Background

In the 1990s, the Coast Guard began an initial effort to modernize its  aging assets that would allow it to successfully meet mission demands.  After the September 11, 2001 terrorist attacks, the Coast Guard became  a component of the newly established Department of Homeland Security  (DHS), which resulted in an increase in mission demands. In order to  meet this increase, the Coast Guard completed a Mission Needs  Statement—the document that describes the mission(s) and needed  capabilities to justify a given program—in 2005. The 2005 Mission Needs  Statement compared the new assets for which the Coast Guard originally  planned to procure—in 1996 prior to the creation of DHS—to replace its  legacy assets to the demands of the new missions as laid out by the  recently formed DHS. Based on the 2005 Mission Needs Statement, DHS  approved a program of record in 2007—known as the Deepwater  program—that provided the additional capability required. This effort was  expected to last 25 years at a cost of $24.2 billion resulting in either the  rebuilding or replacing of vessels and aircraft that were reaching the end  of their expected service lives and were in deteriorating condition. Figure  1 shows some of the Coast Guard’s newer assets that are part of this  broader modernization effort.
In 2016, the Coast Guard revised its Mission Needs Statement in  response to statutory requirements and committee report language, but  this revision states it was not intended to provide details on the specific  assets the Coast Guard needs to meet its mission requirements. Further,  according to the Coast Guard, the 2016 update to the Mission Needs  Statement is to provide a foundation for long-term investment planning  that is to culminate with detailed modeling scenarios to evaluate the  effectiveness of various fleet mixes, and inform the Coast Guard’s Capital  Investment Plan. The 2016 revision, however, does not identify specific  assets or fiscal resources necessary to meet the Coast Guard’s long-term  mission requirements, as we had recommended in June 2014.
Unlike the 2005 Mission Needs Statement, the 2016 version did not result  in a new program of record for the Coast Guard’s recapitalization effort.  However, since the original program of record in 2007, the Coast Guard’s  recapitalization program has undergone changes as major acquisition  programs have been completed and/or modified in response to  affordability concerns. Figure 2 depicts the Coast Guard’s 2007  recapitalization program of record and the current 2017 program of  record.

	The Coast Guard’s Newer Assets Offer Greater Capability than Its Legacy Fleet

The Coast Guard is currently procuring three new cutter classes that will  have more capability than the legacy assets they are intended to replace.  The FRC will replace the legacy Island Class Patrol Boat, the OPC will  replace both classes of the legacy Medium Endurance Cutter (210-foot  class and 270-foot class), and the NSC will replace the legacy High  Endurance Cutter. As we reported in June 2014, several of the Coast  Guard’s newest asset classes are generally demonstrating improved  mission performance compared to the assets they are replacing,  according to Coast Guard officials who operate these assets.  Specifically, the FRC and NSC have greater fuel capacity and efficiency,  engine room and boat launch automation, handling/sea-keeping, and food  capacity, all of which increase endurance and effectiveness. In addition,  the FRC and NSC both have a stern ramp that allows them to launch and  recover the cutters’ small boats more safely and in a fraction of the time  that the Island Class Patrol Boats and High Endurance Cutters require,  which allows the cutters to more efficiently and effectively conduct  missions. The OPC is also expected to provide increased capabilities  compared to the Medium Endurance Cutter it is replacing. Table 1  provides comparison information on selected Coast Guard legacy and  new surface assets.
The Coast Guard commissioned its first FRC in 2012 and, as of April  2017, has received 23 of these vessels. The Coast Guard exercised a  contract option for detail design for the OPC in September 2016, and  there are separate options for the production of each cutter currently  under contract. The Coast Guard anticipates receiving the first vessel in  fiscal year 2021, with deliveries each year through 2035 when the  program is scheduled to achieve full operating capability. Additionally,  since 2008, the Coast Guard has received a total of 6 NSCs, with 3 in  various stages of construction. Due to its improved capabilities, the NSC  has been able to complete longer deployments, which has in part resulted  in more successful drug interdictions than the legacy asset it replaces.
The Coast Guard is also updating and acquiring new aviation assets that  have increased capabilities compared to the legacy assets they are  replacing. For example, the fleets of H-65 helicopters are being upgraded  to allow for greater reliability, maneuverability, and interoperability  between the H-65 and other government assets. In addition, the Coast  Guard restructured its HC-144A acquisition program in 2014 to  accommodate 14 C-27J aircraft it received from the U.S. Air Force. The  Coast Guard plans to use these twin-engine propeller-driven aircraft to  conduct all types of Coast Guard missions, including search and rescue  and disaster response. As we reported in June 2014, officials at Air  Station Miami stated that since they began regularly operating the HC- 144A in fiscal year 2011, the aircraft has had a significant role in  improving the effectiveness of the Coast Guard’s counterdrug and alien  migrant interdiction operations. However, the HC-144A only fully met  three of its seven key performance parameters during initial operational  testing, but the Coast Guard plans to conduct additional tests in fiscal  year 2017 to demonstrate additional key performance parameters. As we  reported in March 2015, the Coast Guard faces several challenges to  making the C-27Js operational, including purchasing spare parts and a  lack of access to the manufacturer’s technical data that are required to  make modifications to the aircraft’s structure to incorporate, among other  things, the radar. The Coast Guard is currently in the process of transitioning to a new mission system on all of its fixed-wing aircraft,  which is a system currently used by the U.S. Navy and DHS’s Customs  and Border Protection. The new mission system is intended to enhance  operator interface and sensor management, as well as replace obsolete  equipment, which is to enable more commonality between the fixed-wing  fleet.

