Coast Guard
Change in Course Improves Deepwater Management and Oversight, but Outcome Still Uncertain Gao ID: GAO-08-745 June 24, 2008The Coast Guard's Deepwater Program, under the Department of Homeland Security (DHS), has experienced serious performance and management problems. Deepwater is intended to replace or modernize Coast Guard vessels, aircraft, and the communications and electronic systems that link them together. As of fiscal year 2008, over $4 billion has been appropriated for Deepwater. The Coast Guard awarded a contract in June 2002 to a lead system integrator, Integrated Coast Guard Systems (ICGS), to execute the program using a system-of-systems approach. In response to a Senate report accompanying a Department of Homeland Security appropriations bill, 2008, this GAO report assesses whether the changes the Coast Guard is making to its management and acquisition approach to Deepwater will put it in a position to realize better outcomes. GAO reviewed key program documents and interviewed Coast Guard and contractor personnel.
Coast Guard leadership is making positive changes to its management and acquisition approach to the Deepwater Program that should put it in a position to realize better outcomes, although challenges to its efforts remain. The Coast Guard has increased accountability by bringing Deepwater under a restructured acquisition function and investing its government project managers with management and oversight responsibilities formerly held by ICGS. Coast Guard project managers and technical experts--as opposed to contractor representatives--now hold the greater balance of management responsibility and accountability for program outcomes. However, like other federal agencies, the Coast Guard has faced obstacles in building an adequate government workforce. It has various initiatives under way to develop and retain a workforce capable of managing this complex acquisition program, but faced with an almost 20 percent vacancy rate, it is relying on support contractors, such as cost estimators, in key positions. The Coast Guard's decision to manage Deepwater under an asset-based approach, rather than as an overall system-of-systems, has resulted in increased government control and visibility over acquisitions. Agency officials have begun to hold competitions for Deepwater assets outside of the ICGS contract. While the asset-based approach is beneficial, certain cross-cutting aspects of Deepwater, such as the program's communications and intelligence components and the numbers of each asset needed, still require a systems-level approach. The Coast Guard recognizes this but is not yet fully positioned to manage these aspects. The Coast Guard has begun to follow the disciplined, project management framework of its Major Systems Acquisition Manual (MSAM), which requires documentation and high-level executive approval of decisions at key points in a program's life cycle. But the consequences of not following this approach in the past are now evident, as Deepwater assets have been delivered without a determination of whether their planned capabilities would meet mission needs. The MSAM process currently allows limited initial production to proceed before the majority of design activities have been completed. In addition, a disconnect between MSAM requirements and current practice exists because DHS had earlier delegated to the Coast Guard all Deepwater acquisition decisions, resulting in little departmental oversight. Coast Guard project managers and decision makers are now receiving information intended to help manage project outcomes, but some key information is unreliable. The earned value management data reported by ICGS lacks sufficient transparency to be useful to Coast Guard program managers, and subcontractor Northrop Grumman's system for producing the data may need to be re-certified to ensure its reliability. Officials state that they are addressing these issues through joint efforts with the Navy and the Defense Contract Management Agency.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-08-745, Coast Guard: Change in Course Improves Deepwater Management and Oversight, but Outcome Still Uncertain
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
June 2008:
Coast Guard:
Change in Course Improves Deepwater Management and Oversight, but
Outcome Still Uncertain:
GAO-08-745:
GAO Highlights:
Highlights of GAO-08-745, a report to congressional committees.
Why GAO Did This Study:
The Coast Guard‘s Deepwater Program, under the Department of Homeland
Security (DHS), has experienced serious performance and management
problems. Deepwater is intended to replace or modernize Coast Guard
vessels, aircraft, and the communications and electronic systems that
link them together. As of fiscal year 2008, over $4 billion has been
appropriated for Deepwater. The Coast Guard awarded a contract in June
2002 to a lead system integrator, Integrated Coast Guard Systems
(ICGS), to execute the program using a system-of-systems approach.
In response to a Senate report accompanying a Department of Homeland
Security appropriations bill, 2008, this GAO report assesses whether
the changes the Coast Guard is making to its management and acquisition
approach to Deepwater will put it in a position to realize better
outcomes. GAO reviewed key program documents and interviewed Coast
Guard and contractor personnel.
What GAO Found:
Coast Guard leadership is making positive changes to its management and
acquisition approach to the Deepwater Program that should put it in a
position to realize better outcomes, although challenges to its efforts
remain.
* The Coast Guard has increased accountability by bringing Deepwater
under a restructured acquisition function and investing its government
project managers with management and oversight responsibilities
formerly held by ICGS. Coast Guard project managers and technical
experts”as opposed to contractor representatives”now hold the greater
balance of management responsibility and accountability for program
outcomes. However, like other federal agencies, the Coast Guard has
faced obstacles in building an adequate government workforce. It has
various initiatives under way to develop and retain a workforce capable
of managing this complex acquisition program, but faced with an almost
20 percent vacancy rate, it is relying on support contractors, such as
cost estimators, in key positions.
* The Coast Guard‘s decision to manage Deepwater under an asset-based
approach, rather than as an overall system-of-systems, has resulted in
increased government control and visibility over acquisitions. Agency
officials have begun to hold competitions for Deepwater assets outside
of the ICGS contract. While the asset-based approach is beneficial,
certain cross-cutting aspects of Deepwater, such as the program‘s
communications and intelligence components and the numbers of each
asset needed, still require a systems-level approach. The Coast Guard
recognizes this but is not yet fully positioned to manage these
aspects.
* The Coast Guard has begun to follow the disciplined, project
management framework of its Major Systems Acquisition Manual (MSAM),
which requires documentation and high-level executive approval of
decisions at key points in a program‘s life cycle. But the consequences
of not following this approach in the past are now evident, as
Deepwater assets have been delivered without a determination of whether
their planned capabilities would meet mission needs. The MSAM process
currently allows limited initial production to proceed before the
majority of design activities have been completed. In addition, a
disconnect between MSAM requirements and current practice exists
because DHS had earlier delegated to the Coast Guard all Deepwater
acquisition decisions, resulting in little departmental oversight.
* Coast Guard project managers and decision makers are now receiving
information intended to help manage project outcomes, but some key
information is unreliable. The earned value management data reported by
ICGS lacks sufficient transparency to be useful to Coast Guard program
managers, and subcontractor Northrop Grumman‘s system for producing the
data may need to be re-certified to ensure its reliability. Officials
state that they are addressing these issues through joint efforts with
the Navy and the Defense Contract Management Agency.
What GAO Recommends:
GAO is making three recommendations: that DHS improve oversight of
Deepwater acquisitions and that the Coast Guard revise the major
systems acquisition process for limited initial production and increase
visibility into Northrop Grumman‘s earned value management system. DHS
is taking the first recommendation under advisement; the Coast Guard
generally agreed with the others.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-745]. For more
information, contact John Hutton at (202) 512-4841 or huttonj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Coast Guard Has Established a More Accountable Acquisition Organization
but Faces Challenges in Building Acquisition Workforce:
Transition to Asset-by-Asset Approach Results in Greater Visibility and
Control, but the Coast Guard Has Not Determined How to Manage System-
Level Aspects:
Disciplined Project Management Approach Is Beneficial Going Forward,
but Key Decision Point Is Missing and Consequences of Prior Decisions
May Be Costly:
Coast Guard Is Working to Improve the Use and Quality of Program
Information, but Key Information Is Unreliable:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Information on Selected Deepwater Surface and Air Assets:
Appendix III: Comments from the Department of Homeland Security:
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Products Related to the Deepwater Program:
Figures:
Figure 1: Reorganization of Deepwater Within the Coast Guard
Acquisition Function:
Figure 2: Program Management Responsibilities for Deepwater:
Figure 3: MSAM Process and Deepwater Surface and Air Assets:
Figure 4: Arrow of Traceability from Mission Needs to Performance
Specifications:
Figure 5: Factors Considered in Probability of Project Success Tool:
Figure 6: National Security Cutter:
Figure 7: Fast Response Cutter:
Figure 8: Offshore Patrol Cutter:
Figure 9: Long-Range Interceptor:
Figure 10: Short Range Prosecutor:
Figure 11: HC-144A Maritime Patrol Aircraft:
Figure 12: HC-130J Long-Range Surveillance Aircraft:
Figure 13: HH-65 Multimission Cutter Helicopter:
Figure 14: HH-60 Medium Range Recovery Helicopter:
Figure 15: Unmanned Aerial Systems:
Abbreviations:
ABS: American Bureau of Shipping:
APB: Acquisition Program Baseline:
CG-9: Coast Guard's acquisition directorate (designation for this
entity):
C4ISR: command, control, communications, computers, intelligence,
surveillance, and reconnaissance:
DCMA: Defense Contract Management Agency:
DHS: Department of Homeland Security:
DOD: Department of Defense:
DTO: delivery task order:
FRC: Fast Response Cutter:
ICGS: Integrated Coast Guard Systems:
INSURV: (Navy) Board of Inspection and Survey:
IPT: integrated product team:
LRI: Long-Range Interceptor:
MSAM: Major Systems Acquisitions Manual:
MPA: Maritime Patrol Aircraft:
NSC: National Security Cutter:
OPC: Offshore Patrol Cutter:
TBD: to be determined:
UCA: undefinitized contract action:
UAS: Unmanned Aerial System:
VUAV: Vertical Unmanned Aerial Vehicle:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
June 24, 2008:
The Honorable Robert C. Byrd:
Chair:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Homeland Security:
Committee on Appropriations:
United States Senate:
The Honorable David E. Price:
Chair:
The Honorable Harold Rogers:
Ranking Member:
Subcommittee on Homeland Security:
Committee on Appropriations:
House of Representatives:
Deepwater is the largest acquisition program in the Coast Guard's
history--one that has experienced serious performance and management
problems such as cost breaches, schedule slips, and assets designed and
delivered with significant defects. Appropriations for the Deepwater
Program totaled over $4 billion as of fiscal year 2008, and the Coast
Guard has requested about $990.4 million for fiscal year 2009. The
Deepwater Program, ongoing since the late 1990s, is intended to replace
or modernize 15 major classes of Coast Guard assets--five each of
vessels and aircraft, and five other projects, including command,
control, communications, computers, intelligence, surveillance, and
reconnaissance (C4ISR) systems. To carry out this acquisition, the
Coast Guard awarded a contract in June 2002 to Integrated Coast Guard
Systems (ICGS), a joint venture formed by Lockheed Martin Corporation
and Northrop Grumman Ship Systems (Northrop Grumman), as a lead system
integrator to execute the program using a system-of-systems approach.
The decision to use a system integrator was driven in part because of
the Coast Guard's lack of expertise in managing and executing an
acquisition of this magnitude. Under this approach, the Coast Guard
provided the contractor with broad, overall performance specifications-
-such as the ability to interdict illegal immigrants--and ICGS
determined the specifications for the Deepwater assets. According to
Coast Guard officials, the ICGS proposal was submitted and priced as a
"package," that is, the Coast Guard bought the entire solution and
could not reject any individual component.
Since 2001, we have reviewed the Deepwater Program and have informed
the Congress, the Department of Homeland Security (DHS), and the Coast
Guard of the risks and uncertainties inherent with a system-of-systems
approach. In March 2004, we made a number of recommendations intended
to improve the Coast Guard's management and oversight. In March 2008,
we reported on efforts the Coast Guard has taken to address these
recommendations and provided information on the status of various
Deepwater assets.[Footnote 1]
In April 2007, the Commandant of the Coast Guard, citing the fact that
the Coast Guard had relied too heavily on contractors to do the work of
the government and that industry and government had failed to
accurately predict and control costs, announced improvements to program
management and oversight that would "change the course of Deepwater."
