United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Oceans, 

Atmosphere, Fisheries, and Coast Guard, 

Committee on Commerce, Science and 

Transportation, U.S. Senate 

COAST GUARD

Coast Guard Efforts to 

Improve Management and 

Address Operational 

Challenges in the 

Deepwater Program 

Statement of Stephen L. Caldwell, Acting Director 

Homeland Security and Justice Issues 

For Release on Delivery

Expected at 2:30 p.m. EST 

Wednesday, February 14, 2007 

 

GAO-07-460T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

February 14, 2007

COAST GUARD

Coast Guard Efforts to Improve 

Management and Address Operational 

Challenges in the Deepwater Program 

Highlights of GAO-07-460T, a testimony 

before the Subcommittee on Oceans, 

Atmosphere, Fisheries, and Coast Guard, 

Committee on Commerce, Science & 

Transportation, U.S. Senate 

The Coast Guard’s Deepwater

program is a 25-year, $24 billion 

plan to replace or modernize its

fleet of vessels and aircraft. While 

there is widespread

acknowledgment that many of the 

Coast Guard’s aging assets need

replacement or renovation,

concerns exist about the 

acquisition approach the Coast 

Guard adopted in launching the 

Deepwater program. From the 

outset, GAO has expressed concern

about the risks involved with the 

Coast Guard’s acquisition strategy, 

and continues to review Deepwater

program management.

This statement discusses (1) the 

Coast Guard’s acquisition approach

for the Deepwater program; (2) 

previous GAO recommendations to 

the Coast Guard on Deepwater,

highlighting the importance of

Integrated Product Teams; and (3) 

operational challenges the Coast

Guard is facing because of

performance and design problems

with Deepwater patrol boats. 

What GAO Recommends

GAO made 11 recommendations in 

2004 in the areas of management

and oversight, contractor

accountability, and cost control 

through competition. In April 2006, 

we reported that the Coast Guard

had implemented five of the 

recommendations, had begun to 

address five other

recommendations, and declined to

implement one recommendation. 

In 2001, we described the Deepwater project as “risky” due to the unique,

untried acquisition strategy for a project of this magnitude within the Coast 

Guard. The Coast Guard used a system-of-systems approach to replace 

deteriorating assets with a single, integrated package of aircraft, vessels, and

unmanned aerial vehicles. The Coast Guard also used a system integrator—

which can give the contractor extensive involvement in requirements 

development, design, and source selection of major system and subsystem 

subcontractors. The Deepwater program is also a performance-based 

acquisition, meaning that it is structured around the results to be achieved 

rather than the manner in which the work is performed. If performancebased acquisitions are not appropriately planned and structured, there is an 

increased risk that the government may receive products or services that are 

over cost estimates, delivered late, and of unacceptable quality.

GAO’s reported concerns and related recommendations in 2004 and in 

subsequent assessments in 2005 and 2006 have centered on three main areas: 

program management, contractor accountability, and cost control through 

competition. In the area of program management, GAO’s prior work has 

found that Integrated Product Teams—the Coast Guard’s primary tool for 

managing the program and overseeing the contractor— have struggled to 

carry out their missions effectively. We have ongoing work reviewing 

Deepwater implementation and contract oversight and will continue to 

monitor the Coast Guard’s implementation of our recommendations. 

In addition to these management issues, the Coast Guard is facing 

operational challenges because of performance and design problems with 

Deepwater patrol boats. Specifically, problems with the conversion of 110-

foot patrol boats to 123-foot patrol boats ultimately led the Coast Guard to 

suspend all normal operations of its converted 123-foot patrol boats on 

November 30, 2006; the Coast Guard is now exploring options to address the 

resulting operational gaps. In February 2006, the Coast Guard suspended 

design work on the Fast Response Cutter (FRC)—which was intended to 

replace the patrol boats—due to design risks. In moving forward with the 

FRC acquisition, the Coast Guard will end up with two separate classes of 

FRCs—an outcome that has resulted in a slippage of the anticipated FRC 

delivery date. 

www.gao.gov/cgi-bin/getrpt?GAO-07-460T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Stephen 

Caldwell at (202) 512-9610 or 

caldwells@gao.gov. 
Madame Chair and Members of the Subcommittee: 

Thank you for inviting me here today to discuss our reviews of the U.S. 

Coast Guard’s $24 billion Deepwater program. While there is widespread 

acknowledgment that many of the Coast Guard’s aging assets need 

replacement or renovation, concerns also exist about the acquisition 

approach the Coast Guard adopted in launching the Deepwater program. 

From the outset, we have expressed concern about the risks involved with

the Coast Guard’s acquisition strategy. The subsequent changes in the 

Deepwater asset mix and delivery schedules only increased these 

concerns. In 2004, we reported that well into the contract’s second year, 

key components needed to manage the program and oversee the system 

integrator’s performance had not been effectively implemented.