	New Coast Guard Cutters Are Experiencing Maintenance and Equipment Issues

		FRC and NSC Mission Capable Rates Are Lower than Expected

The Coast Guard has not been able to take full advantage of increased  capabilities of the FRC and NSC due to maintenance issues that have  limited their time available for operations. As we reported in March 2017,  while over the past few years both the FRC and NSC met their minimum  mission capable targets on average, which are 48 percent for the FRC  and 49 percent for the NSC, our analysis of a more recent period—from  October 2015 to September 2016—found that both cutters fell below their  minimum targets due to needed increased depot-level maintenance.  See table 2.
According to Coast Guard officials, the FRC’s decrease in monthly  mission capable rates below its minimum target is primarily because of a  phased warranty repair drydock period that was not initially anticipated.  The average warranty repair drydock period will last approximately 15  weeks, with at least one FRC not mission capable due to depot-level  maintenance at all times from January 2016 to November 2019. These  drydocks were triggered by continuing structural concerns and problems  with equipment that was installed during production, including continued  failures with the main diesel engine. Given that only a few FRCs have  completed the warranty drydock to date, it is difficult to determine whether  the overall fleet’s mission capable rate will meet its target range once the  drydocks are completed.
As we noted in our March 2017 report, while the FRC’s decrease is  attributable to the unanticipated drydocks, the NSC’s mission capable  rates are influenced by a roughly 2-year anticipated post-delivery  maintenance period called the post shakedown availability, which is  scheduled for each newly delivered NSC. During this shakedown  period, the NSC will be rendered not mission capable due to depot-level  maintenance for a majority of its time. For example, from January 2015  until September 2016, the NSC Hamilton spent 70.9 percent of its time in  depot-level maintenance, and the NSC James spent 82.6 percent of its  time in depot-level maintenance from September 2015 to September  2016. With only five NSCs in operation as of September 2016, having two  cutters spend the majority of their time not mission capable due to depot- level maintenance is negatively affecting the overall fleet’s mission  capable rates. This will continue as the Coast Guard introduces new  NSCs into the fleet and the last cutter completes its 2-year post  shakedown period—scheduled for 2022 as the ninth cutter is scheduled  for delivery in 2020. While the first three NSCs achieved their mission  capable rate targets on average from January 2014 to September 2016, it  is uncertain if the overall fleet mission capable rate will increase once all  NSCs complete their post shakedown availabilities.

