenges because of performance
and design problems with Deepwater patrol boats. Specifically, the
conversion of legacy 110-foot patrol boats to upgraded 123-foot patrol
boats was stopped at eight hulls (rather than the entire fleet of 49)
due to deck cracking, hull buckling, and shaft alignment problems.
These patrol boat conversion problems ultimately led the Coast Guard to
suspend all normal operations of the eight converted 123-foot patrol
boats on November 30, 2006. The Coast Guard is now exploring options to
address the resulting short-term operational gaps. There have also been
design problems with the new Fast Response Cutter (FRC), intended to
replace all 110-foot and 123-foot patrol boats. In February 2006, the
Coast Guard suspended design work on the FRC due to design risks such
as excessive weight and horsepower requirements.[Footnote 3] In moving
forward with the FRC acquisition as planned, the Coast Guard will end
up having to operate two classes of FRCs--which has resulted in a
slippage of the anticipated FRC delivery date. One class will be based
on an adapted design from a patrol boat already on the market and
another class that would be redesigned to address the problems in the
original FRC design plans. Thus, the Coast Guard is also facing longer-
term operational gaps related to its patrol boats. As with the 123-foot
patrol boats, the Coast Guard is looking at options to address these
long-term operational gaps.
Background:
For about a decade, the Coast Guard has been developing an Integrated
Deepwater System (or Deepwater) acquisition program, a long-term plan
to replace or modernize is fleet of vessels and aircraft. Many of these
legacy assets are at or approaching the end of their estimated service
lives. Deepwater is the largest and most complex acquisition project in
the Coast Guard's history. The acquisition is scheduled to include the
modernization and replacement of an aging fleet of over 90 cutters and
200 aircraft used for missions that generally occur beyond 50 miles
from the shore. As originally conceived, Deepwater was designed around
producing aircraft and vessels that would function in the Coast Guard's
traditional at-sea roles, such as interdicting illicit drug shipments
or rescuing mariners from difficulty at sea.
After the terrorist attacks on September 11, 2001, however, these
aircraft and vessels began taking on additional missions related to
protection of ports, waterways, and coastal areas. As a result, the
Coast Guard began revising the Deepwater implementation plan to provide
replacement assets that could better address these added
responsibilities. In August 2005, the Coast Guard issued the revised
Deepwater implementation plan detailing the assets it planned to modify
or acquire, along with the proposed cost sand schedules for doing so.
Then, in February 2006, the Coast Guard again updated its Deepwater
plan to align with its fiscal year 2007 budget submissions. The revised
plan increased overall program costs from the original estimate of $17
billion to $24 billion. Overall, the acquisition schedule was
lengthened by 5 years, with the final assets now scheduled for delivery
in 2027.[Footnote 4]
Coast Guard's Acquisition Approach to Deepwater Program:
In 2001, we described the Deepwater program as "risky" due to the
unique, untried acquisition strategy for a project of this magnitude
within the Coast Guard. The approach included the development of a
system-of-systems, a single system integrator, and a performance-based
contract.
System of Systems:
Rather than using the traditional approach of replacing classes of
ships or aircraft through a series of individual acquisitions, the
Coast Guard chose to use a system-of-systems acquisition strategy that
would replace its deteriorating assets with a single, integrated
package of aircraft, vessels, and unmanned aerial vehicles, to be
linked through systems that provide C4ISR,[Footnote 5] and supporting
logistics. Through this approach, the Coast Guard hoped to avoid
"stovepiping" the acquisition of vessels and aircraft, which might lead
to a situation where they could not operate optimally together.
Our past work on Deepwater noted that decisions on air assets were made
by one subcontractor, while decisions regarding surface assets were
made by another subcontractor. This approach can lessen the likelihood
that a system-of-systems outcome will be achieved if decisions
affecting the entire program are made without the full consultation of
all parties involved. Our more recent work on the Fast Response Cutter
(FRC)--which is discussed in more detail later--indicated that changes
in the design and delivery date for the FRC could affect the operations
of the overall system-of-systems approach. Because the delivery of
Deepwater assets are interdependent within the system-of-systems
acquisition approach, schedule slippages and uncertainties associated
with potential changes in the design and capabilities of the new assets
have increased the risks that the Coast Guard may not meet its expanded
homeland security performance requirements within given budget
parameters and milestone dates.
