Coast Guard
Update on Deepwater Program Management, Cost, and Acquisition Workforce Gao ID: GAO-09-620T April 22, 2009The Deepwater Program is intended to recapitalize the Coast Guard's fleet and includes efforts to build or modernize five classes each of ships and aircraft, and procure other key capabilities. In 2002, the Coast Guard contracted with Integrated Coast Guard Systems (ICGS) to manage the acquisition as systems integrator. After the program experienced a series of failures, the Coast Guard announced in April 2007 that it would take over the lead role, with future work on individual assets to be potentially bid competitively outside of the existing contract. A program baseline of $24.2 billion was set as well. In June 2008, GAO reported on the new approach and concluded that while these steps were beneficial, continued oversight and improvement was necessary. The Coast Guard has taken actions to address the recommendations in that report. This testimony updates key issues from prior work: (1) Coast Guard program management at the overall Deepwater Program and asset levels; (2) how cost, schedules, and capabilities have changed from the 2007 baseline and how well costs are communicated to Congress; and (3) Coast Guard efforts to manage and build its acquisition workforce. GAO reviewed Coast Guard acquisition program baselines, human capital plans and other documents, and interviewed officials. For information not previously reported, GAO obtained Coast Guard views. The Coast Guard generally concurred with the findings.
The Coast Guard has assumed the role of systems integrator for the overall Deepwater Program by reducing the scope of work on contract with ICGS and assigning these functions to Coast Guard stakeholders. As part of its systems integration responsibilities, the Coast Guard has undertaken a fundamental reassessment of the capabilities, number, and mix of assets it needs; according to an official, it expects to complete this analysis by the summer of 2009. At the individual Deepwater asset level, the Coast Guard has improved and begun to apply the disciplined management process found in its Major Systems Acquisition Manual, but did not meet its goal of complete adherence to this process for all Deepwater assets by the second quarter of fiscal year 2009. For example, key acquisition management activities--such as operational requirements documents and test plans--are not in place for assets with contracts recently awarded or in production, placing the Coast Guard at risk of cost overruns or schedule slips. Due in part to the Coast Guard's increased insight into what it is buying, the anticipated cost, schedules, and capabilities of many of the Deepwater assets have changed since the establishment of the $24.2 billion baseline in 2007. Coast Guard officials have stated that this baseline reflected not a traditional cost estimate but rather the anticipated contract costs as determined by ICGS. As the Coast Guard has developed its own cost baselines for some assets, it has become apparent that some of the assets it is procuring will likely cost more than anticipated. Information to date shows that the total cost of the program may grow by $2.1 billion. As more cost baselines are developed and approved, further cost growth may become apparent. In addition, while the Coast Guard plans to update its annual budget requests with asset-based cost information, the current structure of its budget submission to Congress does not include certain details at the asset level, such as estimates of total costs and total numbers to be procured. The Coast Guard's reevaluation of baselines has also changed its understanding of the delivery schedules and capabilities of Deepwater assets. One reason the Coast Guard sought a systems integrator from outside the Coast Guard was because it recognized that it lacked the experience and depth in workforce to manage the acquisition internally. The Coast Guard acknowledges that it still faces challenges in hiring and retaining qualified acquisition personnel and that this situation poses a risk to the successful execution of its acquisition programs. According to human capital officials in the acquisition directorate, as of April 2009, the acquisition branch had 16 percent of positions unfilled, including key jobs such as contracting officers and systems engineers. Even as it attempts to fill its current vacancies, the Coast Guard plans to increase the size of its acquisition workforce significantly by the end of fiscal year 2011. While the Coast Guard may be hard-pressed to fill these positions, it has made progress in identifying the broader challenges it faces and is working to mitigate them. In the meantime, the Coast Guard has been increasing its use of support contractors.
GAO-09-620T, Coast Guard: Update on Deepwater Program Management, Cost, and Acquisition Workforce
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Testimony:
Before the Subcommittee on Homeland Security, Committee on
Appropriations, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EDT:
Wednesday, April 22, 2009:
Coast Guard:
Update on Deepwater Program Management, Cost, and Acquisition
Workforce:
Statement of John P. Hutton, Director:
Acquisition and Sourcing Management:
GAO-09-620T:
GAO Highlights:
Highlights of GAO-09-620T, testimony before the Subcommittee on
Homeland Security, Committee on Appropriations, House of
Representatives.
Why GAO Did This Study:
The Deepwater Program is intended to recapitalize the Coast Guard‘s
fleet and includes efforts to build or modernize five classes each of
ships and aircraft, and procure other key capabilities. In 2002, the
Coast Guard contracted with Integrated Coast Guard Systems (ICGS) to
manage the acquisition as systems integrator. After the program
experienced a series of failures, the Coast Guard announced in April
2007 that it would take over the lead role, with future work on
individual assets to be potentially bid competitively outside of the
existing contract. A program baseline of $24.2 billion was set as well.
In June 2008, GAO reported on the new approach and concluded that while
these steps were beneficial, continued oversight and improvement was
necessary. The Coast Guard has taken actions to address the
recommendations in that report. This testimony updates key issues from
prior work: (1) Coast Guard program management at the overall Deepwater
Program and asset levels; (2) how cost, schedules, and capabilities
have changed from the 2007 baseline and how well costs are communicated
to Congress; and (3) Coast Guard efforts to manage and build its
acquisition workforce.