		New Assets Are Being Fielded with Known Problems

In addition to the negative effect that depot-level maintenance is having  on both the FRC and NSC’s mission capable rates, our March 2017  report found that both cutter classes have been plagued with equipment  failures resulting in lost operational days or a partially mission capable  status. This means that the cutters are either not able to or are  conducting operations in a limited capacity. The main diesel engines on  both cutters, which were manufactured by the same vendor, were among  the equipment systems that resulted in the most lost operational days  from 2014 through 2016 and have been problematic since the cutters  became operational. Problems with the FRC’s engine resulted in  roughly 355 days spent not mission capable due to maintenance.  However, the FRC’s warranty clause has covered several engine  problems and, according to the FRC’s contracting officer, has avoided  about $77 million in potential maintenance costs for the Coast Guard it  otherwise would have needed to pay as of August 2016. Furthermore,  the FRC’s contracting officer stated that as of October 2016, all of the 18  operational FRCs have undergone various corrective repairs on their  main diesel engines, including replacing engines on 6 of the cutters.
Similar to the FRC, the NSC’s engines have experienced problems and,  as we found in January 2016, the engines overheat in waters above 74  degrees Fahrenheit, which constitutes a portion of the NSC’s operating  area given that they are intended to be deployed worldwide. This can  cause the cutters to operate 2 to 4 knots below their top speed of 28  knots. As a result, the Coast Guard has been forced to operate the NSCs  at reduced speeds during some missions, such as counter drug missions,  where reaching maximum speeds would be operationally useful. The  NSC’s inability to achieve top speed in warm waters has also inhibited the  cutters’ ability to complete their regularly scheduled full power trials,  which are periodic tests of the propulsion plant operated at maximum  rated power. The results of these tests advise operators and maintenance  personnel of the cutter’s full power performance characteristics and can  provide the basis for maintenance activity. Without these tests, the Coast  Guard lacks sufficient information that could be useful for assessing  propulsion systems and planning maintenance.
Further, as we reported in March 2017, the Coast Guard is conducting  design changes for some critical systems post-delivery for the NSC in  order to minimize the cost increase of the extra work and to adhere to the  cutters’ production schedule. One such design change involves the  NSC’s gantry crane, which was not designed for a maritime environment  and is inadequately sealed to prevent water intrusion. This has led to  accelerated corrosion and the need for excessive repairs that are not  considered suitable over the NSC’s life cycle. The design change to  replace the gantry crane was initiated in January 2010 and the new crane  was approved for fleet-wide replacement. However, all of the remaining  NSCs will be built with the original gantry crane installed and then  replaced during their post-shakedown periods.
During the work for our March 2017 report, Coast Guard officials stated  that no formal analysis was developed or documented to determine  whether a design change should be installed during production or post- delivery. Instead, they used the professional judgment of Coast Guard  and shipyard officials to determine the most cost efficient timing of when  to install design changes. Keeping the NSC delivery dates on schedule  was one of the primary reasons officials gave for not installing some  design changes during production. Given that the program has been  aware of these design changes for many years, the Coast Guard had an  opportunity to install the design changes during production instead of  during the post-delivery period. We concluded that by not installing the  design changes during production, the Coast Guard will need to maintain  the original equipment installed during production for all NSCs, including  the ninth NSC (the separate production contract for which was awarded in  December 2016), and then later conduct retrofits after accepting delivery  of the cutters. This will necessitate the installation of systems with known  defects or deficiencies during production only to replace such systems  later, requiring maintenance on some of these systems until the retrofits  are complete. In our March 2017 report, we therefore recommended that  the Coast Guard update the Joint Surface Engineering Change Process  Guide to require a documented cost analysis to provide decision makers  with adequate data to make informed decisions regarding the expected  costs and when it is most cost effective to install design changes. The  Coast Guard concurred with our recommendation and plans to  incorporate a documented cost analysis requirement into an update to its  guidance by December 31, 2017.

	Affordability of the Coast Guard’s Acquisition Portfolio Remains in Doubt

As we found in June 2014, there are gaps between what the Coast Guard  estimates it needs to carry out its program of record for its major  acquisitions and what it has traditionally requested and received. This  issue has continued since we issued our report. For example, senior  Coast Guard officials have stated a need for over $2 billion per year, but  the President’s budget requested $1.2 billion for fiscal year 2018, after  asking for $1.1 billion in fiscal year 2017. In an effort to address the  funding constraints it has faced annually, the Coast Guard has been in a  reactive mode, delaying and reducing its capability through the annual  budget process by delaying new acquisitions, and does not have a plan to realistically set forth affordable priorities. For instance, the Coast Guard  has realized delays in many of its programs but, in particular, is facing a  gap in the capability provided by its Medium Endurance Cutter fleet,  which will likely begin reaching the end of their service lives before the  OPCs are operational. In 2014, Coast Guard, DHS, and Office of  Management and Budget officials acknowledged that the Coast Guard  could not afford to recapitalize and modernize its assets in accordance  with its current plan at current funding levels. While efforts have been  underway to address this issue for several years, the Coast Guard has  made little progress in improving the affordability of its acquisition  portfolio. As a result, the Coast Guard faces significant capability gaps if  funding increases do not materialize.