System Integrator:
In June 2002, the Coast Guard awarded the Deepwater contract to
Integrated Coast Guard Systems (ICGS). ICGS--a business entity jointly
owned by Northrop Grumman and Lockheed Martin--is a system integrator,
responsible for designing, constructing, deploying, supporting, and
integrating the Deepwater assets to meet Coast Guard requirements. This
type of business arrangement can give the contractor extensive
involvement in requirements development, design, and source selection
of major system and subsystem subcontractors. This management approach
of using a system integrator has been used on other government programs
that require system-of-systems integration, such as the Army's Future
Combat System, a networked family of weapons and other systems.
Government agencies have turned to the system integrator approach when
they believe they do not have the in-house capability to design,
develop, and manage complex acquisitions. Giving contractors more
control and influence over the government's acquisitions in a system
integrator role creates a potential risk that program decisions and
products could be influenced by the financial interest of the
contractor--which is accountable to its shareholders--which may not
match the primary interest of the government, maximizing its return on
taxpayer dollars. The system integrator arrangement creates an inherent
risk, as the contractor is given more discretion to make certain
program decisions. Along with this greater discretion comes the need
for more government oversight and an even greater need to develop well-
defined outcomes at the outset.
Performance-based Acquisition:
The Deepwater program has been designated as a performance-based
acquisition. When buying services, federal agencies are currently
required to employ--to the maximum extent feasible--this concept,
wherein acquisitions are structured around the results to be achieved
as opposed to the manner in which the work is to be performed. That is,
the government specifies the outcome it requires while leaving the
contractor to propose decisions about how it will achieve that outcome.
Performance-based contracts for services are required to include a
performance work statement; measurable performance standards (i.e., in
terms of quality, timeliness, quantity, etc.) as well as the method of
assessing contractor performance against these standards; and
performance incentives, where appropriate. If performance-based
acquisitions are not appropriately planned and structured, there is an
increased risk that the government may receive products or services
that are over cost estimates, delivered late, and of unacceptable
quality.
Deepwater Indicative of Broader, Systemic Acquisition Challenges:
Some of the problems the Coast Guard is experiencing with the Deepwater
program (as discussed later in this statement), in principle, are
indicative of broader and systemic challenges we have identified for
complex, developmental systems. These challenges, based mostly on our
reviews of Department of Defense programs, include:
* Program requirements that are set at unrealistic levels, then changed
frequently as recognition sets in that they cannot be achieved. As a
result, too much time passes; threats may change; and/or members of the
user and acquisition communities may simply change their minds. The
resulting program instability causes cost escalation, schedule delays,
fewer quantities, and reduced contractor accountability.
* Program decisions to move into design and production are made without
adequate standards or knowledge.
* Contracts, especially service contracts, often do not have measures
in place at the outset in order to control costs and facilitate
accountability.
* Contracts typically do not accurately reflect the complexity of
projects or appropriately allocate risk between the contractors and the
taxpayers.
* The acquisition workforce faces serious challenges (e.g., size,
skills, knowledge, and succession planning).
* Incentive and award fees are often paid based on contractor attitudes
and efforts versus positive results, such as cost, quality, and
schedule.
* Inadequate government oversight results in little to no
accountability for recurring and systemic problems.
Previous GAO Recommendations Have Focused on Three Areas:
Our assessment of the Deepwater program in 2004 found that the Coast
Guard had not effectively managed the program or overseen the system
integrator.[Footnote 6] We specifically made 11 recommendations to the
Coast Guard, which can found at Table 1 on page 12. Our reported
concerns in 2004 and in subsequent assessments in 2005 and 2006 have
centered on three main areas: program management, contractor
accountability, and cost control through competition. Each of these
three areas is discussed in more detail below.
While we recognize that the Coast Guard has taken steps to address our
findings and recommendations, aspects of the Deepwater program will
require continued attention. A project of this magnitude will likely
continue to experience other problems as more becomes known. We have
ongoing work to monitor and evaluate the Coast Guard's efforts.