GAO reviewed Coast Guard acquisition program baselines, human capital
plans and other documents, and interviewed officials. For information
not previously reported, GAO obtained Coast Guard views. The Coast
Guard generally concurred with the findings.
What GAO Found:
The Coast Guard has assumed the role of systems integrator for the
overall Deepwater Program by reducing the scope of work on contract
with ICGS and assigning these functions to Coast Guard stakeholders. As
part of its systems integration responsibilities, the Coast Guard has
undertaken a fundamental reassessment of the capabilities, number, and
mix of assets it needs; according to an official, it expects to
complete this analysis by the summer of 2009. At the individual
Deepwater asset level, the Coast Guard has improved and begun to apply
the disciplined management process found in its Major Systems
Acquisition Manual, but did not meet its goal of complete adherence to
this process for all Deepwater assets by the second quarter of fiscal
year 2009. For example, key acquisition management activities”such as
operational requirements documents and test plans”are not in place for
assets with contracts recently awarded or in production, placing the
Coast Guard at risk of cost overruns or schedule slips.
Due in part to the Coast Guard‘s increased insight into what it is
buying, the anticipated cost, schedules, and capabilities of many of
the Deepwater assets have changed since the establishment of the $24.2
billion baseline in 2007. Coast Guard officials have stated that this
baseline reflected not a traditional cost estimate but rather the
anticipated contract costs as determined by ICGS. As the Coast Guard
has developed its own cost baselines for some assets, it has become
apparent that some of the assets it is procuring will likely cost more
than anticipated. Information to date shows that the total cost of the
program may grow by $2.1 billion. As more cost baselines are developed
and approved, further cost growth may become apparent. In addition,
while the Coast Guard plans to update its annual budget requests with
asset-based cost information, the current structure of its budget
submission to Congress does not include certain details at the asset
level, such as estimates of total costs and total numbers to be
procured. The Coast Guard‘s reevaluation of baselines has also changed
its understanding of the delivery schedules and capabilities of
Deepwater assets.
One reason the Coast Guard sought a systems integrator from outside the
Coast Guard was because it recognized that it lacked the experience and
depth in workforce to manage the acquisition internally. The Coast
Guard acknowledges that it still faces challenges in hiring and
retaining qualified acquisition personnel and that this situation poses
a risk to the successful execution of its acquisition programs.
According to human capital officials in the acquisition directorate, as
of April 2009, the acquisition branch had 16 percent of positions
unfilled, including key jobs such as contracting officers and systems
engineers. Even as it attempts to fill its current vacancies, the Coast
Guard plans to increase the size of its acquisition workforce
significantly by the end of fiscal year 2011. While the Coast Guard may
be hard-pressed to fill these positions, it has made progress in
identifying the broader challenges it faces and is working to mitigate
them. In the meantime, the Coast Guard has been increasing its use of
support contractors.
View [hyperlink, http://www.gao.gov/products/GAO-09-620T] or key
components. For more information, contact John Hutton at (202) 512-4841
or huttonj@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the Coast Guard's management
and oversight of its Deepwater Program. The Deepwater Program began in
the late 1990s as an effort to recapitalize the Coast Guard's
operational fleet and now includes projects to build or modernize five
classes each of ships and aircraft, as well as to procure other
capabilities such as improved command, control, communications,
computers, intelligence, surveillance, and reconnaissance (C4ISR) and
unmanned aircraft. Recognizing that it did not have in place the
experience and depth in its workforce to manage the acquisition, the
Coast Guard contracted with Integrated Coast Guard Systems (ICGS) as a
systems integrator in June 2002. After experiencing a series of
programmatic failures, the Commandant acknowledged in April 2007 that
the Coast Guard had relied too heavily on contractors to do the work of
government and that government and industry had failed to control
costs. He announced several major changes to the acquisition approach
for Deepwater, the key one being that the Coast Guard would take over
the lead role in systems integration from ICGS, with future work on
individual assets to be potentially bid competitively outside of the
existing contract. In May 2007, soon after this announcement, the
Department of Homeland Security (DHS) approved a revised acquisition
program baseline of $24.2 billion for the Deepwater Program.
In June 2008, we reported on our assessment of the preliminary steps
the Coast Guard had taken to revise its acquisition approach and
concluded that while these steps were beneficial, continued oversight
and improvement was necessary to further mitigate risks.[Footnote 1]
The Coast Guard has taken actions to address the recommendations we
made in that report. My statement is based largely on ongoing work for
this subcommittee.[Footnote 2] We plan to provide a more complete
analysis of the Deepwater issues raised in this statement in a report
this summer.
My focus today will be on:
* Coast Guard efforts to manage the Deepwater Program at both the
overall system and asset levels;
* how cost, schedules, and capabilities have changed from the 2007
baseline, and how well costs are communicated to Congress; and:
* Coast Guard efforts to manage and build its acquisition workforce.
As part of our ongoing work, we reviewed key Coast Guard documentation
such as the Coast Guard's Major Systems Acquisition Manual, approved
acquisition program baselines, and human capital plans. We also
interviewed Coast Guard officials in the acquisition directorate,
including program managers and contracting officers, and in other
directorates such as those responsible for human capital issues and for
assessing and developing operational requirements for Deepwater assets.