		The Coast Guard Has Not Accomplished Long-Term Planning Actions that Would Help Ensure its Needs Match its Resources

Since 2011, we have recommended that DHS and the Coast Guard take  several actions to gain an understanding of what the Coast Guard needs  to meet its missions within its likely acquisition funding levels. These key  actions included: 1) the Coast Guard conducting a comprehensive  portfolio review across all its acquisitions to develop revised baselines  that meet mission needs and reflect realistic funding scenarios and 2) the  Coast Guard developing a 20-year plan that identifies all necessary  recapitalization efforts and any fiscal resources likely necessary to  complete these efforts.
Following our September 2012 report, Congress asked the Coast Guard  to examine its mission needs across its portfolio of assets. In 2016, the  Coast Guard revised its 2005 Mission Needs Statement, which provides a  basic foundation for long-term investment planning that is to serve as the  basis for evaluating the effectiveness of various fleet mixes, and inform  the Coast Guard’s Capital Investment Plan—its key portfolio planning  tool. However, the 2016 Mission Needs Statement did not identify specific  assets the Coast Guard needs to achieve its missions, nor did it update  the annual hours it needs from each asset class to satisfactorily complete  its missions. In line with our past recommendation from September 2012,  the Coast Guard is currently in the process of updating its fleet mix  analysis to detail the assets it needs to meet requirements, but this  analysis is not planned to be finalized until the 2019 President’s budget is  submitted. Once completed, this analysis could serve as a foundation  for understanding potential trade-offs that could be made across the  Coast Guard’s portfolio of acquisitions to better meet mission needs  within realistic funding levels.
In June 2014, we also recommended that the Coast Guard develop a 20- year fleet modernization plan that identifies all acquisitions necessary for  maintaining at least its current level of service and the fiscal resources  necessary to build these assets. Such an analysis would facilitate a full  understanding of the affordability challenges facing the Coast Guard while  it builds the OPC. DHS concurred with the recommendation, but it is  unclear when the Coast Guard plans to complete this effort.

		Coast Guard Affordability Challenges Have Resulted in Delayed Acquisition Schedules and Potential Capability Gaps

As we reported in April 2017, the full operational capability date has been  delayed for several Coast Guard acquisition programs. For example, the  FRC program experienced a delay of more than 4 years because  affordability constraints necessitated that it reduce the quantity of cutters  procured annually from a proposed 6 cutters to 4 cutters per year. In  addition, the Coast Guard delayed the OPC procurement by 14 years  from the 2007 program of record to develop the requirements for this  cutter and conduct a competition, while prioritizing acquisition of the NSC.  Figure 3 shows the proposed full operational capability date as of the  original 2007 program of record, the first DHS-approved baseline for each  program, and the current baseline.
As we reported in July 2012, the Coast Guard’s delay in the OPC  acquisition has resulted in potential mission capability shortfalls as the  condition of the legacy Medium Endurance Cutters further declines. The  210-foot Medium Endurance Cutters—originally built in the 1960s—will be  nearly 60 years old by the time they are replaced and have already  exceeded their expected service lives. In September 2014, the Coast  Guard conducted refurbishment work for the Medium Endurance Cutters  (both the 210-foot and 270-foot) that could provide an additional 5, 10, or  15 years of service. However, senior Coast Guard officials responsible for  these efforts at the time indicated that the estimate of up to 15 years was  optimistic and that the refurbishment provided needed upgrades to the  Medium Endurance Cutters, but was not designed to further extend the  cutters’ useful lives. As depicted in figure 4, even with the most optimistic  projection for the current extended useful life of the Medium Endurance  Cutters, we found as of May 2017 that there would be a gap before the  planned OPCs are operational, which the Coast Guard does not expect to  begin until at least 2022.