Program Management and the Importance of Integrated Product Teams:
Our previous work and recommendations were based on concerns about the
Coast Guard's program management. For example, we reported in 2004 that
the Coast Guard had not adequately communicated to its operational
personnel decisions on how new and old assets would be integrated and
how maintenance responsibilities would be divided between government
and contractor personnel. We also found that the Coast Guard had not
adequately staffed its program management function. Despite some
actions taken to more fully staff the Deepwater program, we reported
that in January 2005 shortfalls remained. While 244 positions were
assigned to the program, only 206 were filled, resulting in a 16
percent vacancy rate.
One of the key program management concerns we had, and one that is
worth highlighting, is the effectiveness of IPTs. IPTs are the Coast
Guard's primary tool for managing the Deepwater program and overseeing
the system integrator. Our past work has found that IPTs can improve
both the speed and quality of the decision-making process.[Footnote 7]
They can make decisions involving significant trade-offs without
relying unduly on other organizations for information or approval. In
our prior work, we studied successful IPTs in commercial firms and
found that effective teams have (1) expertise to master different
facets of product development, (2) responsibility for day-to-day
decisions and product delivery, (3) key members who are either
physically colocated or connected through virtual means to facilitate
team cohesion and the ability to share information, and (4) control
over their membership, with membership changes driven by each team's
need for different knowledge.
We identified two elements as essential to determining whether a team
is in fact an IPT: the knowledge and authority needed to recognize
problems and make cross-cutting decisions expeditiously. Knowledge is
sufficient when the team has the right mix of expertise to master the
different facets of product development. Authority is present when the
team is responsible for making both day-to-day decisions and delivering
the product. If the programs are experiencing problems, the teams
either did not have the authority or the right mix of expertise to be
considered IPTs. If a team lacks expertise, it will miss opportunities
to recognize potential problems early; without authority, it can do
little about them.
The Deepwater IPTs--comprised of Coast Guard, ICGS, and subcontractor
employees from Lockheed Martin and Northrop Grumman--are responsible
for overall program planning and management, asset integration, and
overseeing the delivery of specific Deepwater assets. We reported in
2004 that the teams had struggled to effectively carry out their
missions. We identified four major issues that had impeded the
effective performance of the IPTs.
* First, the teams lacked timely charters to vest them with authority
for decision making. More than merely a paperwork exercise, sound IPT
charters are critical because they detail each team's purpose,
membership, performance goals, authority, responsibility,
accountability, and relationships with other groups, resources, and
schedules.
* Second, the system integrator had difficulty training IPT members in
time to ensure that they could effectively carry out their duties, and
program officials referred to IPT training as deficient. IPT training
is to address, among other issues, developing team goals and
objectives, key processes, use of a Web-based system intended to
facilitate communication, and team rules of behavior. According to a
Coast Guard evaluation report from December 2002, IPT training had been
implemented late, which contributed to a lack of effective
collaboration among team members.
* Third, very few of the operating IPTs were entirely colocated, (that
is, all members were not in the same building) even though the Coast
Guard's Deepwater program management plan identified colocation of IPT
members as a key program success factor, along with effective
communications within and among teams. ICGS developed a Web-based
system for government and contractor employees to regularly access and
update technical delivery task order [Footnote 8] information, training
materials, and other program information, in part to mitigate the
challenges of having team members in multiple locations. However, the
Deepwater program executive officer reported that, while the system had
great potential, it was a long way from becoming the virtual enterprise
and collaborative environment required by the contractor's statement of
work.
* Fourth, we reported that most of the Deepwater IPTs had experienced
membership turnover and staffing difficulties, resulting in a loss of
team knowledge, overbooked schedules, and crisis management. In a few
instances, such as the national security cutter and maritime patrol
aircraft, even the IPT leadership had changed.
In 2005, we found that the Coast Guard had taken some positive steps in
that (1) the IPTs had been restructured, (2) 20 IPTs had charters
setting forth their purpose, authority, and performance goals, and (3)
entry-level training had been implemented for team members. However,
some of the problems continued. A Coast Guard assessment of the system
integrator's performance found that roles and responsibilities in some
teams continued to be unclear. Decision making was to a large extent
stove-piped, and some teams lacked adequate authority to make decisions
within their realm of responsibility. One source of difficulty for some
team members was that each of the two major subcontractors has used its
own management systems and processes to manage different segments of
the program.