This work was conducted between September 2008 and April 2009. We also
relied on our past work regarding the Deepwater Program. Appendix I
lists our selected reports on the Deepwater Program. All work for this
statement was conducted 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.
For issues where our observations are based on work that has not been
previously reported, we obtained Coast Guard views on our findings and
incorporated technical comments where appropriate. The Coast Guard
generally concurred with our findings.
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 and vessel escorts, and those related to non-homeland security
missions, such as search and rescue 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 in the late 1990s, the Coast
Guard chose to use a system-of-systems acquisition strategy. A system-
of-systems is defined as a set or arrangement of assets that results
when independent assets are integrated into a larger system that
delivers unique capabilities. As the systems integrator, ICGS was
responsible for designing, constructing, deploying, supporting, and
integrating the Deepwater assets into a system-of-systems. 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 asset specifications. 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. In November 2006, the Coast Guard
submitted a cost, schedule, and performance baseline to DHS that
established the total acquisition cost of the ICGS solution at $24.2
billion and projected that the acquisition would be completed in 2027.
In May 2007, shortly after the Coast Guard had announced its intention
to take over the role of systems integrator, DHS approved the baseline.
Table 1 describes in more detail the assets the Coast Guard is planning
to procure according to approved baselines.
Table 1: Information on Deepwater Assets:
Asset: National Security Cutter;
Quantity: 8 ships;
Description: The 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.
Asset: Offshore Patrol Cutter;
Quantity: 25 ships;
Description: The 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, and operations with multiple aircraft and boats.
Asset: Fast Response Cutter;
Quantity: 58 ships;
Description: The FRC is conceived as a patrol boat with high readiness,
speed, adaptability, and endurance to perform a wide range of missions.
Asset: Medium Endurance Cutter Sustainment;
Quantity: 27 ships;
Description: The cutter sustainment project is intended to improve the
cutters' operating and cost performance by replacing obsolete,
unsupportable, or maintenance-intensive equipment.
Asset: Patrol Boat Sustainment;
Quantity: 20 ships;
Description: The patrol boat sustainment project is intended to improve
the boats' operating and cost performance by replacing obsolete,
unsupportable, or maintenance-intensive equipment.
Asset: Cutter Small Boats;
Quantity: 124 boats;
Description: Cutter small boats are an integral component of the
planned capabilities for the larger cutters and patrol boats and are
critical to achieving success in all operational missions. The Coast
Guard is currently restructuring its cutter small boat programs.
Asset: Maritime Patrol Aircraft;
Quantity: 36 aircraft;
Description: The 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.
Asset: HC-130J Long-Range Surveillance Aircraft;
Quantity: 6 aircraft;
Description: The HC-130J is a four-engine turbo-prop aircraft that the
Coast Guard intends to deploy with improved interoperability, C4ISR,
and sensors to enhance surveillance, detection, classification,
identification, and prosecution.
Asset: HC-130H Long-Range Surveillance Aircraft;
Quantity: 16 aircraft;
Description: The HC-130H is the legacy Coast Guard long-range
surveillance aircraft, which the Coast Guard intends to update with
structural sustainability, improved interoperability, C4ISR, and
sensors to enhance surveillance, detection, classification,
identification, and prosecution.
Asset: HH-65 Multimission Cutter Helicopter;
Quantity: 102 aircraft;
Description: The HH-65 Dolphin is the Coast Guard's short-range
recovery helicopter which is being upgraded in phases to improve its
engines, communications equipment, avionics, and other capabilities.
Asset: HH-60 Medium Range Recovery Helicopter;
Quantity: 42 aircraft;
Description: The HH-60J is a medium-range recovery helicopter designed
to perform search and rescue missions offshore in all weather
conditions. The Coast Guard intends to upgrade the helicopters'
avionics, C4ISR, and other systems.
Asset: Unmanned Aerial System;
Quantity: To be determined;
Description: The Coast Guard has deferred acquisition of this asset
because of challenges in technology maturation of the ICGS proposed
design. The Coast Guard continues its analysis of needs and
alternatives, with an acquisition plan for this asset in development.
Asset: C4ISR;
Quantity: n.a.;
Description: The Coast Guard's acquisition of C4ISR capabilities
includes upgrades to existing cutters and shore installations,
acquisitions of new assets, and development of a common operating
picture to provide operationally-relevant information and knowledge
across the full range of Coast Guard operations.
Source: GAO analysis of Coast Guard data.
[End of table]
In deciding to take over the systems integrator role from ICGS, the
Coast Guard has taken steps to increase government control and
accountability by, among other things, applying the disciplined program
management processes in its Major Systems Acquisition Manual (MSAM) to
Deepwater assets. The MSAM requires documentation and approval of
acquisition decisions at key points in a program's life-cycle by
designated officials at high levels. The Coast Guard has established a
number of goals and deadlines for completing these activities in its
Blueprint for Acquisition Reform, which was initially released in July
2007 and was last updated in July 2008.