The major change was that the Coast Guard was taking over the lead role
in systems integration from ICGS, with future work on individual assets
being potentially bid competitively outside of the existing contract.
The Coast Guard also planned to use the expertise of third-party
organizations, such as the American Bureau of Shipping, to increase
assurances that Deepwater assets were being designed and constructed in
accordance with established standards. As part of this shift to a
government-managed and controlled acquisition, the Commandant noted his
plan to build a government workforce to manage this large acquisition,
citing the dearth of federal contracting expertise and a loss of focus
on critical government roles and responsibilities for managing and
overseeing acquisitions such as Deepwater.
In response to a Senate report accompanying a Department of Homeland
Security Appropriations bill, fiscal year 2008, we assessed whether the
changes the Coast Guard is making to its management and acquisition
approach to the Deepwater Program will put it in a position to realize
better outcomes. Specifically we assessed the Coast Guard's:
* efforts to increase accountability and program management through a
re-organized acquisition function, including building a government
workforce to manage Deepwater;
* transition to an asset-based paradigm for Deepwater, including how
system-level aspects, such as C4ISR, are being managed;
* implementation of a disciplined, project management process for
Deepwater acquisitions; and:
* efforts to provide project managers and decision makers with
information they need to manage project outcomes.
To conduct our work on Deepwater initiatives, we reviewed a variety of
key Coast Guard documentation, including its July 2007 Blueprint for
Acquisition Reform, Major Systems Acquisition Manual, acquisition
program baselines, and the Coast Guard's human capital plan. We
interviewed Coast Guard acquisition officials, including program and
project managers, contracting officials, and other key staff. In
addition, we interviewed officials from ICGS and its first tier
subcontractors, Northrop Grumman and Lockheed Martin. We also relied on
our past work regarding the Deepwater Program. Appendix I contains more
information on our scope and methodology. Appendix II contains
information on selected Deepwater surface and air assets. We conducted
this performance audit from October 2007 to June 2008 in accordance
with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
Results in Brief:
Coast Guard leadership has increased accountability by bringing
Deepwater under a restructured acquisition function and vesting its
government project managers with management and oversight
responsibilities formerly held by ICGS. However, like other federal
agencies, it has faced challenges in building an adequate government
workforce. A July 2007 reorganization of the acquisition function
placed Deepwater, which had been insulated from other Coast Guard
acquisitions, within a consolidated acquisition directorate, allowing
the agency to operate in a more strategic fashion. The Coast Guard has
also shifted the roles and responsibilities of key positions within
this new acquisition structure. Formerly, ICGS had significant program
management responsibilities, such as contractual responsibility for
drafting task orders, including statements of work, and managing the
system integration of Deepwater as a whole. Coast Guard project
managers and technical experts now hold the greater balance of
management responsibility and accountability for program outcomes. The
Coast Guard, like other federal agencies, faces challenges in building
a capable government workforce to manage this large acquisition. While
it attempts to reduce vacancy rates, it is relying on support
contractors in key positions such as cost estimation and analysis. The
issue of support contractors in acquisition is not unique to the Coast
Guard; we recently reported that the Department of Defense also relies
heavily on contractors to perform roles in program management, cost
estimation, and engineering and technical functions. [Footnote 2]
The Coast Guard's decision to manage Deepwater under an asset-based
approach, rather than an overall system-of-systems, has resulted in
increased government control and visibility over its acquisitions.
Coast Guard officials are re-evaluating their long-term relationship
with ICGS and have begun to hold competitions for Deepwater assets
outside of that contract. Further, cost and schedule information is now
captured at the individual asset level, which has resulted in improved
visibility, such as the ability to track and report cost breaches for
assets. Under the prior structure, a cost breach was to be tracked at
the overall Deepwater program level, and the threshold was so high that
a breach would have been triggered only by a catastrophic event. While
the asset-based approach is beneficial, certain cross-cutting aspects
of Deepwater--such as C4ISR and the overall numbers of each asset
needed to meet requirements--still require a system-level approach. The
Coast Guard is not fully positioned to manage these aspects; for
example, it has not developed an acquisition strategy for C4ISR and
lacks, at present, the ability to model the capabilities of planned and
existing assets in a manner that informs decisions on the numbers of
Deepwater assets needed. The Coast Guard maintains, however, that it
must proceed with its acquisitions in the absence of this information.
Under the asset-based acquisition approach, the Coast Guard has begun
to follow the disciplined project management framework of its Major
Systems Acquisition Manual (MSAM), which requires documentation and
approval of decisions at key points in a program's life cycle by
designated officials at high levels. While the MSAM process is a
significant improvement over the past approach, it has some
shortcomings. For example, the process currently allows limited, or low-
rate, initial production to proceed before the majority of design
activities have been completed. As evidenced by our work on acquisition
best practices, this situation could result in increased costs stemming
from concurrent design and production. In addition, the approval
process established by the MSAM is not being followed because DHS
delegated review and approval of asset decisions to the Coast Guard.
Further, the Coast Guard previously authorized a deviation from the
requirement to follow the MSAM process for Deepwater as it was not
thought to be compatible with the program's broad system-of-systems
approach. Consequently, decisions to proceed with individual Deepwater
projects were not based on specific criteria under a disciplined
process, such as a determination as to whether the proposed asset would
fulfill Coast Guard requirements. The consequences of not following a
disciplined acquisition approach are clear now that Deepwater assets,
such as the National Security Cutter (NSC), have been paid for and
delivered without the Coast Guard's having determined whether the
assets' planned capabilities would meet mission needs. The Coast Guard
is now in the process of developing the documents and test plans it
needs to do so.
The Coast Guard has developed new reporting systems designed to help
project managers and decision makers affect project outcomes, but some
key information is not reliable. Quarterly project reports compile cost
and schedule information to summarize the status of each asset, and the
"probability of project success" tool is intended to discern future
outcomes through analysis of a multitude of different elements.
However, Coast Guard officials currently lack enough detail into the
earned value management data reported by the contractor. These data are
used to assess progress on cost and schedule goals. In addition, the
processes used by Northrop Grumman, one of the first-tier
subcontractors, to generate earned value data may need to be re-
certified to ensure the data's reliability. The resulting lack of
confidence in the earned value data the Coast Guard currently receives
will have an impact on decision making for future assets, as officials
need to be informed of a contractor's past cost and schedule
performance when evaluating proposed prices--such as prices for long-
lead materials for and production of the fourth NSC. Officials state
that they are addressing these issues through joint efforts with the
Navy and the Defense Contract Management Agency (DCMA).
As the Coast Guard assumes greater control over the Deepwater Program,
we are making recommendations to further strengthen its management and
oversight. Specifically, we are recommending that the Secretary of
Homeland Security improve DHS's oversight of the Deepwater Program by
rescinding the delegation of Deepwater acquisition authority. We are
also recommending that the Commandant of the Coast Guard revise MSAM
procedures to insert a formal design review before low-rate initial
production can begin and that the Commandant develop an approach to
increase visibility into Northrop Grumman's earned value management
data before the Coast Guard enters into any additional contractual
relationships with that contractor.
In written comments on a draft of this report, DHS concurred with our
findings. The department stated that it would take our recommendation
on rescinding the delegation of Deepwater acquisition authority under
advisement. The Coast Guard concurred with our recommendation to
require a formal design review of Coast Guard assets before proceeding
to low-rate initial production. In addition, the Coast Guard partially
concurred with our recommendation to develop an approach to increase
visibility into earned value management data for certain assets. The
Coast Guard stated that it agrees with the recommendation and is taking
steps to implement it. However, the Coast Guard stated that earned
value data would provide limited utility for the fixed-price long lead
materials contract for the fourth NSC and that requiring these data
would pose a significant cost and schedule impact for that acquisition.
Instead, the Coast Guard plans to obtain and review Northrop's
certified cost and pricing data. Starting with the production contract
for the fourth NSC, the Coast Guard does plan to obtain more visibility
into Northrop's earned value data. It appears to us that the Coast
Guard has developed an approach for increasing visibility into the
earned value management data for future contracts with Northrop
Grumman.
Background:
The Coast Guard is a multimission, maritime military service within
DHS. The Coast Guard's responsibilities fall into two general
categories--those related to homeland security missions, such as port
security, vessel escorts, security inspections, and defense readiness;
and those related to non-homeland security missions, such as search and
rescue, environmental protection, marine safety, and polar ice
operations. To carry out these responsibilities, the Coast Guard
operates a number of vessels and aircraft and, through its Deepwater
Program, is currently modernizing or replacing those assets. At the
start of the Deepwater Program, the Coast Guard chose to use a system-
of-systems acquisition strategy that would replace its assets with a
single, integrated package of aircraft, vessels, and communications
systems through ICGS, a lead system integrator that was responsible for
designing, constructing, deploying, supporting and integrating the
assets to meet Coast Guard requirements.[Footnote 3] Under this
approach, the Coast Guard provided the contractor with broad, overall
performance specifications--such as the ability to interdict illegal
immigrants--and ICGS determined the specifications for the Deepwater
assets. The decision to use a lead system integrator was driven in part
because of the Coast Guard's lack of expertise in managing and
executing an acquisition of this magnitude.
In past reports on Deepwater, as well as the Army's Future Combat
Systems that is pursuing a similar acquisition approach for similar
reasons, we have raised a number of concerns about this approach to
acquiring complex systems.[Footnote 4] The role of a system integrator
differs from that of a traditional prime contractor in that it includes
increased responsibilities for ensuring that the design, development,
and implementation of the system-of-systems it is under contract to
produce meet established budget and schedule. The close working
relationship with the government that this arrangement engenders has
advantages and disadvantages. An advantage is that such a relationship
allows flexibility in responding to shifting priorities. Disadvantages
are the government's weakened ability to provide oversight over the
long term and the potential for increased costs.
In a series of reports since 2001, we have noted the risks inherent in
the lead system integrator approach to the Deepwater Program and have
made a number of recommendations intended to improve the Coast Guard's
management and oversight. In particular, we raised concerns about the
agency's ability to keep costs under control in future program years by
ensuring adequate competition for Deepwater assets and pointed to the
need for better oversight and management of the system integrator. We,
as well as the DHS Inspector General and others, have also noted
problems in specific acquisition efforts, notably the NSC and the 110-
Foot Patrol Boat Modernization, which the Commandant of the Coast Guard
permanently halted in November 2006 because of operational and safety
concerns.
Coast Guard Has Established a More Accountable Acquisition Organization
but Faces Challenges in Building Acquisition Workforce:
Acknowledging that the initial approach to Deepwater gave too much
control to the contractor, the Coast Guard has reoriented its
acquisition organization to position itself to execute systems
integration and program management responsibilities formerly carried
out by industry. Project managers, whose role in the past was largely
one of monitoring ICGS without the authority to make decisions, have
now been vested with accountability for program outcomes. In addition,
integrated product teams (IPT)--a key program management tool--are now
led by Coast Guard officials, not contractor representatives. The Coast
Guard has also increased its leverage of its own technical authorities
and third party expertise. In the midst of these positive changes, the
Coast Guard, like other federal agencies, faces challenges in building
a capable government workforce to manage this large acquisition. While
it attempts to reduce vacancy rates, it is relying on support
contractors in key positions.