Accordingly, we made 11 recommendations to address three broad areas 

of concern: improving program management, strengthening contractor 

accountability, and promoting cost control through greater competition 

among potential subcontractors

1

2

.

My statement today will discuss our prior work on the Coast Guard’s 

Deepwater program. Specifically, I will discuss 

• the Coast Guard’s acquisition approach for the Deepwater program; 

• previous GAO recommendations to the Coast Guard on Deepwater, 

highlighting the importance of Integrated Product Teams; and

• operational challenges the Coast Guard is facing because of 

performance and design problems with Deepwater patrol boats. 

This testimony is based on our prior work on the Deepwater program. 

That work was conducted in accordance with generally accepted 

government auditing standards. We have ongoing work across all of the 

issues discussed in this statement.

 1

 GAO, Coast Guard: Progress Being Made on Deepwater Project, but Risks Remain,

GAO-01-564 (Washington, D.C.: May 2, 2001). 

2

 GAO, Contract Management: Coast Guard’s Deepwater Program Needs Increased

Attention to Management and Contractor Oversight, GAO-04-380 (Washington, D.C.: Mar.

9, 2004). 

Page 1 GAO-07-460T 
Summary In 2001, we described the Deepwater program as “risky” due to the unique,

untried acquisition strategy for a project of this magnitude within the 

Coast Guard. The Coast Guard used a system-of-systems approach to 

replace deteriorating assets with a single, integrated package of aircraft, 

vessels, and unmanned aerial vehicles, to be linked through systems that 

provide command, control, communications, computer, intelligence, 

surveillance, and reconnaissance (C4ISR), and supporting logistics. In a 

system-of-systems, the delivery of Deepwater assets are interdependent,

thus schedule slippages and uncertainties associated with potential 

changes in the design and capabilities of any one asset could increase the 

overall risks that the Coast Guard might not meet its expanded homeland 

security performance requirements within given budget parameters and 

milestone dates. The Coast Guard also used a system integrator—which 

can give the contractor extensive involvement in requirements 

development, design, and source selection of major system and subsystem 

subcontractors. The Deepwater program is also a performance-based 

acquisition, meaning that it is structured around the results to be achieved

rather than the manner in which the work is performed. If performancebased acquisitions are not appropriately planned and structured, there is 

an increased risk that the government may receive products or services 

that are over cost estimates, delivered late, and of unacceptable quality.

Our reported concerns and related recommendations in 2004 and in 

subsequent assessments in 2005 and 2006 have centered on three main 

areas: program management, contractor accountability, and cost control 

through competition. In the area of program management, among other 

things, our prior work has found that Integrated Product Teams (IPTs)—

the Coast Guard’s primary tool for managing the program and overseeing

the contractor— have struggled to effectively carry out their missions. We 

recommended that, among other things, Coast Guard improve the IPTs by

initiating actions to establish timely charters and training. In terms of 

contractor accountability, in 2004 we found that the Coast Guard had not

developed quantifiable metrics to hold the system integrator accountable

for its ongoing performance, the process by which the Coast Guard 

assessed performance after the first year of the contract lacked rigor, and 

the Coast Guard had not begun to measure the system integrator’s 

performance on the three overarching goals of the Deepwater program—

maximizing operational effectiveness, minimizing total ownership costs, 

and satisfying the customer. Thus, one recommendation we made for 

improving contractor accountability was to devise a time frame for 

measuring the contractor’s progress toward improving operational 

effectiveness. We also reported in 2004 that, although competition among 

subcontractors was a key vehicle for controlling costs, the Coast Guard 

Page 2 GAO-07-460T 
had neither measured the extent of competition among the suppliers of 

Deepwater assets nor held the system integrator accountable for taking 

steps to achieve competition. Consequently, we recommended that Coast 

Guard develop a plan to hold the contractor accountable for ensuring 

adequate competition among suppliers. While we recognize that the Coast 

Guard has taken steps to address our findings and recommendations, 

aspects of the Deepwater program will require continued attention.

In addition to the Deepwater program management issues discussed 

above, the Coast Guard is facing operational challenges because of 

performance and design problems with Deepwater patrol boats. 

Specifically, the conversion of legacy 110-foot patrol boats to upgraded 

123-foot patrol boats was stopped at eight hulls (rather than the entire 

fleet of 49) due to deck cracking, hull buckling, and shaft alignment 

problems. These patrol boat conversion problems ultimately led the Coast 

Guard to suspend all normal operations of the eight converted 123-foot 

patrol boats on November 30, 2006. The Coast Guard is now exploring 

options to address the resulting short-term operational gaps. There have

also been design problems with the new Fast Response Cutter (FRC), 

intended to replace all 110-foot and 123-foot patrol boats. In February 

2006, the Coast Guard suspended design work on the FRC due to design 

risks such as excessive weight and horsepower requirements.3

 In moving 

forward with the FRC acquisition as planned, the Coast Guard will end up 

having to operate two classes of FRCs—which has resulted in a slippage of 

the anticipated FRC delivery date. One class will be based on an adapted 

design from a patrol boat already on the market and another class that 

would be redesigned to address the problems in the original FRC design 

plans. Thus, the Coast Guard is also facing longer-term operational gaps 

related to its patrol boats. As with the 123-foot patrol boats, the Coast 

Guard is looking at options to address these long-term operational gaps. 