Coast Guard Has Assumed the Role of Systems Integrator But Lags In
Applying Disciplined Asset-Level Processes as It Continues with
Procurements:
The Coast Guard has taken three major steps to become the systems
integrator for the Deepwater Program. It has defined and assigned
systems integrator functions to Coast Guard stakeholders, begun to
reassess the capabilities and mix of assets it requires, and
significantly reduced the contractual responsibilities of ICGS. While
the Coast Guard has made progress in applying the disciplined MSAM
acquisition process to its Deepwater assets, it did not meet its goal
of being fully compliant by the second quarter of fiscal year 2009. In
the meantime, the Coast Guard continues with production of certain
assets and award of new contracts in light of what it views as pressing
operational needs.
Coast Guard Has Assumed Key Roles and Responsibilities from ICGS in
Becoming the Systems Integrator:
The role of systems integrator involves planning, organizing, and
integrating a mix of assets into a system-of-systems capability greater
than the sum of the capabilities of the individual parts. ICGS's role
as systems integrator for the Deepwater Program included requirements
management, systems engineering, and defining how assets would be
employed by Coast Guard users in an operational setting. In addition,
the contractor had technical authority over all asset design and
configuration decisions. In 2008, the Coast Guard acknowledged that in
order to assume the role of systems integrator, it needed to define
systems integrator functions and assign them to Coast Guard
stakeholders. Through codified changes to internal relationships,
policies, and contractual arrangements, the Coast Guard has done so.
For example, the Coast Guard formally designated certain directorates
as technical authorities to establish, monitor, and approve technical
standards for Deepwater assets related to design, construction,
maintenance, logistics, C4ISR, and life-cycle staffing and training.
The Coast Guard's capabilities directorate determines operational
requirements and the asset mix to satisfy those requirements and
establishes priorities. This directorate is expected to collaborate
with the technical authorities to ensure that the Coast Guard's
technical standards are incorporated during the requirements
development process. Further, the acquisition directorate's program and
project managers are to be held accountable for ensuring that the
assets it procures fulfill operational requirements and the technical
authority standards. The relationships between Coast Guard directorates
in executing their systems integrator roles are represented graphically
in figure 1.
Figure 1: Directorate Relationships:
[Refer to PDF for image: illustration]
Technical Authorities:
* Human Resources(CG-1);
- Requirements: Assistant Commandant for Capability (CG-7).
* Engineering and Logistics (CG-4);
* Command, Control, Communications, Computers and IT (CG-6);
- Acquisitions: Assistant Commandant for Acquisitions (CG-9).
(direct relationship between CG-7 and CG-9)
Source: GAO analysis based on Coast Guard documents.
[End of figure]
When it contracted with ICGS, the Coast Guard had limited insight into
how the contractor's proposed solution would meet overall mission
needs, limiting its ability to justify the proposed solution and make
informed decisions about possible trade-offs. To improve its insight,
the capabilities directorate has initiated a fundamental reassessment
of the capabilities and mix of assets the Coast Guard needs to fulfill
its Deepwater missions. The goals of this fleet mix analysis include
validating mission performance requirements and revisiting the number
and mix of all assets that are part of the Deepwater Program. A
specific part of the study will be to analyze alternatives and
quantities for the Offshore Patrol Cutter, an asset which accounts for
a projected $8 billion of the total Deepwater costs. According to an
official, the results of this analysis are expected in the summer of
2009. Coast Guard leadership plans to assess the results and make
future procurement decisions based on the analysis.
In conjunction with its assuming the role of systems integrator, the
Coast Guard has significantly reduced the scope of work on contract
with ICGS. In March 2009, the Coast Guard issued a task order to ICGS
limited to tasks such as data management and quality assurance for
assets currently under contract with ICGS including C4ISR, the Maritime
Patrol Aircraft (MPA), and the National Security Cutter (NSC). The
Coast Guard is currently developing plans to transition these functions
from ICGS to the Coast Guard or an independent third party by February
2011 when this task order expires. For assets procured or planned to be
procured outside of the ICGS contract such as the Offshore Patrol
Cutter, systems engineering and program management functions are
expected to be carried out by the Coast Guard with support from third
parties and contractors. According to officials, the Coast Guard has no
plans to award additional orders to ICGS for systems integrator
functions within the current award term or for any work after the award
term expires in January 2011.[Footnote 3]
As Asset-level Management Gets Underway, Production and Award of New
Contracts Are Proceeding Despite Some Gaps in Knowledge:
Since our June 2008 report on the Deepwater Program, and taking into
account our recommendation, the Coast Guard has improved its MSAM
process.[Footnote 4] For example, the process now dictates that the
acquisition project and program managers work collaboratively with the
technical authorities as described above. The MSAM process was revised
to require acquisition planning and an analysis of alternatives for
procurement to start at an earlier stage, which is intended to help
inform the budget and planning processes. Other improvements include
the adoption of our recommendation for a formal design review,
Milestone 2A, before authorizing low-rate initial production. The MSAM
phases and milestones are shown in figure 2.
Figure 2: Major Systems Acquisition Manual (MSAM) Phases and
Milestones:
[Refer to PDF for image: illustration]
Project identification:
Project initiation (milestone 0):
Concept and technology development (milestone 1):
* Begin acquisition.
Capability development and demonstration (milestones 2 and 2A):
* Approve low-rate initial production.
Production & deployment (milestone 3):
* Approve full-rate production.
Operations & support:
Source: Coast Guard.
Note: Black diamonds denote milestones.