Reorganization of the Acquisition Directorate Has Potential Benefits
for Deepwater:
Since July 2007, the Coast Guard has consolidated acquisition
responsibilities into a single acquisition directorate, known as CG-9,
and is making efforts to standardize operations within this
directorate. Previously, Deepwater assets were managed independently of
other Coast Guard acquisitions by the Deepwater Program Executive
Office in an insulated structure. The Coast Guard's goal for the
reorganization is to provide greater consistency in its oversight and
acquisition approach by concentrating acquisition activities under a
single official and allowing greater leveraging of knowledge and
resources across programs. The Coast Guard's consolidation of the
acquisition function into a single directorate is consistent with best
practices as it allows the agency to operate strategically to meet its
overall missions and needs. Figure 1 depicts the changes to the Coast
Guard's acquisition structure.
Figure 1: Reorganization of Deepwater Within the Coast Guard
Acquisition Function:
[See PDF for image]
This figure is a display of organizational charts prior to and after
the reorganization of Deepwater within the Coast Guard Acquisition
Function, as follows:
Deepwater Program under previous Coast Guard acquisition structure:
Chief of Staff of the Coast Guard:
* Deepwater Program Executive Office;
- Project management:
Aviation;
Surface;
C4ISR.
* Acquisition Directorate G-A;
- Deepwater contract support.
Deepwater Program under Coast Guard‘s restructured acquisition
directorate:
Chief of Staff of the Coast Guard:
* Chief Acquisition Officer Acquisition Directorate CG-9;
- Contracting and procurement;
- Acquisition services;
- Acquisition programs:
Deepwater surface projects;
Aviation projects[A];
Deepwater C4ISR projects.
Source: GAO analysis of Coast Guard data.
[A] This office includes aviation assets for Deepwater.
[End of figure]
Deepwater Management Improved with Better Use of Project Managers and
Government Control over Integrated Product Teams:
In conjunction with the restructuring of its acquisition directorate,
Coast Guard officials have begun to increase the responsibilities and
accountability of the project managers who oversee the acquisition of
Deepwater assets. Previously, ICGS was charged with a number of key
program management responsibilities--ranging from designing and
constructing assets to developing concepts for deployment and
operations--while Coast Guard program and project managers tracked and
monitored the contractor's activities. The Coast Guard's new approach
increases government control over these key elements of program
management while vesting project managers with authority and
accountability they lacked in the past. For example, a previous
Deepwater management plan emphasized "partnership" between the Coast
Guard and ICGS in managing Deepwater and "joint [Coast Guard] and ICGS
responsibility for overall management and execution of the program,
including authorization of necessary resources and resolving
performance, cost, schedule, and risk tradeoff issues." Under this
scenario, according to Coast Guard officials, project managers could
not provide as much direction as they wanted because of the terms of
the contract, where ICGS bore ultimate responsibility for outcomes. In
contrast, Coast Guard project managers are now responsible for
defining, planning, and executing the acquisition projects within
established cost, schedule, and performance constraints.
Another significant shift has been to assert government control over
Deepwater integrated product teams. These teams, a key program
management tool, consist of groups of project officials and technical
experts responsible for discussing options for problem solving relating
to cost, schedule, and performance objectives. In the past, the teams
were led and managed by the contractor, while government team members
acted as "customer" representatives. Now, the teams are led by Coast
Guard personnel.
Figure 2 shows examples of how responsibility for program outcomes has
shifted from ICGS to the Coast Guard.
Figure 2: Program Management Responsibilities for Deepwater:
[See PDF for image]
This figure is a table comparing program management responsibilities
for Deepwater, as follows:
System integration responsibility:
Program management under ICGS: ICGS had total system integration
responsibility. As system integrator, ICGS was responsible for
designing and constructing the system, developing associated concepts
of operations and logistics support plans, and delivering a system that
met system performance requirements;
Program management under Coast Guard: Systems integration and program
management responsibilities formerly carried out by industry were
transferred to the Coast Guard.
Managing the scope of the acquisition:
Program management under ICGS: A distinguishing characteristic of the
contract was joint government and ICGS scoping of indefinite delivery
and indefinite quantity delivery task orders (DTO). ICGS bore
contractual responsibility for developing the DTOs, which included a
DTO Statement of Work, i.e., a detailed description of all tasks to be
performed;
Program management under Coast Guard: Project managers are responsible
for managing and controlling the scope of the acquisition by developing
a project work plan (statement of work, work breakdown structure,
time/cost estimates, and schedules).
Management approach:
Program management under ICGS: The Coast Guard had partnered with ICGS
to design, construct, deploy, operate, and support an operationally
effective and affordable system. The most prominent element of this
partnership was joint membership in the IPT organization. The ICGS
systems integration management team was the foundation of the entire
program, providing key management, systems-of-systems engineering and
integration, and air, surface, C4ISR and logistics domain and product
team leadership and coordination. The program management team assumed
joint Coast Guard and ICGS responsibility for overall management and
execution of the program, including authorization of necessary
resources and resolving performance, cost, schedule, and risk tradeoff
issues;
Program management under Coast Guard: Project managers are responsible
for defining, planning, and executing the acquisition project within
the established cost, schedule, and performance constraints.
Integrated product teams (IPTs):
Program management under ICGS: At the product level, joint IPTs were
led by ICGS. Authority and responsibility for IPT performance rested
with the team leader;
Program management under Coast Guard: All IPT leaders are Coast Guard
members, and all IPT charters are approved by respective program
managers.
Program planning:
Program management under ICGS: ICGS was responsible for being the
primary author of detailed planning documents related to:
* Program management (including risk management and earned value
management);
* Systems engineering;
* Test and evaluation;
Program management under Coast Guard: Project managers are responsible
for developing documents and executing core processes and activities
related to:
* Project management (including risk management and earned value
management);
* Systems engineering;
* Test and evaluation.
Source: Deepwater 2004 and 2007 Program Management Plans.
[End of figure]
Shift Away from System Integrator Involves Increased Use of Coast Guard
Technical Experts and Third Parties:
The Coast Guard is also establishing technical authorities within the
agency who review, approve, and monitor technical standards and ensure
that assets meet those standards. The Coast Guard has established a
technical authority for engineering to oversee issues related to
Deepwater, and officials state that a similar authority for C4ISR is
pending. Previously, the Coast Guard held only an advisory role in
making technical decisions, and in some cases this arrangement led to
poor outcomes. For example, Coast Guard officials told us their
engineering experts had raised concerns during the NSC's design phase
about its ability to meet service life requirements and recommended
design changes, but were ignored. If the recommendations had been
heeded, changes to the ship's design could have been made earlier and
some additional costs may have been avoided.[Footnote 5]
To supplement and enhance the use of its internal expertise, the Coast
Guard has increased its use of third-party, independent sources of
technical expertise and advice. For example, the Coast Guard is
increasing its use of the American Bureau of Shipping (ABS), an
independent organization that establishes and applies standards for the
design and construction of ship and other marine equipment, to assist
the Coast Guard in certifying that Deepwater vessels meet certain
safety and performance standards. As a case in point there are 987
standards pertaining to hull, mechanical, and electrical systems on the
first NSC which must be certified. Currently, ICGS is responsible for
submitting documentation to the Coast Guard for 892 of the standards,
while ABS and other third parties have a minimal role. In contrast, the
Coast Guard plans for ABS to be responsible for reviewing approximately
200 certifications starting with the third NSC and to have an even
broader role in certifying the design and production of future assets
such as the Offshore Patrol Cutter (OPC) and Fast Response Cutter
(FRC). In addition, the Coast Guard is using the U.S. Navy's Space and
Naval Warfare Systems Command to verify the security of certain
communications systems and has established partnerships with Naval Sea
Systems Command, the Navy Board of Inspection and Survey (INSURV),
Naval Air Systems Command, and Naval Surface Warfare Center to leverage
their expertise. INSURV, for example, conducted acceptance trials of
the NSC in April 2008.
Coast Guard Faces Challenges in Building Acquisition Workforce:
Effective management of acquisition programs depends on appropriately
trained individuals properly placed within the acquisition workforce.
In the initial development of the Deepwater contract, the Coast Guard
sought a system integrator because it recognized that it lacked the
experience and depth in workforce to manage the acquisition internally.
The Coast Guard's 2008 acquisition human capital strategic plan sets
forth a number of acquisition workforce challenges that pose the
greatest threats to acquisition success. Key challenges and Coast Guard
actions to address them are cited below.
Shortage of Civilian Acquisition Staff:
Like many federal agencies that acquire major systems, the Coast Guard
faces challenges in recruiting and retaining a sufficient number of
government employees in acquisition positions such as contract
specialists, cost estimators, system engineers, and program management
support. The Coast Guard has taken a number of steps to hire
acquisition professionals, including the increased use of recruitment
incentives and relocation bonuses, utilizing direct hire authority, and
rehiring government annuitants. While some vacancies are to be expected
in any organization and especially in an acquisition organization given
current trends across the government, the Coast Guard is experiencing
vacancy rates of almost 20 percent.
Lack of an Acquisition Career Path for Coast Guard Military Personnel:
The Coast Guard also recognizes the impact of military personnel
rotation on its ability to maintain people in key positions. The Coast
Guard's policy of regular three-year rotations of military personnel
among units, including to and from the acquisition directorate, limits
continuity in key project roles filled by military officers and can
have a serious impact on the acquisition expertise gained and
maintained by those officers. The presence of Coast Guard officers in
the acquisition directorate is important, as they provide specialized
expertise in Coast Guard operations and fill key positions as program
and project managers and technology leads. While the Coast Guard
concedes that it does not have the personnel required to form a
dedicated acquisition career field for military personnel, such as that
found in the Navy, it is seeking to improve the base of acquisition
knowledge throughout the Coast Guard by exposing more officers to
acquisitions as they follow their regular rotations. To build this
base, the Coast Guard is creating acquisition policy courses at the
Coast Guard Academy and other institutions and is working with the
academy to create an internship program where interested officer
candidates can work within the acquisition directorate.
Reliance on Contractors for Technical and Programmatic Expertise:
Some of the positions that rely on technical and other expertise, such
as project technology leads and contracting officials, remain vacant.
In the absence of new personnel to fill these positions, the Coast
Guard is forced to turn elsewhere. Officials stated that for some
specialties, such as cost estimation, the Coast Guard can leverage
existing relationships, such as with the Navy. However, because of a
shortage of acquisition personnel across government, support
contractors are often used to supplement government staff. For example,
all the cost and earned value analysts currently employed by the
aviation program are support contractors. Program managers stated that
they would prefer these positions be filled by government employees.
The head of contracting activity for the Coast Guard cited similar
concerns, specifically for using contractors as contract specialists.
The issue of support contractors in acquisition is not unique to the
Coast Guard. In our recent report on the acquisition of major weapons
systems in the Department of Defense (DOD), we found that it too relies
heavily on contractors to perform roles in program management, cost
estimation, and engineering and technical functions.[Footnote 6] For
example, of the 52 programs we reviewed, support contractors
represented 34 percent of program office staff for engineering and
technical positions and 22 percent for program management functions.
While support contractors can provide a variety of essential services,
their use must be carefully overseen to ensure that they do not perform
inherently governmental roles. As we recently reported in our work on
Army contracting practices, for example, using contractors as contract
specialists can create the risk of decreased government control over
and accountability for policy and program decisions when contractors
provide services that closely support inherently governmental
functions.[Footnote 7] Conflicts of interest, improper use of personal
services contracts, and increased costs are also potential risks of
reliance on contractors. According to officials, the Coast Guard is
currently analyzing its workforce to better determine which roles are
appropriate for contractors and to what extent support contractors can
be used. In addition, it is investigating practices and policies to
improve oversight of contractors and ensure their work remains in a
supporting role.