		The Coast Guard May Need to Fund Several New Acquisitions Concurrent with OPC Procurement

As we reported in June 2014 and, more recently in our April 2017  assessment of DHS major acquisition programs, the Coast Guard faces  affordability challenges that could result in additional capability gaps.  The upcoming OPC procurement, for which the planned acquisition costs  are $12.1 billion—making it the largest Coast Guard acquisition program  to date—is going to create additional strain on the Coast Guard’s  acquisition budget. According to the Coast Guard, the OPC is its top  priority and, as such, it will be funded before other assets, such as the  River Buoy Tenders and helicopters. However, if the Coast Guard’s  acquisition budget remains at its current levels, the funding remaining for  other assets will be very limited. Beginning in September 2018, the OPC  will absorb about two-thirds of the Coast Guard’s annual acquisition  funding until 2032 based on recent funding history. The Coast Guard  initially plans to fund one OPC per year and eventually two OPCs per  year until all 25 planned cutters are delivered. If the OPC experiences  cost growth during development, the acquisition funding available for  other programs could be reduced if the program attempts to meet its  current delivery schedule, or the funding constraints could be prolonged if  the delivery schedule for the OPC is extended.
Any remaining Coast Guard acquisition programs will have to compete for  acquisition funds not used for the OPC. For instance, the Coast Guard  must also recapitalize other assets such as the polar icebreakers—to  alleviate a current capability gap—and refurbish other legacy vessels  such as its fleet of river buoy tenders, as these assets continue to age  beyond their expected service lives and, in some cases, have been  removed from service without a replacement. The following are some  examples that we identified in our June 2014 report of Coast Guard  assets that will likely require some level of funding while the OPC is in  development:  Icebreakers—The Coast Guard currently has a gap in its heavy  icebreaking capability and has previously been without any heavy polar  icebreakers when the legacy vessels were in disrepair from 2010 to 2013.  In 2014, the Coast Guard returned one of these heavy icebreakers back  to service, but still has one fewer heavy icebreaker than it has historically  operated and two fewer than it needs, according to the Coast Guard’s  June 2013 heavy icebreaker mission need statement. The 2017  President’s budget requested $147.6 million to begin funding the first  heavy icebreaker—with preliminary estimates of about $1 billion. The  Coast Guard’s preliminary estimates indicate that the first new heavy  icebreaker could be available for operations in fiscal year 2023.
River Buoy Tenders—The Coast Guard fleet of river buoy tenders was  mostly constructed between the 1950s and the 1970s and are in need of  replacing. The Coast Guard plans to initiate a program to begin  development and construction of new vessels to replace the legacy  assets, however, no date has been provided as to when this effort will  begin.
Service Life Extension for the 270-foot Medium Endurance Cutters— The Coast Guard plans to conduct a service life extension on the 270-foot  Medium Endurance Cutters to help keep the cutters operational until the  OPCs are delivered. Coast Guard officials said they have no plans to  conduct service life extension work on the 210-foot Medium Endurance  Cutters.
H-60 and H-65 Helicopter Fleets—The Coast Guard is planning to  conduct a service life extension of both the H-60 and H-65 fleets.  Extending these aircraft into the mid-2030s will enable the Coast Guard to  potentially complete the OPC acquisition before starting a recapitalization  effort for its rotary fleet. Regardless of the future path, significant  acquisition dollars will be required to maintain annual flight hours for the  next 20 years, according to Coast Guard program officials.
While the Coast Guard faces affordability challenges with these  programs, it has also taken steps to mitigate affordability challenges in  other programs. For example, the 2007 program of record planned to  acquire 45 unmanned aircraft systems at a total cost of $503 million.  However, the Coast Guard truncated this program and now plans to outfit  the NSC fleet with six unmanned aircraft systems for $104 million. The  Coast Guard is currently in the process of demonstrating a small  unmanned aircraft system on the NSC and, according to officials, plans to  issue a request for proposals from industry later this year to outfit the rest  of the NSC fleet.
In conclusion, as the Coast Guard continues to field new or refurbish  existing cutters and aircraft with improved capabilities, it is important that  the Coast Guard plan for the affordability of its future portfolio so that it  can minimize the capability gaps that can occur as legacy assets reach  the end of their service lives before the new assets become operational.  We have made several recommendations in recent years intended to help  the Coast Guard plan for these future acquisitions and the difficult trade- off decisions that it will likely face. If the Coast Guard fully implements  these recommendations, it will likely position itself to provide decision  makers with critical knowledge needed to prioritize its constrained  acquisition funding. Without these efforts, the Coast Guard will continue,  as it has in recent years, to plan its future acquisitions through the annual  budgeting process, which has led to delayed and reduced capabilities. A  thorough plan regarding the affordability of its future acquisitions would  provide timely information to decision makers on how to spend scarce  taxpayer dollars in support of a modern, capable Coast Guard fleet.
Chairman Hunter, Ranking Member Garamendi, and Members of the  Subcommittee, this concludes my prepared statement. I would be  pleased to respond to any questions.