[End of figure]
Because the Coast Guard previously exempted Deepwater from the MSAM
process, assets were procured without following a disciplined program
management approach. Recognizing the importance of ensuring that each
acquisition project is managed through sustainable and repeatable
processes and wanting to adhere to proven acquisition procedures, in
July 2008, the Coast Guard set a goal of completing the MSAM
acquisition management activities for all Deepwater assets by the
second quarter of fiscal year 2009. However, of the 12 Deepwater assets
in the concept and technology development phase or later, 9 are behind
plan in terms of MSAM compliance. In the meantime, the Coast Guard has
proceeded with production and awarded new contracts without all of the
knowledge it needs to ensure that the capabilities it is buying will
meet Coast Guard needs within cost and schedule constraints.
For assets already in production, such as the MPA and the NSC, the
Coast Guard has made some progress in the past year in retroactively
developing acquisition documentation with the intent of providing the
traceability from mission needs to operational performance that was
previously lacking. For example, the Coast Guard approved an
operational requirements document for the MPA in October 2008 to
establish a formal performance baseline and identify attributes for
testing. Through this process, the Coast Guard discovered that ICGS's
requirement for operational availability (the amount of time that an
aircraft is available to perform missions) was excessive compared to
the Coast Guard's own standards. According to a Coast Guard official,
the ICGS requirement would have needlessly increased costs to maintain
and operate the aircraft.
Even as the Coast Guard gains this additional knowledge about MPA
requirements, it is continuing with this procurement despite not having
completed operational testing. According to the MSAM, testing in an
operational environment should be completed with the initial production
variants of an asset to demonstrate that capabilities meet requirements
before committing to larger purchases. An approved test plan helps
ensure that the tests conducted are clearly linked to requirements and
mission needs. While the MPA began an operational assessment in July
2008, the Coast Guard still lacked, as of March 2009, a test plan
approved by DHS and endorsed by its independent test authority, the
Navy's Commander Operational Testing and Evaluation Force. With 11 of
36 MPAs already on contract, the Coast Guard has completed the
operational assessment[Footnote 5] but does not plan to complete
operational testing until the fiscal year 2011 time frame. Similarly,
according to Coast Guard officials, operational testing of the NSC,
also conducted by the Coast Guard's independent test authority, has
begun in the absence of an approved test plan, which is now expected in
July 2009. By the time testing is scheduled to be completed in 2011,
the Coast Guard plans to have six of eight NSCs either built or on
contract.
According to the MSAM process, operational requirements must be
approved before procuring an asset. However, since committing to the
MSAM process, the Coast Guard has awarded new contracts for assets
without having all required acquisition documentation in place, due to
its determination that the need for these capabilities is pressing.
This situation puts the Coast Guard at risk of cost overruns and
schedule slips if it turns out that what it is buying does not meet
requirements.
* In September 2008, after conducting a full and open competition, the
Coast Guard awarded an $88.2 million contract for the design and
construction of a lead Fast Response Cutter. However, the Coast Guard
does not have an approved operational requirements document or test
plan for this asset. Recognizing the risks inherent in this approach,
the Coast Guard developed a basic requirements document and an
acquisition strategy based on procuring a proven design. These
documents were reviewed and approved by the Coast Guard's capabilities
directorate, the engineering and logistics directorate, and chief of
staff before the procurement began. According to a Coast Guard
official, the Coast Guard intends to have an approved operational
requirements document before procuring additional ships.
* In February 2009, the Coast Guard issued a $77.7 million task order
to ICGS for a second segment of C4SIR design and development, before
developing its requirements for performance. Design and development
costs for the first segment increased from $55.5 million to $141.3
million. According to Coast Guard officials, this increase was due in
part to the structure of the ICGS contract under which the Coast Guard
lacked visibility into the software development processes and
requirements. Furthermore, ICGS's C4ISR solution for the Deepwater
Program contains proprietary software. The Coast Guard has acquired
data rights to the software and, according to Coast Guard officials,
has determined that the capabilities it is buying meet Coast Guard
technical standards for maintenance, logistics, and interoperability.
Coast Guard Developing More Realistic Cost Estimates for Deepwater
Assets, but Cost Reporting May Not Keep Congress Fully Informed:
Since the establishment of the $24.2 billion baseline for the Deepwater
program in 2007, the anticipated cost, schedules, and capabilities of
many of the Deepwater assets have changed, in part due to the Coast
Guard's increased insight into what it is buying. The purpose of the
2007 baseline was to establish cost, schedule, and operational
requirements for the Deepwater system as a whole; these were then
allocated to the major assets. Coast Guard officials have stated that
this baseline reflected not a traditional cost estimate but rather the
anticipated contract costs as determined by ICGS. Furthermore, the
Coast Guard lacked insight into how ICGS arrived at some of the costs
for Deepwater assets.
As the Coast Guard has assumed greater responsibility for management of
the Deepwater Program, it has begun to improve its understanding of
costs by establishing new baselines for individual assets based on its
own cost estimates. These baselines begin at the asset level and are
developed by Coast Guard project managers, validated by a separate
office within the acquisition branch and, in most cases, are reviewed
and approved by DHS. The estimates use common cost estimating
procedures and assumptions, and may account for costs not previously
captured. Beginning in September 2008 the Coast Guard began submitting
new baselines to DHS. To date, 10 asset baselines have been submitted
to DHS and 4 have been approved. These new baselines are formulated
using various sources of information depending on the acquisition phase
of the asset. For example, the baseline for the NSC was updated using
the actual costs of material, labor, and other considerations already
in effect at the shipyards. The baselines for other assets, like the
MPA, were updated using independent cost estimates. As the Coast Guard
approaches major milestones, such as the decision to enter low-rate
initial production or begin system development, officials have stated
that the cost estimates for all assets will be reassessed and
revalidated.