Identifying Long-Term Needs Is Important for Sustained Progress:
In order to provide a clearer picture of its future needs for
acquisition personnel, the Coast Guard evaluated two potential
workforce forecasting tools: one developed internal to the Coast Guard
and another developed by the Air Force and tested as part of a broader
effort by DHS. The Coast Guard tool is intended to forecast the
potential workload of a project office and its acquisition staff
requirements by determining the number of hours spent on specific
acquisition-oriented work functions, such as contract management,
business management, and systems engineering. Coast Guard officials
stated that this tool has the potential, if managed correctly, to
forecast workforce needs beyond the current fiscal year to enable long-
term planning and workforce development. A potential weakness of the
tool, according to the Coast Guard, is the significant time investment
required of project managers to establish and maintain it. The other
forecasting tool relies on historical DOD and Air Force data on program
management, supplemented with annual interviews with appropriate
project managers, to create estimates of workforce and workload needs.
According to the Coast Guard, testing of both tools has been completed
and a decision has been made to implement the Air Force staffing model.
Transition to Asset-by-Asset Approach Results in Greater Visibility and
Control, but the Coast Guard Has Not Determined How to Manage System-
Level Aspects:
The Coast Guard's move away from the ICGS contract and the system-of-
systems model to a more traditional, asset-level acquisition strategy
has resulted in greater government visibility and control. For example,
cost and schedule information are now captured at the individual asset
level rather than at the overall, system-of-systems program level,
which was difficult to manage. At the same time, however, key aspects
of Deepwater still require a system-of-systems approach. These aspects
include the C4ISR system and the numbers of each Deepwater asset the
Coast Guard requires to achieve its missions. The Coast Guard has not
yet determined how to manage these aspects under its new paradigm, yet
it is proceeding with Deepwater acquisitions.
Asset-Based Acquisition Approach Facilitates Improved Management:
The Coast Guard's transition away from the ICGS system-of-systems
contract to an asset-by-asset acquisition strategy is enabling
increased government visibility and control over its acquisitions. Cost
and schedule information are now captured at the individual asset level
rather than at the system-of-systems program level, which did not yield
useful information for decision making. For example, while cost and
schedule breaches in the past were to be reported to DHS at the
Deepwater system-of-systems level only--an unlikely occurrence as only
a catastrophic event would ever trigger a threshold breach under that
approach--the Coast Guard is now reporting breaches by asset[Footnote
8]. In 2007, for example, the Coast Guard reported breaches for the NSC
and for the C-130J. Because of a number of factors including changes to
the ship's design and requirements, the total acquisition cost of the
NSC class increased by $520 million, or 15 percent, and the schedule
for lead ship delivery was delayed by approximately 2 years. The cost
increase for the C-130J is projected to be between 10 and 20 percent of
the original contract price and stems from issues such as changes in
requirements and concurrent design and installation activities.
The Coast Guard recently demonstrated this new approach of increased
control over acquiring Deepwater assets by holding its own competition
for the Fast Response Cutter-B (FRC-B), in lieu of obtaining the asset
through the ICGS contract after determining that it could better
control costs by doing so.[Footnote 9] According to the Coast Guard's
head of contracting activity, the contract award is expected in July
2008. The Coast Guard plans to hold other competitions outside of the
ICGS contract for additional assets in the future. However, Coast Guard
officials told us that, in the near term, they may continue to issue
task orders under the ICGS contract for specific efforts, such as
logistics, or for assets that are already well under way.
Coast Guard Is Not Fully Positioned to Manage Crucial System-Level
Aspects of Deepwater:
Although the shift to individual acquisitions is intended to provide
the Coast Guard with more visibility and control, key aspects still
require a system-level approach. These aspects include an integrated
C4ISR system, which is needed to provide critical information to field
commanders and facilitate interoperability with DHS and DOD, and the
numbers of each Deepwater asset the Coast Guard requires to achieve its
missions. The Coast Guard is not fully positioned to manage these
aspects under its new paradigm. It has not approved an acquisition
strategy for C4ISR and lacks at present the ability to model the
capabilities of existing and planned assets in a way that could inform
the numbers of Deepwater assets it requires. The Coast Guard maintains,
however, that it must proceed with its acquisitions in the absence of
this information.
C4ISR Acquisition Strategy Not Finalized:
C4ISR is a key aspect of the Coast Guard's ability to meet its homeland
security, as well as its traditional, missions. How the Coast Guard
structures C4ISR--referred to as the "architecture"--is fundamental to
the success of the Deepwater Program. C4ISR encompasses the connections
between surface, aircraft, and shore-based assets, the means by which
information is communicated through them and the way information is
displayed across that architecture--referred to as a common operating
picture.[Footnote 10] C4ISR is intended to provide operationally
relevant information to Coast Guard field commanders to allow for the
efficient and effective execution of their missions across the full
range of Coast Guard operations. The Coast Guard plans to integrate the
Deepwater C4ISR architecture with legacy cutters and shore facilities
as well in order to establish common components across all the assets
and further enhance this effort. The Coast Guard recently had an
unscheduled demonstration of new capabilities made possible through
C4ISR improvements. In February 2008, a Maritime Patrol Aircraft (MPA)
diverted from a training flight to participate in the rescue of two
downed fighter pilots. With the C4ISR capabilities on board, the
aircraft coordinated search and rescue efforts with a number of
civilian and military assets it identified in the area.
According to Coast Guard officials, a C4ISR acquisition strategy is
still in development. The Coast Guard recognizes the need to develop an
architecture with common components for use on all assets. However, no
agreement has been reached on whether to acquire C4ISR on an asset
basis or at a system level. An asset-based approach for C4ISR would
entail some risk, as interoperability among all Coast Guard units and
DHS components, as well the Navy and others, must be assured.
Officials stated that the Coast Guard is revisiting the C4ISR
incremental acquisition approach proposed by ICGS and analyzing that
approach's requirements and architecture. In the meantime, the Coast
Guard is continuing to contract with ICGS for C4ISR. The first
increment, now drawing to a close, is providing core capabilities for
Deepwater assets, including common software. Program officials state
that the second increment is planned to reduce the reliance on
proprietary software and begin the migration toward government owned
software where it is practical to do so. The third increment is
anticipated to be a new C4ISR solution for the Coast Guard. As the
Coast Guard continues to analyze its strategy for procurement of these
and other C4ISR increments, a key concern will be to negotiate the data
rights it needs to maintain and upgrade the necessary software.
Coast Guard Developing Modeling Capability to Assist in Determining
Number of Each Asset to Procure:
An additional risk in transitioning from a system-of-systems based
acquisition strategy to an asset-based strategy is that the Coast Guard
may lose the strategic vision needed to know how many of each Deepwater
asset to procure to meet Coast Guard needs. When deciding how many of a
specific vessel or aircraft to procure, it is important to consider not
only the capabilities of that asset, but how it can complement or
duplicate the capabilities of the other assets with which it operates.
The Coast Guard has stated that it will continue to use a systems
approach in determining the overall capabilities it needs but has not
yet developed the tools necessary to make this assessment. For example,
the Coast Guard recently contracted for a Deepwater alternatives
analysis that revisited the acquisition approach for many of the
individual assets and made a number of recommendations on options for
future procurements. The analysis, in general, did not make
recommendations about the number of each asset to be procured. It did,
however, suggest revisiting the number of NSCs if the capabilities of
the OPC allowed it to fill the same missions and eliminating the
vertical unmanned aerial vehicle for technical and manufacturing
reasons. Coast Guard officials stated that the study was abbreviated in
scope because of the limited time available.
Senior Coast Guard officials, while stating that the mix of Deepwater
assets identified in the alternatives analysis--such as small, medium,
and large cutters--is generally reasonable, acknowledge the need to
revisit the numbers of each of these assets to be procured in light of
Deepwater capabilities as a whole and the move away from the ICGS
solution. Officials state, however, that increased capabilities in
modeling and simulations are necessary to fully inform this effort.
According to officials, the Coast Guard is working to upgrade a model
that plots the planned capabilities of Deepwater assets, as well as the
capabilities and operations of existing assets, against the
requirements for Coast Guard missions. The Coast Guard intends to use
this model as a means of testing each planned asset to ensure its
capabilities fill stated deficiencies in the Coast Guard's force
structure and to inform how many of a particular asset are needed given
the capabilities of the rest of the force. Officials stated that they
intend to use this analysis to inform their development of the
Deepwater acquisition strategy. In the meantime, the Coast Guard
continues to plan for asset acquisitions in numbers very similar to
those determined by ICGS, such as procurement of 8 NSCs and 25 OPCs.
Disciplined Project Management Approach Is Beneficial Going Forward,
but Key Decision Point Is Missing and Consequences of Prior Decisions
May Be Costly:
As the Coast Guard moves the Deepwater Program from a system-of-systems
acquisition to a more traditional asset-based approach, it is
introducing the use of a more disciplined and formalized process under
its Major Systems Acquisition Manual (MSAM). While the introduction of
this process is a significant improvement over the prior acquisition
process, the absence of a key milestone decision point before low-rate
initial production begins and the lack of formal approvals of
acquisition decisions by DHS could be problematic. The consequences of
not following a more disciplined acquisition approach, especially for
the establishment and demonstration of mission requirements, are now
apparent for assets already in production and are likely to pose
continued problems--such as increased costs--for the Coast Guard.
Use of Major Systems Acquisition Manual Process Improves Oversight:
The Coast Guard is now following the process set forth in its MSAM for
all Deepwater assets. This process requires documentation and approval
of program activities at key points in a program's life-cycle. The MSAM
represents a disciplined management approach that begins with an
identification of deficiencies in overall Coast Guard capabilities and
then proceeds through a series of structured phases and decision points
to identify requirements for performance, develop and select candidate
systems that match these requirements, demonstrate the feasibility of
selected systems, and produce a functional capability. At each decision
point, referred to as a "milestone," entities across the Coast Guard,
such as those responsible for oversight of the budget process or
command and control, are to be consulted. Designated officials at high
levels--including the Vice Commandant of the Coast Guard--then formally
approve the program to proceed to the next phase. Each milestone
requires documentation that captures key information needed for
decision making. For example, when the Coast Guard makes its milestone
decision, under the MSAM process, to proceed with the OPC from the
initiation phase into development, the project office presented
documentation that described the capabilities the ship is expected to
provide, a draft concept for operations, and an initial assessment of
cost and schedule. Figure 3 presents the key phases and milestones of
the MSAM process and the current status of Deepwater assets within the
process.
Figure 3: MSAM Process and Deepwater Surface and Air Assets:
[See PDF for image]
This figure is an illustration of the MSAM Process and Deepwater
Surface and Air Assets, as follows:
Project identification: Gaps in capability are defined:
* Short Range Prosecutor;
* Long Range Interceptor;
* Unmanned Aerial Systems.
Milestone 0.
Project initiation: Capabilities required to fill gaps are described;
* Medium Range Recovery Helicopter Upgrade Phase III.
Milestone 1: begin acquisition.
Concept and technology development: Requirements are established and
alternatives explored;
* Multi-Mission Cutter Helicopter Upgrade Phase III;
* Offshore Patrol Cutter;
* Medium Range Recovery Helicopter Upgrade Phase II.
Milestone 2: Approve low-rate initial production.
Capability development and demonstration: Develop and test prototypes;
design and produce first asset;
* Medium Range Recovery Helicopter Upgrade Phase I;
* National Security Cutter;
* Maritime Patrol Aircraft;
* Multi-Mission Cutter Helicopter Upgrade Phase II;
* Fast Response Cutter.
Milestone 3: Approve full-rate production.