In 2005, we also noted that decisions on air assets were made by
Lockheed Martin, while decisions regarding surface assets were made by
Northrop Grumman. We reported that this approach can lessen the
likelihood that a system-of-systems outcome will be achieved if
decisions affecting the entire program are made without the full
consultation of all parties involved. In 2006, we reported that Coast
Guard officials believed collaboration among the subcontractors to be
problematic and that ICGS wielded little influence to compel decisions
among them. For example, when dealing with proposed design changes to
assets under construction, ICGS submitted the changes as two separate
proposals from both subcontractors rather than coordinating the
separate proposals into one coherent plan. According to Coast Guard
performance monitors, this approach complicates the government review
of design changes because the two proposals often carried overlapping
work items, thereby forcing the Coast Guard to act as the system
integrator in those situations.
Contractor Accountability:
In 2004, we also made recommendations related to contractor
accountability. We found that the Coast Guard had not developed
quantifiable metrics to hold the system integrator accountable for its
ongoing performance and that the process by which the Coast Guard
assessed performance after the first year of the contract lacked rigor.
For example, the first annual award fee determination was based largely
on unsupported calculations. Despite documented problems in schedule,
performance, cost control, and contract administration throughout the
first year, the program executive officer awarded the contractor an
overall rating of 87 percent, which fell in the "very good" range. This
rating resulted in an award fee of $4.0 million of the maximum of $4.6
million.
We also reported in 2004 that the Coast Guard had not begun to measure
the system integrator's performance on the three overarching goals of
the Deepwater program--maximizing operational effectiveness, minimizing
total ownership costs, and satisfying the customers. Coast Guard
officials told us that metrics for measuring these objectives had not
been finalized; therefore the officials could not accurately assess the
contractor's performance against the goals. However, at the time, the
Coast Guard had no time frame in which to accomplish this measurement.
Cost Control through Competition:
Further, our 2004 report had recommendations related to cost control.
We reported that, although competition among subcontractors was a key
vehicle for controlling costs, the Coast Guard had neither measured the
extent of competition among the suppliers of Deepwater assets nor held
the system integrator accountable for taking steps to achieve
competition.[Footnote 9] As the two major subcontractors to ICGS,
Lockheed Martin and Northrop Grumman have sole responsibility for
determining whether to provide the Deepwater assets themselves or to
hold competitions--decisions commonly referred to as "make or buy." We
noted that the Coast Guard's hands-off approach to make-or-buy
decisions and its failure to assess the extent of competition raised
questions about whether the government would be able to control
Deepwater program costs.
Coast Guard Efforts Related to GAO Recommendations:
We made 11 recommendations in 2004 in the areas of management and
oversight, contractor accountability, and cost control through
competition. Table 1 provides details on these recommendations.
Table 1: Status of GAO Recommendations to the U.S. Coast Guard
Regarding Management of the Deepwater Program, as of April 28, 2006:
Areas of concern: Key components of management and oversight are not
effectively implemented;
Recommendations to the U.S. Coast Guard: Put in place a human capital
plan to ensure adequate staffing of the Deepwater program;
Recommendation status: Implemented.
Areas of concern: Key components of management and oversight are not
effectively implemented;
Recommendations to the U.S. Coast Guard: Improve integrated product
teams (IPTs) responsible for managing the program by providing better
training, approving charters for sub-IPTs, and improving systems for
sharing information between teams;
Recommendation status: Partially implemented.
Areas of concern: Key components of management and oversight are not
effectively implemented;
Recommendations to the U.S. Coast Guard: Provide field operators and
maintenance personnel with timely information and training on how the
transition to Deepwater assets will occur and how maintenance
responsibilities are to be divided between the system integrator and
Coast Guard personnel;
Recommendation status: Partially implemented.
Areas 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;
Recommendation status: Implemented.
Areas of concern: Procedures for ensuring contractor accountability are
inadequate;
Recommendations to the U.S. Coast Guard: Provide for better input from
U.S. Coast Guard performance monitors;
Recommendation status: Implemented.
Areas of concern: Procedures for ensuring contractor accountability are
inadequate;
Recommendations to the U.S. Coast Guard: Hold the system integrator
accountable in future award fee determinations for improving
effectiveness of the IPTs;
Recommendation status: Implemented.