Better-informed Baselines Suggest Deepwater Costs Could Exceed $24.2
Billion:
As the Coast Guard has developed its own cost baselines for Deepwater
assets, it has become apparent that some of the assets it is procuring
will likely cost more than anticipated. While the Coast Guard is still
in the process of communicating the effect and origin of these cost
issues to DHS, information available to date for assets shows that the
total cost of the program will likely exceed $24.2 billion, with
potential cost growth of approximately $2.1 billion through the life of
the Deepwater Program. As more baselines are approved by DHS, further
cost growth may become apparent. Table 2 provides the estimates of
asset costs available as of April 2009. It does not reflect the roughly
$3.6 billion in other Deepwater costs, such as program management, that
the Coast Guard states do not require a new baseline.
Table 2: Changes from 2007 Deepwater Baseline (Then-year dollars in
millions):
Asset: National Security Cutter;
2007 baseline: $3,450;
Current estimate: (as of April 2009): $4,749;
Change: $1,299.
Asset: Offshore Patrol Cutter;
2007 baseline: $8,098;
Current estimate: (as of April 2009): baseline in development, due
November 2009.
Asset: Fast Response Cutter[A];
2007 baseline: $3,206;
Current estimate: (as of April 2009): baseline with DHS.
Asset: Medium Endurance Cutter Sustainment;
2007 baseline: $317;
Current estimate: (as of April 2009): $321[B];
Change: $4.
Asset: Patrol Boat Sustainment;
2007 baseline: $117;
Current estimate: (as of April 2009): $194[B];
Change: $77.
Asset: Maritime Patrol Aircraft;
2007 baseline: $1,706;
Current estimate: (as of April 2009): $2,223;
Change: $517.
Asset: HC-130J Long-Range Surveillance Aircraft;
2007 baseline: $11;
Current estimate: (as of April 2009): $167[C];
Change: $156.
Asset: HC-130H Long-Range Surveillance Aircraft;
2007 baseline: $610;
Current estimate: (as of April 2009): baseline with DHS.
Asset: HH-65 Multimission Cutter Helicopter;
2007 baseline: $741;
Current estimate: (as of April 2009): baseline with DHS.
Asset: HH-60 Medium Range Recovery Helicopter;
2007 baseline: $451;
Current estimate: (as of April 2009): baseline with DHS.
Asset: Cutter Small Boats;
2007 baseline: $110;
Current estimate: (as of April 2009): baseline in development, due June
2009.
Asset: Unmanned Aerial System;
2007 baseline: $503;
Current estimate: (as of April 2009): baseline in development.
Asset: C4ISR;
2007 baseline: $1,353;
Current estimate: (as of April 2009): baseline with DHS.
Source: GAO analysis of Coast Guard documentation.
[A] In the 2007 baseline, costs for two variants of the Fast Response
Cutter were presented. The new baseline will represent the total costs
for the recently awarded design.
[B] Reflects the threshold, or maximum allowable, cost.
[C] Reflects estimate presented in the Coast Guard's Fiscal Year 2008
Deepwater Expenditure Plan. The initial estimate of $11 million only
included fleet introduction costs and did not include the acquisition
cost of the aircraft or installation of the mission systems.
[End of table]
The effort by the Coast Guard to develop new baselines provides not
only a better understanding of the costs of the Deepwater assets, but
also insight into the drivers of any cost growth. For example, the new
NSC baseline attributes a $1.3 billion rise in cost to a range of
factors, from the additional costs to correct fatigue issues on the
first three cutters to the rise in commodity and labor prices. The
additional $517 million needed to procure all 36 MPA is attributed
primarily to items that were not accounted for in the previous
baseline, including a simulator to train aircrews, facility
improvements, and adequate spare parts. By understanding the reasons
for cost growth, the Coast Guard may be able to better anticipate and
control costs in the future.
The Coast Guard has structured some of the new baselines to show how
cost growth could be controlled by making trade-offs in asset
quantities and/or capabilities. For example, the new MPA baseline
provides cost increments that show the acquisition may be able to
remain within its initial allotment of the overall $24.2 billion if 8
fewer aircraft are acquired. Coast Guard officials have stated that
other baselines currently under review by DHS present similar cost
increments. This information, if combined with data from the fleet mix
study to show the effect of quantity or capability reductions on the
system-of-systems as a whole, offers a unique opportunity to the Coast
Guard for serious discussions of trade-offs.
The Coast Guard's reevaluation of baselines has also changed its
understanding of the delivery schedules and capabilities of Deepwater
assets. According to the new baselines, a number of assets will be
available for operational use later than originally anticipated. This
includes a 12-month delay for the NSC to reach its initial operating
capability and an 18-month delay for the MPA. Coast Guard officials
stated that the restructuring of the unmanned aircraft and small boat
projects has delayed the deployment of these assets with the NSC and
affects the ship's anticipated capabilities in the near term. We plan
to report later this summer on the operational effect of the delays in
the NSC project.