	GAO Contact and Staff Acknowledgments

If you or your staff have any questions about this statement, please  contact Marie A. Mak, (202) 512-4841 or makm@gao.gov. In addition,  contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this statement. Individuals who  made key contributions to this testimony include Richard A. Cederholm,  Assistant Director; Peter W. Anderson; Erin Butkowski; John Crawford;  Laurier Fish; and Roxanna T. Sun.
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Summary:
Why GAO Did This Study

In order to meet its missions of maritime safety, security, and environmental stewardship, the Coast Guard, a component within the Department of Homeland Security (DHS), employs a variety of surface and air assets, several of which are approaching the end of their intended service lives. As part of its efforts to modernize its surface and air assets (an effort known as recapitalization), the Coast Guard has begun acquiring new vessels, such as the National Security Cutter, Fast Response Cutter, and a number of air assets, and developing the Offshore Patrol Cutter. Despite the addition of new assets, concerns surrounding capability and affordability gaps remain.
This statement addresses (1) the capabilities provided by the newer Coast Guard assets, (2) maintainability and equipment challenges for the new cutters, and (3) the overall affordability of the Coast Guard's acquisition portfolio. This statement is based on GAO's extensive body of work examining the Coast Guard's acquisition efforts spanning several years, including the March 2017 report on the NSC and FRC's maintainability.

What GAO Found

The Coast Guard is currently procuring three new cutter classes that are intended to have more capability than the legacy assets they are replacing. In particular, the National Security Cutter (NSC) and the Fast Response Cutter (FRC) are generally demonstrating improved mission performance (see figure). Both cutters have greater fuel capacity and efficiency and handling/sea-keeping than the legacy assets they replace, all of which increase endurance and effectiveness. Another new asset—the Offshore Patrol Cutter (OPC)—is also expected to provide increased capabilities compared to the Medium Endurance Cutter it is replacing, such as the ability to conduct longer patrols.
The Coast Guard, however, has not been able to take full advantage of the FRC's and NSC's capabilities because of maintenance and equipment issues limiting their time available for operations. GAO found in March 2017 that while both cutters met their minimum mission capable targets on average over the long-term, more recently—from October 2015 to September 2016—they fell below their minimum targets due to needed increased depot-level maintenance. Both cutters have also been plagued by problems with critical equipment, such as the diesel engines, which have contributed to lost operational days.
In June 2014, GAO found gaps between the funding amounts the Coast Guard estimates its major acquisitions need and what it has requested. This has continued. For example, senior Coast Guard officials peg acquisition needs at over $2 billion per year, but the President's budget requested $1.2 billion for fiscal year 2018. In an effort to address funding constraints, the Coast Guard delayed new acquisitions through the annual budget process, but lacks a long-term plan to set forth affordable priorities. As a result of these issues, it is facing a gap in the capability provided by its Medium Endurance Cutters, which are slated to reach the end of their service lives before all the OPCs are operational. GAO recommended in 2014 that the Coast Guard develop a 20-year fleet modernization plan that identifies all acquisitions needed to maintain the current level of service—aviation and surface—and the fiscal resources needed to buy the identified assets. DHS concurred with the recommendation, but it is unclear when the Coast Guard will complete this effort.

What GAO Recommends

GAO is not making recommendations in this statement but has made recommendations to the Coast Guard and DHS in the past regarding recapitalization and the specific assets involved, including that the Coast Guard develop a 20-year fleet modernization plan that identifies all acquisitions needed to maintain the current level of service and the fiscal resources needed to acquire them. DHS agreed with this recommendation.