Production and deployment: Produce assets for operational use;
* Long Range Surveillance Aircraft.
Operations and support: Use and support assets;
* Multi-Mission Cutter Helicopter Upgrade Phase I.
Source: GAO analysis of Coast Guard data.
[End of figure]
Figure 5: Note: Black diamonds denote milestones.
The MSAM process provides a number of benefits that have the potential
to improve acquisition outcomes. Primarily, it requires event-driven
decision-making by high ranking acquisition executives at a number of
key points in an asset's lifecycle. The process also requires
documentation to provide the information and criteria necessary for
these decisions. In addition, as the assets proceed through each phase
of the process and the requirements and capabilities of the assets
become more defined, these assets' ability to fill deficiencies
identified by the Coast Guard must be established.
Previously, the Coast Guard authorized the Deepwater Program to deviate
from its major systems acquisition process, stating that the process
was focused on acquiring discrete assets and contains requirements and
documentation that may be inappropriate for the Deepwater system-of-
systems approach. Instead, Deepwater Program reviews were required on a
schedule-driven basis--planned quarterly or annually--to report the
status and performance of the contractor's efforts. Key decision points
were focused primarily at the Deepwater Program as a whole and held
only occasionally. Coast Guard officials told us that little, if any,
formal documentation of key decisions was maintained.
Lack of Key Milestone in MSAM Process Poses Risks:
GAO's work on best practices for major acquisitions has demonstrated
that a knowledge-based approach to decision making, where specific
knowledge is gathered and measured against standards at key points in
the acquisition process to inform decisions about the path forward, can
significantly improve program outcomes. While the MSAM process contains
many characteristics of a knowledge-based approach, there are key
differences that could affect acquisition outcomes. For example, the
Milestone 2 decision to approve low-rate initial production precedes
the majority of the design activities in the capability development and
demonstration phase. By following such a process, the Coast Guard may
decide to enter production before a design is proven, a decision that
could result in increased costs as design and production activities are
conducted concurrently. In a previous report, we reviewed DHS'
acquisition process, with which the Coast Guard's MSAM process is
aligned and intended to complement, and found a similar weakness.
[Footnote 11] Recognition and correction of this weakness in the MSAM
approach is particularly important as key assets within Deepwater, most
noticeably the FRC, approach a low-rate production decision.
Improved Oversight by DHS Necessary:
The MSAM requires the Coast Guard to obtain approval from DHS on all
major program decisions beginning with the start of an acquisition
program. This requirement would apply to Deepwater, as it has been
designated a DHS major investment program. However, DHS approval of
Deepwater acquisition decisions as part of its investment review
process is not technically necessary because the department deferred
decisions on specific assets to the Coast Guard in 2003. The department
did require notification of changes to the Deepwater Program that could
result in significant changes to cost, schedule, and performance, but
this requirement was at the overall systems level. In practice, the
Coast Guard has increased communication and coordination with DHS
through good will and informal procedures such as personal working
relationships.[Footnote 12] While increased communication between the
Coast Guard and DHS is to be applauded, without a formal process in
place, DHS could lose the ability to make strategic decisions--such as
how and whether to fund certain projects--across its components if
informal procedures and relationships should change. Coast Guard and
DHS officials told us that the processes and procedures for
coordinating acquisitions with DHS' Investment Review Board, which is
tasked with reviewing major acquisition programs, are currently
undergoing revision, and changes to the process are expected near the
end of fiscal 2008.
Consequences of Not Following MSAM Process Are Apparent for Assets in
Production:
The Coast Guard is facing the consequences of its decision not to
follow the MSAM process as it attempts to better define requirements
for individual assets already being procured, such as the NSC, Long-
Range Interceptor (LRI), and the MPA, and to ensure that desired
capabilities are met within cost and schedule constraints. Under the
MSAM, the requirements generation process takes broad mission needs and
translates them to operational capability requirements and then to
asset performance specifications. Figure 4 depicts this traceability
from mission needs to performance specifications.
Figure 4: Arrow of Traceability from Mission Needs to Performance
Specifications:
[See PDF for image]
This figure is an illustration of the Arrow of Traceability from
mission needs to performance specifications, as follows:
Coast Guard's Mission:
Traceability start:
Assess ability to carry out mission with current assets and
capabilities;
Identify capability gaps;
Determine operational capability requirements;
* The Operational Requirements Document links mission needs to
performance specifications;
* Define asset performance specifications;
Traceability end.
Source: GAO analysis of Coast Guard data.
[End of figure]
For example, under the MSAM process, before the design of an asset is
selected, representatives of the operational forces within the Coast
Guard are required to generate the Operational Requirements Document
that determines the capabilities or characteristics considered
essential to achieve their mission. Operational requirements described
in this document--such as operating environment, functions to be
performed, and the need for interoperability with other assets--
ultimately drive the performance and capability of an asset and should
be traceable throughout development, design, and testing. They should
also include basic asset requirements such as speed, maneuvering, and
range to serve as threshold and objective values for future trade-off
analyses.[Footnote 13]
Under the ICGS-led system-of-systems acquisition approach, the Coast
Guard developed high-level system requirements for capabilities, such
as the ability to interdict illegal migrants. ICGS then developed an
integrated force mix of specific aircraft, vessels, and communications
systems to meet those needs. But because the disciplined MSAM approach
was not followed, the Coast Guard could not trace the ICGS-proposed
asset performance to actual mission needs. Program and project managers
are "backfilling" the necessary requirements documentation in programs
that are already well underway, with the intent of providing the
traceability that was previously lacking. For example, in 2006, the
Coast Guard acknowledged that the lack of a traditional requirements
document for the NSC, which was then under construction, would inhibit
the Coast Guard's ability to evaluate the vessel's suitability and
effectiveness for Coast Guard missions. To resolve this problem, the
Coast Guard developed a document that lists all the operational
requirements for the NSC, as derived from identified mission needs, to
guide operational testing. According to Coast Guard officials,
operational testing based on these requirements will commence when the
third NSC is complete. Under the MSAM, operational requirements would
have been established prior to design and production to serve as the
basis to link the asset's performance to its ability to fill a mission
need.
Failure to follow a disciplined approach in requirements generation is
also apparent with problems related to the LRI, a small boat intended
to be launched from larger cutters such as the NSC. The Coast Guard
accepted the ICGS-proposed performance specifications for the LRI as
part of the overall Deepwater specification, but the specifications
were not tied to Coast Guard mission requirements. Thus, the Coast
Guard had no assurance that the boat it was buying was what it needed
to accomplish its missions. As a result of Coast Guard- identified
technical deficiencies in the performance specifications, design
changes were required after the LRI task order was issued. For example,
a number of C4ISR specifications had to be added; the initial
specification for the fuel tank size was deleted, as its capacity would
not enable the boat's 400 nautical mile range to be met; and a more
powerful electrical system was needed. These and other changes, which
were required for the boat to accomplish what ICGS had proposed, drove
the price for design and production from $744,621 to almost $3 million.
[Footnote 14] The Coast Guard is beginning to define needed
capabilities for the LRI under the MSAM process, with an eye towards
developing the service's own requirements for the asset. For example,
Coast Guard officials told us that ICGS' proposed top speed of 45 knots
is unrealistic and would under no circumstances be needed to accomplish
Coast Guard missions. The LRI has been equipped with a C4ISR suite that
officials believe to be much more extensive than they need. They are
also concerned that the boat is too heavy, at 22,000 pounds.
The ramifications of accepting asset performance specifications not
tied to Coast Guard mission requirements also became apparent during
recent testing of the system that launches and recovers small boats,
such as the LRI, from the NSC's stern. Design changes to the launch
system had to be made because it was found to be inadequate to handle
the heavy weight of the LRI. The Coast Guard will pay for this change
because the NSC is a cost-plus incentive fee contract. In addition,
Coast Guard officials told us that the LRI's inboard spray rail, which
had initially been installed to enable the boat to reach 45 knots, had
to be removed to allow the boat to effectively launch from the NSC, a
cost ICGS will bear under that fixed-price contract. Coast Guard
officials stated that the current LRI acquisition will be terminated
with delivery of the first boat (now being considered a prototype with
the potential to be used to test launch and recovery mechanisms on
future NSCs).
The Coast Guard's procurement of MPAs is another example of the
consequences of not following a disciplined acquisition approach, as
key program documents that establish the Coast Guard's requirements for
this asset and a plan for operational testing to those requirements
have not been finalized. The testing is expected to occur between June
2008 and December 2008. The Coast Guard has contracted with ICGS for
eight MPAs and accepted delivery of three aircraft between December
2006 and June 2007. In March 2008, it also accepted delivery of three
mission system pallets, which provide the aircraft with C4ISR
capabilities. The Coast Guard anticipates putting another 4 MPAs on
contract with ICGS in fiscal year 2008 and has requested funding for
the 13th and 14th aircraft.
Coast Guard Is Working to Improve the Use and Quality of Program
Information, but Key Information Is Unreliable:
The proper functioning of an acquisition organization and the viability
of the decisions made through its acquisition process are only as good
as the information it receives. The Coast Guard is developing two new
means of communicating information related to the Deepwater Program.
Quarterly project reports will consolidate and standardize how it
communicates information to decision makers, and the probability of
project success tool is intended to help officials discern and correct
problems before they have cost and schedule impacts. However, Coast
Guard officials have concerns about the reliability of the data they
receive from the contractor as they lack the visibility required to
determine the causes of cost and schedule variances. In addition, Coast
Guard officials have stated that Northrop Grumman's earned value
system, which provides the necessary cost and schedule information, may
need to be re-certified for compliance with government standards. While
the Coast Guard is taking steps to improve its visibility into and
confidence in data received from the contractor, it plans to proceed
with issuance of a task order for long lead materials for the fourth
NSC.
New Project Tools Designed to Better Convey Key Information to Decision
Makers:
The Coast Guard recently developed quarterly project reports, a
compilation of cost and schedule information created by the project
managers that summarizes the status of each acquisition for reporting
through the Coast Guard as well as to DHS and the Congress. The Coast
Guard developed these reports to standardize and consolidate asset
reporting across all acquisitions, including those outside of
Deepwater. Currently, the quarterly performance reports are being
developed for 14 separate assets. The reports present general
information about the project such as contract value and type, as well
as more specific, timely information such as project accomplishments
and risks. Project risks are rank-ordered by probability of occurrence
and severity of impact, and include such things as technical challenges
and production issues.
The Coast Guard has also begun to analyze program information using the
"probability of project success" tool. This tool was developed by the
Army and the Air Force to evaluate projects on factors other than basic
cost, schedule, and performance data and is being considered by DHS for
application across its acquisitions. Currently, the tool is being
applied to the same 14 projects covered under the quarterly performance
reports. Coast Guard acquisition officials told us they will use this
tool to grade each asset on 19 different elements in 5 categories,
including project resources and project execution, to assess the risk
of assets failing to meet their goals. Figure 5 lists these categories
and elements.
Figure 5: Factors Considered in Probability of Project Success Tool:
[See PDF for image]
This figure is a chart depicting the factors considered in Probability
of Project Success tool, as follows:
Probability of Project Success:
* Project foundation:
- Acquisition strategy;
- Project requirements;
* Project resources:
- Budgeting/funding;
- Staffing;
- Contractor health;
* Project execution:
- Earned value;
- Performance assessment;
- Logistics assessment;
- Testing and evaluation;
- Risk assessment;
- Contract;
- Technical maturity;
* Project fit in capability vision:
- DHS vision;
- Coast Guard vision;
* Project advocacy:
- Coast Guard;
- DHS leadership;
- Congress;
- Industry;
- International.