Current Budget Reporting Lacks Detail at Asset Level, and May Not
Adequately Inform Congress:
While the Coast Guard plans to update its annual budget requests with
asset-based cost information, the current structure of its budget
submission could limit Congress's understanding of details at the asset
level. The budget submission presents total acquisition costs only at
the overall Deepwater system level ($24.2 billion), and the description
of funding for individual assets does not include key information such
as costs beyond the current 5-year capital investment plan, i.e., life-
cycle costs, or the total quantities of assets planned. For example,
while the justification of the NSC request includes an account of the
capabilities the asset is expected to provide, how these capabilities
link to the Coast Guard's missions, and details on what activities past
appropriations have funded, it does not include estimates of total
program cost, future award or delivery dates of remaining assets, or
even the total number of assets to be procured.
Our past work has emphasized that one of the keys to a successful
capital acquisition, such as the multibillion-dollar ships and aircraft
the Coast Guard is procuring, is budget submissions that clearly
communicate needs.[Footnote 6] A key part of this communication is to
provide decision makers with information about cost estimates, risks,
and the scope of a planned project before committing substantial
resources to it. Good budgeting also requires that the full costs of a
project be considered upfront when decisions are made. Other agencies
within the federal government that acquire systems similar to those of
the Coast Guard capture these elements in justifications of their
requests. To illustrate, table 3 provides a comparison of the
information found in the NSC budget justification with that used by the
Navy for its shipbuilding programs.
Table 3: Comparison of Budget Justifications:
Coast Guard (NSC);
Prior year allocation: [Check];
Current request: [Check];
5-year outlook: [Check];
Future contract awards: [Empty];
Total acquisition cost: [Empty];
Total asset quantities: [Empty].
Navy;
Prior year allocation: [Check];
Current request: [Check];
5-year outlook: [Check];
Future contract awards: [Check];
Total acquisition cost: [Check];
Total asset quantities: [Check].
Source: GAO analysis.
[End of table]
While the Coast Guard does include some of this information in its
asset-level Quarterly Acquisition Reports to Congress and the Deepwater
Program Expenditure Report, these documents are provided only to the
appropriations committees, and the information is restricted due to
acquisition sensitive material.
Coast Guard Having Difficulty Staffing Government Acquisition Positions
but Working To Improve Processes:
One reason the Coast Guard originally sought a systems integrator was
because it recognized that it lacked the experience and depth in its
workforce to manage the acquisition internally. Now that the Coast
Guard has taken control of the Deepwater acquisition, it acknowledges
that it faces challenges in hiring and retaining qualified acquisition
personnel and that this situation poses a risk to the successful
execution of its acquisition programs. According to human capital
officials in the acquisition directorate, as of April 2009, the
acquisition branch had funding for 855 military and civilian personnel
and had filled 717 of these positions--leaving 16 percent unfilled. The
Coast Guard has identified some of these unfilled positions as core to
the acquisition workforce, such as contracting officers and
specialists, program management support staff, and engineering and
technical specialists. Even as it attempts to fill its current
vacancies, the Coast Guard plans to increase the size of its
acquisition workforce significantly by the end of fiscal year 2011.
Coast Guard Has Expanded Collaboration with Independent Third Parties
and Increased Use of Support Contractors to Assist with Acquisition:
To supplement and enhance the use of its internal expertise, the Coast
Guard has increased its use of third-party, independent experts outside
of both the Coast Guard and existing Deepwater contractors. For
example, a number of organizations within the Navy provided independent
views and expertise on a wide range of issues, including testing and
safety. In addition, the Coast Guard will use the American Bureau of
Shipping, an independent organization that establishes and applies
standards for the design and construction of ship and other marine
equipment, as an advisor and independent reviewer on the design and
construction of the Fast Response Cutter. The Coast Guard has also
begun a relationship with a university-affiliated research center to
augment its expertise as it executes its fleet mix analysis.
In addition to third party experts, the Coast Guard has been increasing
its use of support contractors. Currently, there are approximately 200
contractor employees in support of the acquisition directorate--
representing 24 percent of its total acquisition workforce--a number
that has steadily increased in recent years. These contractors are
performing a variety of services--some of which support functions the
Coast Guard has identified as core to the government acquisition
workforce--including project management support, engineering, contract
administration, and business analysis and management. 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. The Coast Guard acknowledges this risk and is
monitoring its use of support contractors to properly identify the
functions they perform, as well as developing a policy to define what
is and what is not inherently governmental.