Areas of concern: Procedures for ensuring contractor accountability are
inadequate;
Recommendations to the U.S. Coast Guard: Establish a baseline for
determining whether the acquisition approach is costing the government
more than the traditional asset replacement approach;
Recommendation status: Will not be implemented.
Areas of concern: Procedures for ensuring contractor accountability are
inadequate;
Recommendations to the U.S. Coast Guard: Establish a time frame for
when the models and metrics will be in place with the appropriate
degree of fidelity to be able to measure contractor's progress toward
improving operational effectiveness;
Recommendation status: Partially implemented.
Areas of concern: Procedures for ensuring contractor accountability are
inadequate;
Recommendations to the U.S. Coast Guard: Establish criteria to
determine when to adjust the project baseline and document the reasons
for change;
Recommendation status: Partially implemented.
Areas of concern: Control of future costs through competition remains
at risk because of weak oversight;
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 decision
to perform the work in-house rather than contracting it out;
Recommendation status: Implemented.
Areas 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;
Recommendation status: Partially implemented.
Source: GAO-04-380 and GAO-06-546.
[End of table]
In April 2006, we reported that the Coast Guard had implemented five of
the recommendations. Actions had been taken to:
* revise the Deepwater human capital plan;
* develop measurable award fee criteria;
* implement a more rigorous method of obtaining input from Coast Guard
monitors on the contractor's performance;
* include in the contractor's performance measures actions taken to
improve the integrated product teams' effectiveness; and:
* require the contractor to notify the Coast Guard of subcontracts over
$10 million that were awarded to the two major subcontractors.[Footnote
10]
The Coast Guard had begun to address five other recommendations by:
* initiating actions to establish charters and training for integrated
product teams;
* improving communications with field personnel regarding the
transition to Deepwater assets;
* devising a time frame for measuring the contractor's progress toward
improving operational effectiveness;
* establishing criteria to determine when to adjust the project
baseline; and:
* developing a plan to hold the contractor accountable for ensuring
adequate competition among suppliers.
In our April 2006 report, we determined that, based on our work, these
recommendations had not been fully implemented.
The Coast Guard disagreed with and declined to implement one of our 11
recommendations: to establish a baseline to determine whether the
system-of-systems acquisition approach is costing the government more
than the traditional asset replacement approach.
We will continue to review Deepwater implementation and contract
oversight. We are currently reviewing aspects of the Deepwater program
for the House and Senate Appropriations Committees' Subcommittees on
Homeland Security.[Footnote 11] As part of that effort, we will review
the status of the Coast Guard's implementation of our 2004
recommendations on Deepwater contract management for improving
Deepwater program management, holding the prime contractor accountable
for meeting key program goals and facilitating cost control through
competition. We will share our results with those committees in April
of this year.
Performance and Design Problems Creating Operational Challenges for
Coast Guard:
In addition to overall management issues discussed above, there have
been problems with the performance and design of Deepwater patrol boats
that pose significant operational challenges to the Coast Guard.
Performance Problems with the Converted 123-Foot Patrol Boats:
The Deepwater program's conversion of the legacy 110-foot patrol boats
to 123-foot patrol boats has encountered performance problems. The
Coast Guard had originally intended to convert all 49 of its 110-foot
patrol boats into 123-foot patrol boats in order to increase the patrol
boats' annual operational hours. This conversion program was also
intended to add additional capability to the patrol boats, such as
enhanced and improved C4ISR capabilities, as well as stern launch and
recovery capability for a small boat. However, the converted 123-foot
patrol boats began to display deck cracking and hull buckling and
developed shaft alignment problems, and the Coast Guard elected to stop
the conversion process at eight hulls upon determining that the
converted patrol boats would not meet their expanded post-9/11
operational requirements.
The performance problems illustrated above have clear operational
consequences for the Coast Guard. The hull performance problems with
the 123-foot patrol boats led the Coast Guard to remove all of the
eight converted normal 123-foot patrol boats from service effective
November 30, 2006. The Commandant of the Coast Guard has stated that
having reliable, safe cutters is "paramount" to executing the Coast
Guard's missions.[Footnote 12] Thus, removing these patrol boats from
service impacts Coast Guard's operations in its missions, such as
search and rescue and migrant interdiction. The Coast Guard is
exploring options to address operational gaps resulting from the
suspension of the 123-foot patrol boat operations.