Source: GAO analysis of Coast Guard data.
[End of figure]
The probability of project success tool is developed by acquisition
support staff separate from the program and project offices. Of the 19
different elements, only one, health of the contractor, is graded by
the project manager. The results of this tool are not seen as an
assessment of the project manager, but of the support that the
acquisition directorate has given them. Officials stated that the tool
allows acquisition executives to identify projects that require
assistance before they experience cost breaches or other problems and
also allows for a comparison of risks and challenges across all Coast
Guard acquisition projects to identify trends.
Usefulness of Earned Value Management Information Is Questionable:
The production and analysis of earned value management data--the cost
and schedule data reported by the contractor and used to evaluate
progress toward program goals--are critical to informing both the
quarterly performance reports and the probability of project success
tool. However, Coast Guard officials are concerned about the utility of
the earned value data they receive because, under the terms of the ICGS
contract, they lack visibility at the levels required to inform
decision-makers and manage projects. In addition, officials believe
that Northrop Grumman's earned value system may require re-
certification to meet government standards to ensure the reliability of
the data. Receiving useful and reliable earned value data could be
particularly important for the Deepwater Program, as these data are
also used to inform decisions on future projects, such as the pending
orders to Northrop Grumman for the materials and production of the
fourth NSC.
Coast Guard officials expressed concerns about the level of detail of
the earned value data provided by ICGS. A Coast Guard official
responsible for analyzing the contractor's reported earned value data
for the NSC stated that the data do not provide sufficient visibility
for decision making at the asset level. The concerns stem in part from
the system-of-systems contract structure with ICGS and how the terms
for reporting earned value data to the government were negotiated.
Earned value data are reported at different levels of activity,
descending in order from the general to the specific, as determined in
advance by the government. The levels of activity required for earned
value reporting are very important and can determine the usefulness of
the data received. Under the ICGS contract, the earned value data are
reported at seven levels, beginning with the Deepwater system-of-
systems level--"ICGS"--and stopping at the major component level--such
as propulsion and armaments. Coast Guard officials stated that
previously data on the NSC was reported to the fifth level, which only
presents data on the progress of production of the cutter as a whole. A
Coast Guard official stated that in order to gain adequate visibility
into reported cost variances, a deeper level of reporting is necessary.
While the Coast Guard has negotiated a more detailed level of earned
value reporting on the first three NSCs to receive data at the major
component level, according to an official, the Coast Guard may seek
even more detailed levels of cost data in upcoming negotiations for the
fourth NSC.
In addition to concerns about visibility into contractor earned value
data, Coast Guard officials have concerns about the reliability of the
underlying systems the contractors use to collect this data. An
important consideration in relying on contractor-provided earned value
management data is ensuring that the contractor's process for
generating the data is compliant with government standards. Contractors
are expected to have earned value management plans that document the
methodology, products, and tools they have in place to track earned
value. Independent third parties, such as the Defense Contract
Management Agency (DCMA) or the Defense Contract Audit Agency, ensure
the contractor's initial compliance with government standards and
perform surveillance reviews to ensure that the contractor remains
compliant. While Lockheed Martin's earned value management system has
been certified as compliant by DCMA, Coast Guard officials have stated
that Northrop Grumman--the first tier subcontractor responsible for
work on the NSC--may require re-certification. Previously, Northrop
Grumman's earned value management system had been certified by the
Navy, but this certification is no longer considered acceptable by the
Coast Guard.[Footnote 15] According to officials, the Coast Guard is
working with DCMA and the Navy to review and, if necessary, re-certify
Northrop Grumman's earned value system. In the meantime, the Coast
Guard intends to improve its insight into how the contractor produces
and reports earned value data by executing a memorandum of agreement
with the DCMA for on-site surveillance at the shipyard. Such on-site
presence is critical to increase the likelihood that the Coast Guard
receives accurate earned value data.
These concerns about visibility into, and reliability of, earned value
data affect not only the information the Coast Guard needs for decision
making on current projects, but also the information necessary for
decisions on future projects, such as the production of the fourth NSC.
As the Coast Guard compiles earned value information on the ships being
constructed by Northrop Grumman, it can use this information in the
estimates of future costs used to establish target prices for
additional work to be performed. Because the Coast Guard lacks
confidence in how Northrop Grumman is representing its cost and
schedule performance on current projects, it may be in the position of
paying the contractor for future projects, such as the long lead
material and production of the fourth NSC, without the understanding
necessary to evaluate proposed prices.
Conclusions:
In response to significant problems in achieving its intended outcomes
under Deepwater, Coast Guard leadership has made a major change in
course in its management and oversight of this program. Even with this
change, the Coast Guard continues to face numerous risks of varying
magnitude in moving forward with an acquisition program of this size.
While the initiatives the Coast Guard has underway have already begun
to have a positive impact on reducing these risks, the extent and
durability of their impact depends on positive decisions that continue
to increase and improve government management and oversight.
The current reliance on informal procedures to keep DHS informed of
Deepwater developments is not appropriate for an acquisition of this
magnitude. The Deepwater Program will continue for some time to come,
and the full burden of transcending the inevitable challenges should
not rest solely with the initiatives of the current Coast Guard
leadership. The Coast Guard's major systems acquisition process
requires DHS approval of milestone decisions; however, the 2003 DHS
delegation to the Coast Guard of such approval means that DHS does not
have formal approval authority, and it could lack the information
needed to strategically allocate funding by balancing requirements and
needed capabilities across departmental components. In addition, the
Coast Guard's acquisition process calls for a decision to authorize
initial production before knowledge is gathered about the stability of
an asset's design and production processes, which is contrary to best
practices and could result in cost increases and schedule delays
because of redesign. And because the Coast Guard's knowledge of the
reasonableness of contractors' proposed cost and schedule targets for
Deepwater assets relies in part on visibility into and confidence in
the contractors' earned value management data, the Coast Guard may lack
a solid basis to evaluate future proposals by Northrop Grumman until
known problems with its data are resolved.
Recommendations for Executive Action:
To help ensure that the initiatives to improve Deepwater management and
oversight continue as intended and to facilitate decision-making across
the department, we recommend that the Secretary of Homeland Security
direct the Under Secretary for Management to rescind the delegation of
Deepwater acquisition decision authority.
We also recommend that the Commandant of the Coast Guard take the
following two actions:
* To improve knowledge-based decision-making for its acquisitions,
revise the procedures in the Major Systems Acquisition Manual related
to the authorization of low-rate initial production by requiring a
formal design review to ensure that the design is stable as well as a
review before authorizing initial production.
* To improve program management of surface assets contracted to
Northrop Grumman Ship Systems, develop an approach to increase
visibility into that contractor's earned value management data
reporting before entering into any further contractual relationships,
such as for long lead material for and production of the fourth NSC.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, the Department of
Homeland Security concurred with our findings. The department stated
that it would take our recommendation on rescinding the delegation of
Deepwater acquisition decision authority under advisement, but neither
concurred nor disagreed with the recommendation. The Coast Guard
concurred with our recommendation on requiring a formal design review
before low-rate initial production, and plans to incorporate such a
review in its next revision of the MSAM process. In addition, it
partially concurred with our recommendation to improve program
management of surface assets by developing an approach to increase
visibility into Northrop Grumman's earned value management data. The
Coast Guard stated that it agrees with the recommendation and is in the
process of funding DCMA for surveillance of Northrop's earned value
system and increasing the level of visibility into Northrop's data
starting with the fourth NSC production contract. However, the Coast
Guard stated that earned value data would provide limited utility for
the fixed-price long lead materials contract for this acquisition and
that obtaining the data would pose a significant cost and schedule
impact. To determine a fair and reasonable price for the long lead and
production contracts, the Coast Guard plans to obtain and review
Northrop's certified cost and pricing data. It appears to us that the
Coast Guard has developed an approach for increasing visibility into
the earned value management data for future contracts with Northrop
Grumman. We believe this approach, if implemented as planned, will
address our recommendation.
The comments from the Department of Homeland Security are included in
their entirety in appendix III. Technical comments were also provided
and incorporated into the report as appropriate.
We are sending copies if this report to interested congressional
committees, the Secretary of Homeland Security, and the Commandant of
the Coast Guard. We will provide copies to others on request. This
report will also be available at no charge on GAO's Web site at
[hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report or need
additional information, please contact me at (202) 512-4841 or
huttonj@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. Staff
acknowledgements are provided in appendix IV.
Sincerely,
Signed by:
John Hutton:
Director:
Acquisition and Sourcing Management:
[End of section]
Appendix I: Scope and Methodology:
Overall, in conducting this review, we relied in part on the
information and analysis in our March 2008 report, Status of Selected
Aspects of the Coast Guard's Deepwater Program[Footnote 16] and
testimony, Coast Guard: Deepwater Program Management Initiatives and
Key Homeland Security Missions.[Footnote 17] We also reviewed the Coast
Guard's 2007 Deepwater expenditure plan and fiscal year 2009 budget
request. Additional scope and methodology information on each objective
of this report follows.
To assess the Coast Guard's efforts to increase accountability and
program management through its reorganized acquisition function, we
reviewed the Coast Guard's July 2007 Blueprint for Acquisition Reform,
organizational structures before and after the July 2007
reorganization, 2004 and 2008 Deepwater Program Management Plans, and
project manager and integrated product team charters. We also
interviewed senior acquisition directorate officials, program and
project managers, and Integrated Coast Guard Systems (ICGS)
representatives to discuss the Coast Guard's increased role in program
management and oversight and changes in roles and responsibilities of
key positions. We held discussions with officials from the Coast
Guard's engineering and C4ISR technical authorities and the American
Bureau of Shipping, and reviewed lists of certifications for the
National Security Cutter (NSC). To assess Coast Guard actions to
improve the acquisition workforce, we reviewed additional documentation
such as the acquisition human capital strategic plan, documentation of
workforce initiatives, and organization charts for aviation, surface,
and C4ISR components showing government, contractor, and vacant
positions. We supplemented the documentation review with interviews of
acquisition directorate officials, including contracting and Office of
Acquisition Workforce Management officials and program and project
managers. We discussed workforce initiatives, challenges and obstacles
to building an acquisition workforce, recruiting, difficulty in filling
key positions, use of support contractors, inherently governmental
positions, and tools for projecting acquisition workforce needs. We
spoke with representatives of a support contractor developing one of
the workforce planning tools. We also relied on our past work
identifying management and workforce problems within the Deepwater
Program and the Department of Defense (DOD).[Footnote 18]
To evaluate the Coast Guard's transition to an asset-based paradigm for
Deepwater, including how system-level aspects such as C4ISR are being
managed, we analyzed a 2007 alternatives analysis prepared for the
Coast Guard. We also discussed the planned C4ISR procurement strategy
with the acquisition directorate C4ISR program manager and the Coast
Guard Chief, Office of Cyber Security and Telecommunications. We
reviewed the overall Deepwater and the NSC acquisition program
baselines. Other acquisition program baselines were in draft form and
not made available to us. We reviewed reports on NSC and C-130J
missionization cost breaches to understand the change in how cost
breaches are reported to DHS under the new approach. We analyzed the
Long-Range Interceptor (LRI) task order and associated modifications
and interviewed senior acquisition directorate officials, the surface
asset program manager, and the LRI project manager about problems with
the LRI's design and its ability to interface with the NSC's launch and
recovery system during testing. We reviewed documentation of the Coast
Guard's acceptance of the first three Maritime Patrol Aircraft and
associated mission system pallets and interviewed the aviation program
manager.