Coast Guard Has Made Progress in Identifying and Mitigating Acquisition
Workforce Challenges:
While the Coast Guard may be hard-pressed to fill the government
acquisition positions it has identified both now and in the future, it
has made progress in identifying the broader challenges it faces and is
working to mitigate them. The Coast Guard has updated two documents key
to this effort, the Blueprint for Acquisition Reform, now in its third
iteration, and the Acquisition Human Capital Strategic Plan, which is
in its second iteration. Each document identifies challenges the Coast
Guard faces in developing and managing its acquisition workforce and
outlines initiatives and policies to meet these challenges. For
example, the Acquisition Human Capital Strategic Plan lays out three
overall challenges and outlines over a dozen strategies the Coast Guard
is pursuing to address them in building and maintaining an acquisition
workforce. The discussion of strategies includes status indicators and
milestones to monitor progress, as well as supporting actions such as
the formation of partnerships with the Defense Acquisition University
and continually monitoring turnover in critical occupations. The
Blueprint for Acquisition Reform supports many these initiatives and
provides deadlines for their completion. In fact, the Coast Guard has
already completed a number of initiatives including:
* achieving and maintaining Level III program manager certifications,
* adopting a model to assess future workforce needs,
* incorporating requests for additional staff into the budget cycle,
* initiating tracking of workforce trends and metrics,
* expanding use of merit-based rewards and recognitions, and:
* initiating training on interactions and relationships with
contractors.
Concluding Observations:
In conclusion, I'd like to emphasize several key points as we continue
to oversee the various Coast Guard initiatives discussed today. It is
important to recognize that Coast Guard leadership has made significant
progress in identifying and addressing the challenges in taking on the
role of systems integrator for the Deepwater Program. The Coast Guard
is continuing to build on this progress by starting to follow a
disciplined program management approach that improves its knowledge of
what is required to meet its goals. An important component of this
approach is gaining realistic assessments of needed capabilities and
associated costs to enable the Coast Guard and Congress to better
execute decision making and oversight. The Coast Guard's ability to
build an adequate acquisition workforce is critical, and over time the
right balance must be struck between numbers of government and
contractor personnel. Until the Coast Guard gains a thorough
understanding of what it is buying and how much it will cost, and is
able to put in place the necessary workforce to manage the Deepwater
Program, it will continue to face risks in carrying out this
multibillion dollar acquisition.
Mr. Chairman, this concludes my statement and I would be happy to
respond to any questions the committee may have.
GAO Contact and Acknowledgements:
For further information about this testimony, please contact John P.
Hutton, Director, Acquisition and Sourcing Management, at (202) 512-
4841, huttonj@gao.gov. Other individuals making key contributions to
this testimony include Michele Mackin, Assistant Director; Greg
Campbell; Carolynn Cavanaugh; J. Kristopher Keener; Angie Nichols-
Friedman; and Sylvia Schatz.
[End of section]
Related GAO Products:
Coast Guard: Change in Course Improves Deepwater Management and
Oversight, but Outcome Still Uncertain. [hyperlink,
http://www.gao.gov/products/GAO-08-745]. Washington, D.C.: June 24,
2008.
Coast Guard: Observations on Changes to Management and Oversight of the
Deepwater Program. [hyperlink,
http://www.gao.gov/products/GAO-09-462T]. Washington, D.C.: March 24,
2009.
Status of Selected Assets of the Coast Guard's Deepwater Program.
[hyperlink, http://www.gao.gov/products/GAO-08-270R]. Washington, D.C.:
March 11, 2008.
Coast Guard: Deepwater Program Management Initiatives and Key Homeland
Security Missions. [hyperlink,
http://www.gao.gov/products/GAO-08-531T]. Washington, D.C.: March 5,
2008.
Coast Guard: Status of Efforts to Improve Deepwater Program Management
and Address Operational Challenges. [hyperlink,
http://www.gao.gov/products/GAO-07-575T]. Washington, D.C.: March 8,
2007.
Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts.
[hyperlink, http://www.gao.gov/products/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/products/GAO-06-546]. Washington, D.C.:
April 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/products/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/products/GAO-05-651T]. Washington, D.C.: June 21,
2005.
Coast Guard: Deepwater Program Acquisition Schedule Update Needed.
[hyperlink, http://www.gao.gov/products/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/products/GAO-04-380]. Washington, D.C.: March 9,
2004.
Coast Guard: Actions Needed to Mitigate Deepwater Project Risks.
[hyperlink, http://www.gao.gov/products/GAO-01-659T]. Washington, D.C.:
May 3, 2001. (120827):
[End of section]
Footnotes:
[1] GAO, Coast Guard: Change in Course Improves Deepwater Management
and Oversight, but Outcome Still Uncertain, [hyperlink,
http://www.gao.gov/products/GAO-08-745] (Washington, D.C.: June 24,
2008).
[2] Our ongoing work is also being done for the Subcommittee on
Homeland Security, Committee on Appropriations, U.S. Senate.
[3] In June 2002, the Coast Guard awarded the Deepwater contract to
ICGS. The award was an indefinite delivery, indefinite quantity
contract with a 5-year base period and five potential extensions of the
contract (award terms) of up to 5 years each. Based on the government's
assessment of its performance, ICGS earned one award term of 43 months.
According to Coast Guard officials, the Coast Guard and ICGS have
executed a bilateral contract modification removing any future award
terms from the ICGS contract.
[4] [hyperlink, http://www.gao.gov/products/GAO-08-745].
[5] The focus of an operational assessment is on significant trends
noted in development efforts, programmatic voids, risk areas, adequacy
of requirements, and the ability of the program to support operational
testing. An operational assessment may be conducted at any time using
technology demonstrators, prototypes, mock-ups, engineering development
models, or simulations, but is not to substitute for initial
operational testing and evaluation.
[6] GAO, Executive Guide: Leading Practices in Capital Decision-Making,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-99-32] (Washington,
D.C.: December 1998).
[End of section]
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