Design Problems with the Fast Response Cutter:
The FRC--which was intended as a long-term replacement for the legacy
110-foot patrol boats--has experienced design problems that have
operational implications. As we recently reported, the Coast Guard
suspended design work on the FRC due to design risks such as excessive
weight and horsepower requirements.[Footnote 13] Coast Guard engineers
raised concerns about the viability of the FRC design (which involved
building the FRC's hull, decks, and bulkheads out of composite
materials rather than steel) beginning in January 2005. In February
2006, the Coast Guard suspended FRC design work after an independent
design review by third-party consultants demonstrated, among other
things, that the FRC would be far heavier and less efficient than a
typical patrol boat of similar length, in part, because it would need
four engines to meet Coast Guard speed requirements.
One operational challenge related to the FRC, is that the Coast Guard
will end up with two classes of FRCs. The first class of FRCs to be
built would be based on an adapted design from a patrol boat already on
the market to expedite delivery. The Coast Guard would then pursue
development of a follow-on class that would be completely redesigned to
address the problems in the original FRC design plans. Coast Guard
officials now estimate that the first FRC delivery will slip to fiscal
year 2009, at the earliest, rather than 2007 as outlined in the 2005
Revised Deepwater Implementation Plan. Thus, the Coast Guard is also
facing longer-term operational gaps related to its patrol boats. In
regard to the suspension of FRC design work, as of our June 2006
report, Coast Guard officials had not yet determined how changes in the
design and delivery date for the FRC would affect the operations of the
overall system-of-systems approach.
We will continue to review Coast Guard operational challenges related
to Deepwater patrol boats. Our ongoing work for the House and Senate
Appropriations Committees' Subcommittees on Homeland Security includes
a review of the history of the contract, design, fielding, and
grounding of the converted 123-foot patrol boats and operational
adjustments the Coast Guard is making to account for the removal from
service of the 123-foot patrol boats.
Madame Chair, that concludes my statement. I would be happy to respond
to any questions you or other Members of the Subcommittee may have at
this time.
Contacts and Acknowledgements:
For information about this testimony, contact Stephen L. Caldwell at
(202) 512-9610 or John Hutton at (202) 512-4841. Other individuals
making key contributions to this testimony include Michele Mackin,
Christopher Conrad, and Adam Couvillion.
FOOTNOTES
[1] GAO, Coast Guard: Progress Being Made on Deepwater Project, but
Risks Remain, GAO-01-564 (Washington, D.C.: May 2, 2001).
[2] 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).
[3] GAO, Coast Guard: Status of Deepwater Fast Response Cutter Design
Efforts, GAO-06-764 (Washington, D.C.: June 23, 2006).
[4] GAO, Coast Guard: Changes to Deepwater Plan Appear Sound, and
Program Management Has Improved, but Continued Monitoring is Warranted,
GAO-06-546 (Washington, D.C.: April 28, 2006).
[5] C4ISR refers to command, control, communications, computer,
intelligence, surveillance, and reconnaissance.
[6] GAO-04-380 .
[7] GAO, Best Practices: DOD Teaming Practices Not Achieving Potential
Results, GAO-01-510 (Washington, D.C.: April 10, 2001).
[8] In the context of the Deepwater contract, the Coast Guard considers
delivery task orders as orders for supplies or services placed against
the contract.
[9] GAO-04-380.
[10] Our 2004 recommendation was to use a $5 million threshold because
Lockheed Martin, one of the major subcontractors, uses that amount as
the threshold for considering its suppliers major. The Coast Guard
decided to use the $10 million threshold based on the criteria in the
make-or-buy program provisions of the Federal Acquisition Regulation.
[11] This work is based on Conference Committee Report language (H.R.
Conf. Rep. No. 109-699, at 113 (2006)) incorporating GAO reporting
provisions contained in a House Appropriations Committee Report (H.R.
Rep. No. 109-476, at 64 (2006)).
[12] U.S. Coast Guard, Office of Public Affairs, Coast Guard Suspends
Converted Patrol Boat Operations, November 30, 2006,.
[13] GAO-06-764.
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