To assess the Coast Guard's implementation of a disciplined, project
management process for Deepwater acquisitions, we reviewed the Major
Systems Acquisition Manual and compared its processes with the
knowledge-based, best practices processes we have identified through
our prior work on large acquisitions at DOD. We reviewed the Coast
Guard's April 2000 memorandum waiving the acquisition manual
requirements for the Deepwater Program to understand the rationale for
the waiver, as well as the 2003 DHS memorandum giving the Coast Guard
acquisition decision authority for Deepwater assets. We interviewed
acquisition directorate officials and program and project managers to
discuss efforts to transition the acquisition of Deepwater assets to
the MSAM process, particularly for assets already under way. We also
spoke with DHS officials about the DHS major acquisition review process
and reporting requirements.
We assessed Coast Guard initiatives to improve the quality of program
management information by analyzing Deepwater asset quarterly project
reports for the fourth quarter, fiscal year 2007, and probability of
project success information. We also analyzed selected earned value
management cost performance reports for the NSC and reviewed earned
value management system compliance letters for Northrop Grumman and
Lockheed Martin, the Coast Guard's standard operating procedure for
earned value management systems, the Deepwater work breakdown structure
dictionaries for Northrop Grumman and Lockheed Martin, and ICGS' earned
value management plan. We discussed the information contained within
this documentation with acquisition directorate officials, the NSC
business finance manager, Coast Guard support contractors responsible
for analyzing the earned value management data, and ICGS and Northrop
Grumman representatives.
We conducted this performance audit from October 2007 to June 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Information on Selected Deepwater Surface and Air Assets:
Figure 6: National Security Cutter:
[See PDF for image]
Photograph of National Security Cutter.
Asset information:
Current phase: Capability development and demonstration;
Total estimated cost: $3.5 billion;
Total estimated quantity: 8 ships;
Estimated cost per ship: $431.3 million;
First delivery: 2008.
Asset status:
The National Security Cutter (NSC) is intended to be the flagship of
the Coast Guard‘s fleet, with an extended on-scene presence, long
transits, and forward deployment. The cutter and its aircraft and boat
assets are to operate worldwide.
The NSC‘s projected costs have increased greatly compared to the
initial baseline. Requirements changes to address post-9/11 needs are
one of the main reasons for the cost increases. Hurricane Katrina was
another contributing factor, but Coast Guard actions also contributed
to the increases, such as the decision to proceed with production
before resolving fatigue life concerns. Fatigue is physical weakening
because of age, stress, or vibration. A U.S. Navy analysis done for the
Coast Guard determined that the ship‘s design was unlikely to meet
fatigue life expectations. The Coast Guard ultimately decided to
correct the structural deficiencies for the first two National Security
Cutters at scheduled points after construction is completed to avoid
stopping the production lines, and to incorporate structural
enhancements into the design and production for future ships. In August
2007, the Coast Guard and ICGS agreed to a consolidated contracting
action to resolve the contractor‘s request for equitable adjustment of
$300 million, stemming from ICGS‘s contention that the Coast Guard had
deviated from a very detailed contractor implementation plan on which
pricing was based. This negotiation also converted the second NSC from
a fixed-price to a cost plus incentive fee contract.
A Coast Guard official stated that the first NSC is nearing completion
with more than 98 percent of the ship constructed and machinery,
builders, and acceptance trials have been completed. Delivery of the
ship to the Coast Guard occurred on May 8, 2008; however, the
contractor is still in the process of submitting certifications and
resolving issues found in testing including these with the propulsion
system and communications equipment. A Coast Guard official stated that
the second NSC is 50 percent complete and long lead materials and
production contracts have been awarded for the third ship. The Coast
Guard plans to award the production contract for the fourth NSC in
fiscal year 2009, with a contract for long lead materials for that ship
planned for the summer of 2008.
A Coast Guard official stated that some issues with the first NSC will
remain at delivery, including issues with classified communications
systems. Officials told us that they are in the process of determining
how to most cost effectively address these issues. ICGS will continue
to perform work on the first NSC after it leaves the shipyard,
including certain repairs that fall under the ship‘s warranty.
Source: GAO analysis of Coast Guard data.
[End of figure]
Figure 7: Fast Response Cutter:
[See PDF for image]
Illustration of Fast Response Cutter.
Asset information:
Current phase: Capability development and demonstration;
Total estimated cost: $593 million for 12;
Total estimated quantity: Up to 34 ships;
Estimated cost per ship: $49.4 million;
Estimated first delivery: 2010.
Asset status:
The Coast Guard‘s Fast Response Cutter (FRC) is conceived as a patrol
boat with high readiness, speed, adaptability, and endurance to perform
a wide range of Coast Guard missions.
In February 2006, the Coast Guard suspended work on the FRC design
proposed by the system integrator to assess and mitigate technical
risks. This design was known as the FRC-A. The Commandant of the Coast
Guard officially terminated FRC-A design efforts in February 2008 after
approximately $35 million had been obligated to ICGS. To meet an
aggressive schedule, the FRC-A was initiated as an undefinitized
contract action (UCA), meaning that the contractor was authorized to
begin work and incur costs before a final agreement on contract terms
and conditions, including price, was reached. Under UCAs, the
government risks paying increased costs because the contractor has
little incentive to control costs. The UCA was expected to be
definitized in January 2006, but this has not yet occurred; Coast Guard
officials anticipate its happening soon.
Over the past 2 years, the Coast Guard has pursued acquisition of a
modified commercially available patrol boat with similar performance
capabilities to the FRC-A, termed the FRC-B. The Coast Guard issued a
request for proposals for the FRC-B and is currently reviewing
contractor responses. Coast Guard officials told us there was
sufficient competition, and they plan to award the contract in July
2008. The first FRC-B is scheduled to be delivered in 2010. The
contract is for the design and production of up to 34 cutters. The
Coast Guard intends to acquire 12 FRCs by 2012 for an estimated cost of
$593 million, or $49.4 million per cutter. Coast Guard officials told
us they are pursuing this 12-boat acquisition strategy to help fill the
current patrol boat operational gap. They plan to assess the
capabilities of the FRC-B before exercising options for additional
cutters. The officials told us they have not updated the acquisition
program baseline for this asset, and they do not plan to update cost
estimates until the contract is awarded.
Source: GAO analysis of Coast Guard data.
[End of figure]
Figure 8: Offshore Patrol Cutter:
[See PDF for image]
Illustration of Offshore Patrol Cutter.
Asset information:
Current phase: Concept and technology development;
Total estimated cost: $8.1 billion;
Total estimated quantity: 25 ships;
Estimated cost per ship: $323.9 million;
Estimated first delivery: 2018.
Asset status:
The Coast Guard‘s Offshore Patrol Cutter (OPC) is intended to conduct
patrols for homeland security functions, law enforcement, and search and
rescue operations. It will be designed for long distance transit,
extended on-scene presence, operations with multiple aircraft and
boats, and improved sea-keeping to allow operations in higher sea
states.
The OPC program was recently restructured after a decision to hold a
competition outside of the ICGS contract, resulting in a 5-year delay in
delivery. Currently, the Coast Guard is analyzing requirements as part
of the concept and technology development phase. The Coast Guard‘s
engineering and logistics center is developing concepts to assist the
acquisition directorate in examining cost and capability trade-offs. An
official said preliminary and contract design efforts are planned to
begin in fiscal year 2011, with production to begin in fiscal year
2015.
Source: GAO analysis of Coast Guard data.
[End of figure]
Figure 9: Long-Range Interceptor:
[See PDF for image]
Illustration of Long-Range Interceptor.
Asset information:
Current Phase: Project initiation;
Total cost: TBD;
Total quantity: TBD;
Cost per ship: TBD;
First delivery: TBD.
Asset status:
The Long-Range Interceptor (LRI) is envisioned as a small boat that
will deploy from the NSC and OPC. The LRI is intended to operate beyond
sight of the cutter for vessel boarding, pursuit and interdiction, and
search and rescue operations.
The Coast Guard currently has a $2.9 million contract with ICGS for one
LRI; that boat‘s delivery coincided with the delivery of the first NSC
in April 2008. However, because the LRI‘s design does not meet Coast
Guard requirements, the Coast Guard intends to hold a full and open
competition for additional LRIs to coincide with future NSCs. A Coast
Guard official told us that future LRIs will comply with the Major
Systems Acquisitions Manual process.
Source: GAO analysis of Coast Guard data.
[End of figure]
Figure 10: Short Range Prosecutor:
[See PDF for image]
Illustration of Short Range Prosecutor.
Asset information:
Current Phase: Project initiation;
Total cost: TBD;
Total quantity: TBD;
Cost per ship: TBD;
First delivery: TBD.
Asset status:
The Short Range Prosecutor (SRP) is envisioned as a small boat that
will be deployed from the larger cutters to conduct law enforcement
operations and perform search and rescue operations.
The Coast Guard plans to procure the SRP outside of the ICGS contract
to achieve greater cost efficiencies. A Coast Guard official told us
the SRP will comply with Major Systems Acquisitions Manual milestones
as it proceeds. The Coast Guard had previously acquired 8 SRPs for use
on its 123-foot cutters. However, because of problems with the 110-foot
to 123-foot conversion, those SRPs are not in service. Two SRPs have
been modified for use on the NSC and have been used in testing.
Source: GAO analysis of Coast Guard data.
[End of figure]
Figure 11: HC-144A Maritime Patrol Aircraft:
[See PDF for image]
Photograph of HC-144A Maritime Patrol Aircraft.
Asset information:
Current Phase: Capability development and demonstration;
Total cost: $1.7 billion;
Total quantity: 36;
Cost per aircraft: $47.4 million;
First delivery: 2008.
Asset status:
The Maritime Patrol Aircraft (MPA) is intended to be a transport and
surveillance, fixed-wing aircraft used to perform search and rescue
missions, enforce laws and treaties, and transport cargo and personnel.
In fiscal year 2007, the Coast Guard accepted three MPAs, and through
March 2008 it has accepted three associated mission system pallets,
which provide the aircraft with C4ISR capabilities. The Coast Guard has
a fixed-price contract with ICGS for five additional MPAs and expects
delivery of two of these aircraft in fiscal year 2008. The Coast Guard
expects to contract with ICGS for an additional four aircraft in June
2008 and requested funds for two more aircraft in the fiscal year 2009
budget submission.
Source: GAO analysis of Coast Guard data.
[End of figure]
Figure 12: HC-130J Long-Range Surveillance Aircraft:
[See PDF for image]
Photograph of HC-130J Long-Range Surveillance Aircraft.
Asset information:
Current phase: Production and deployment;
Total cost: $11 million;
Total quantity: 6;
Cost per aircraft: $1.8 million;
First delivery: 2008.
Asset status:
ICGS delivered the first HC-130J on February 28, 2008. Production is
complete on the second and third aircraft. The Coast Guard has a fixed-
price contract with ICGS for the three additional HC-130Js. In November
2007, the Coast Guard notified DHS of a cost increase of between 10 and
20 percent due to parallel design and installation activities resulting
in rework, changes in aircraft power requirements, late delivery of
government-furnished equipment, and changes in mounting equipment
necessary to achieve flight certifications. The HC-130J is expected to
become operational in July 2008.
Source: GAO analysis of Coast Guard data.
[End of figure]
Figure 13: HH-65 Multimission Cutter Helicopter:
[See PDF for image]
Photograph of HH-65 Multimission Cutter Helicopter.
Asset information:
Current phase: Varies;
Total cost: $741 million;
Total quantity: 102 helicopters;
Cost per helicopter: $7.3 million;
First delivery: 2008.
Asset status:
The HH-65 Dolphin is the Coast Guard‘s short-range recovery helicopter.
Under Phase I of the HH-65 conversion, which completed in fiscal year
2007, the helicopters received new engines. The HH-65 also received
upgrades to communications equipment and was modified to allow use of
weapons and other equipment. Beginning in fiscal year 2007, Phases II
and III of the conversion modernize many of the aging and obsolete
subsystems and components and will upgrade the helicopter avionics. The
Coast Guard plans to complete Phases II and III of the modernization in
2014 and 2015, respectively.
Initially, Phases II and III included structural modifications”
including the landing gear, tail rotor, sliding door, and fuel cell”as
well as cockpit upgrades and other capabilities. To address the more
pressing issues that required immediate attention, the upgrades to be
performed in Phases II and III were reprioritized.
Source: GAO analysis of Coast Guard data.
[End of figure]
Figure 14: HH-60 Medium Range Recovery Helicopter:
[See PDF for image]
Photograph of HH-60 Medium Range Recovery Helicopter.
Asset information:
Current phase: Varies;
Total cost: $451 million;
Total quantity: 42 helicopters;
Cost per helicopter: $10.7 million;
First delivery: 2014.
Asset status:
The HH-60J is the Coast Guard‘s medium-range recovery helicopter,
performing search and rescue missions offshore in all weather
conditions.
Currently, the Coast Guard is replacing the HH-60J‘s avionics system,
which it expects will increase the helicopter‘s operational
availability and reduce maintenance and supply costs. The Coast Guard
is also upgrading the HH-60J‘s command, control, and surveillance
system and its ability to perform armed national security missions.
Cost increases associated with the avionics upgrade caused the Coast
Guard to realign funding through a number of fiscal years.
Source: GAO analysis of Coast Guard data.
[End of figure]
Figure 15: Unmanned Aerial Systems:
[See PDF for image]
Illustration of Unmanned Aerial Systems.
Asset information:
Current phase: Project identification;
Total cost: TBD;
Total quantity: TBD;
Cost per ship: TBD;
First delivery: TBD.
Asset status:
Initially, the Deepwater Implementation Plan included procurement of 45
cutter-based Vertical Unmanned Aerial Vehicles (VUAV) and associated
control stations. However, the fiscal year 2008 President‘s Budget
requested no funding for VUAVs and instead, the Coast Guard was to
examine alternative approaches to meet Deepwater‘s requirements for
maritime surveillance. In the fall of 2006, the Coast Guard initiated a
multi-phase VUAV alternatives analysis. Phase I, completed in February
2007, recommended against proceeding with the VUAV effort due to
developmental and cost concerns. Phase II, completed in August 2007,
concluded that small, tactical, cutter-based Unmanned Aerial Systems
(UAS) and long-endurance, land-based UASs might fulfill most of the
maritime surveillance performance gap if a maritime VUAV were not
available. The Coast Guard has requested $3 million in the fiscal year
2009 budget submission to continue to study possible approaches going
forward.
Source: GAO analysis of Coast Guard data.
[End of figure]
[End of section]
Appendix III: Comments from the Department of Homeland Security:
Department of Homeland Security:
Washington, DC 20528:
[hyperlink, http://www.dhs.gov]:
June 20, 2008:
Mr. John Hutton:
Director, Acquisition and Sourcing Management:
United States Government Accountability Office:
Washington, DC 20548:
Dear Mi. Hutton:
Thank you for the opportunity to review and comment on the Government
Accountability Office's (GAO's) Draft Report GAO-08-745 entitled Coast
Guard: Change in Course Improves Deepwater Management and Oversight but
Outcome Still Uncertain. The Department of Homeland Security (DHS) and
the United States Coast Guard (USCG) remain grateful for all that the
GAO has done to bring attention to issues within our Deepwater
acquisition program and concurs with the findings of this report. We
appreciate the commitment the GAO has towards making the Deepwater
program successful and value the opinions of the GAO. We benefit from
this oversight and will use it to ensure improvement to our acquisition
program in the future.
Recommendations:
The first recommendation was addressed to the Under Secretary for
remaining two recommendations were made to the USCG.
GAO Recommendation #1: Rescind the delegation of Deepwater acquisition
decision authority.
DHS Response: The Department is taking this recommendation under
advisement.
GAO Recommendation #2: To improve knowledge-based decision making for
its acquisitions, revise the procedures in the Major Systems
Acquisition Manual related to the authorization of low rate initial
production by requiring a formal design review to ensure that the
design is stable as well as a review before authorizing initial
production.
USCG Response: Concur - the USCG agrees with Recommendation 2 and has
already incorporated both a determination/approval of low rate initial
production (LRIP) quantity as part of Milestone 2 (MS 2) and added a MS
2A LRIP review/approval as part of the next revision to the Major
Systems Acquisition Manual (MSAM).
GAO Recommendation #3: To improve program management of surface assets
contracted to Northrop Grumman Ship Systems, develop an approach to
increase visibility into that contractor's earned value management data
reporting before entering into any further contractual relationships,
such as for long lead material for and construction of the fourth
National Security Cutter (NSC).
USCG Response: Partially Concur - the USCG agrees with Recommendation 3
with one exception. We are in the process of funding the Defense
Contract Management Agency (DCMA) for surveillance of the NG Earned
Value Management (EVM) system. We anticipate award in the fourth
quarter of FY08. This will provide us the visibility we all agree is
necessary. Where we disagree is having the visibility prior to
contracting for long lead material for NSC #4. This task order is
planned to be fixed price and awarded in the fourth quarter of FY08.
EVM is not normally required for a fixed priced contract. Given the
limited value of EV data on a fixed price order and the significant
cost and schedule impact associated with delaying award of the long
lead material order, we take exception to the provision of the
recommendation associated with requiring the surveillance prior to
award of the long lead material order. We will have the surveillance in
place prior to the award for production of NSC #4.
We thank you for considering our comments on these very important
issues. We look forward to working with the GAO on future homeland
security issues.
Sincerely,
Signed by:
Penelope G. McCormack:
Acting Director:
Departmental GAO/OIG Audit Liaison Office:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
John Hutton, (202) 512-4841 or huttonj@gao.gov:
Acknowledgments:
In addition to the individual named above, Michele Mackin, Assistant
Director; J. Kristopher Keener; Martin G. Campbell; Maura Hardy; Angie
Nichols-Friedman; Scott Purdy; Kelly Richburg; Raffaele Roffo; Sylvia
Schatz; and Tatiana Winger made key contributions to this report.
[End of section]
GAO Products Related to the Deepwater Program:
[End of section]
Status of Selected Aspects of the Coast Guard's Deepwater Program.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-270R] (Washington,
D.C.: Mar. 11, 2008).
Coast Guard: Deepwater Program Management Initiatives and Key Homeland
Security Missions. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-
531T] (Washington, D.C.: Mar. 5, 2008).
Coast Guard: Challenges Affecting Deepwater Asset Deployment and
Management and Efforts to Address Them. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-874] (Washington, D.C.: June
18, 2007).
Coast Guard: Status of Efforts to Improve Deepwater Program Management
and Address Operational Challenges. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-575T] (Washington, D.C.: Mar. 8, 2007).
Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-764] (Washington,
D.C.: June 23, 2006).
Coast Guard: Changes to Deepwater Plan Appear Sound, and Program
Management Has Improved, but Continued Monitoring is Warranted.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-546] (Washington,
D.C.: Apr. 28, 2006).
Coast Guard: Progress Being Made on Addressing Deepwater Legacy Asset
Condition Issues and Program Management, but Acquisition Challenges
Remain. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-757]
(Washington, D.C.: July 22, 2005).
Coast Guard: Preliminary Observations on the Condition of Deepwater
Legacy Assets and Acquisition Management Challenges. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-05-651T] (Washington, D.C.: June
21, 2005).
Coast Guard: Deepwater Program Acquisition Schedule Update Needed.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-695] (Washington,
D.C.: June 14, 2004).
Contract Management: Coast Guard's Deepwater Program Needs Increased
Attention to Management and Contractor Oversight. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-04-380] (Washington, D.C.: Mar.
9, 2004).
Coast Guard: Actions Needed to Mitigate Deepwater Project Risks.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-659T] (Washington,
D.C.: May 3, 2001).
[End of section]
Footnotes:
[1] GAO, Status of Selected Aspects of the Coast Guard's Deepwater
Program, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-270R]
(Washington, D.C.: Mar. 11, 2008).
[2] GAO, Defense Acquisitions: Assessments of Selected Weapons
Programs, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-467SP]
(Washington, D.C.: Mar. 31, 2008).
[3] Appendix II lists selected surface and air assets currently being
planned and procured for Deepwater as well as their status.
[4] GAO, Defense Acquisitions: Role of Lead Systems Integrator on
Future Combat Systems Program Poses Oversight Challenges, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-07-380] (Washington, D.C.: June
6, 2007).
[5] The issue pertained to the ship's expected 30-year service life as
it related to fatigue. Fatigue is physical weakening because of age,
stress, or vibration. A U.S. Navy analysis done for the Coast Guard
determined that the ship's design was unlikely to meet fatigue life
expectations. The Coast Guard ultimately decided to correct the
structural deficiencies for the first two NSCs at scheduled points
after construction is completed to avoid stopping the production lines
and to incorporate structural enhancements into the design and
production for future ships.
[6] GAO, Defense Acquisitions: Assessments of Selected Weapons
Programs, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-467SP]
(Washington, D.C.: Mar. 31, 2008).
[7] GAO, Defense Contracting: Army Case Study Delineates Concerns with
Use of Contractors as Contract Specialists, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-360] (Washington, D.C.: Mar.
26, 2008).
[8] The MSAM defines an Acquisition Program Baseline (APB) cost breach
as occurring when the total acquisition cost (the most probable cost,
including procurement, system, and "fly-away" costs) increases by more
than 8 percent and an APB schedule breach as occurring when the
schedule performance parameters have slipped by more than 180 days.
[9] For more information on the FRC see appendix II. Also see GAO,
Status of Selected Aspects of the Coast Guard's Deepwater Program,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-270R] (Washington,
D.C.: Mar. 11, 2008)
[10] An "architecture" is the structure of components, their
interrelationships, and the principle guidelines governing their design
and evolution over time.
[11] GAO, Homeland Security: Successes and Challenges in DHS's Efforts
to Create an Effective Acquisition Organization, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-05-179] (Washington, D.C.: Mar.
29, 2005).
[12] We are currently conducting work on DHS' investment review process
and will release our findings later this year.
[13] A threshold is the minimum value necessary to satisfy a
requirement. A requirement's objective is a measurable, cost-effective
value greater than the threshold. In some cases, the threshold and
objective are the same.
[14] This increase includes $185,447 paid to ICGS for a revised
proposal.
[15] According to Coast Guard officials, DHS is now only recognizing
validation of an earned value management system from DCMA. Therefore,
the Navy's certification letter is no longer valid.
[16] GAO, Status of Selected Aspects of the Coast Guard's Deepwater
Program, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-270R]
(Washington, D.C.: Mar. 11, 2008).
[17] GAO, Coast Guard: Deepwater Program Management Initiatives and Key
Homeland Security Missions, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-531T] (Washington, D.C.: Mar. 5, 2008).
[18] The relevant DOD reports are GAO, Defense Contracting: Army Case
Study Delineates Concerns with Use of Contractors as Contract
Specialists, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-360]
(Washington, D.C.: Mar. 26, 2008) and GAO, Defense Acquisitions:
Assessments of Selected Weapons Programs, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-08-467SP] (Washington, D.C.: Mar.
31, 2008). Appendix III lists our reports on Deepwater.
[End of section]
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