For about a decade, the Coast Guard has been developing an Integrated 

Deepwater System (or Deepwater) acquisition program, a long-term plan 

to replace or modernize is fleet of vessels and aircraft. Many of these 

legacy assets are at or approaching the end of their estimated service lives. 

Deepwater is the largest and most complex acquisition project in the 

Coast Guard’s history. The acquisition is scheduled to include the 

Background 

 3

GAO, Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts, GAO-06-

764 (Washington, D.C.: June 23, 2006). 

Page 3 GAO-07-460T 
modernization and replacement of an aging fleet of over 90 cutters and 200 

aircraft used for missions that generally occur beyond 50 miles from the 

shore. As originally conceived, Deepwater was designed around 

producing aircraft and vessels that would function in the Coast Guard’s 

traditional at-sea roles, such as interdicting illicit drug shipments or 

rescuing mariners from difficulty at sea. 

After the terrorist attacks on September 11, 2001, however, these aircraft 

and vessels began taking on additional missions related to protection of 

ports, waterways, and coastal areas. As a result, the Coast Guard began

revising the Deepwater implementation plan to provide replacement assets 

that could better address these added responsibilities. In August 2005, the 

Coast Guard issued the revised Deepwater implementation plan detailing 

the assets it planned to modify or acquire, along with the proposed cost 

sand schedules for doing so. Then, in February 2006, the Coast Guard 

again updated its Deepwater plan to align with its fiscal year 2007 budget

submissions. The revised plan increased overall program costs from the 

original estimate of $17 billion to $24 billion. Overall, the acquisition 

schedule was lengthened by 5 years, with the final assets now scheduled 

for delivery in 2027.4

In 2001, we described the Deepwater program as “risky” due to the unique,

untried acquisition strategy for a project of this magnitude within the 

Coast Guard. The approach included the development of a system-ofsystems, a single system integrator, and a performance-based contract.

Coast Guard’s 

Acquisition Approach 

to Deepwater 

Program 

System of Systems Rather than using the traditional approach of replacing classes of ships or 

aircraft through a series of individual acquisitions, the Coast Guard chose 

to use a system-of-systems acquisition strategy that would replace its 

deteriorating assets with a single, integrated package of aircraft, vessels, 

and unmanned aerial vehicles, to be linked through systems that provide 

C4ISR, and supporting logistics. 5 Through this approach, the Coast Guard 

 4

 GAO, Coast Guard: Changes to Deepwater Plan Appear Sound, and Program 

Management Has Improved, but Continued Monitoring is Warranted, GAO-06-546

(Washington, D.C.: April 28, 2006). 

5

 C4ISR refers to command, control, communications, computer, intelligence, surveillance, 

and reconnaissance. 

Page 4 GAO-07-460T 
hoped to avoid “stovepiping” the acquisition of vessels and aircraft, which 

might lead to a situation where they could not operate optimally together.

Our past work on Deepwater noted that decisions on air assets were made 

by one subcontractor, while decisions regarding surface assets were made 

by another subcontractor. This approach can lessen the likelihood that a 

system-of-systems outcome will be achieved if decisions affecting the 

entire program are made without the full consultation of all parties 

involved. Our more recent work on the Fast Response Cutter (FRC)—

which is discussed in more detail later—indicated that changes in the 

design and delivery date for the FRC could affect the operations of the 

overall system-of-systems approach. Because the delivery of Deepwater 

assets are interdependent within the system-of-systems acquisition 

approach, schedule slippages and uncertainties associated with potential 

changes in the design and capabilities of the new assets have increased the 

risks that the Coast Guard may not meet its expanded homeland security

performance requirements within given budget parameters and milestone 

dates.

System Integrator In June 2002, the Coast Guard awarded the Deepwater contract to 

Integrated Coast Guard Systems (ICGS). ICGS—a business entity jointly 

owned by Northrop Grumman and Lockheed Martin—is a system 

integrator, responsible for designing, constructing, deploying, supporting, 

and integrating the Deepwater assets to meet Coast Guard requirements. 

This type of business arrangement can give the contractor extensive 

involvement in requirements development, design, and source selection of 

major system and subsystem subcontractors. This management approach

of using a system integrator has been used on other government programs 

that require system-of-systems integration, such as the Army’s Future 

Combat System, a networked family of weapons and other systems. 

Government agencies have turned to the system integrator approach when

they believe they do not have the in-house capability to design, develop, 

and manage complex acquisitions. Giving contractors more control and 

influence over the government’s acquisitions in a system integrator role 

creates a potential risk that program decisions and products could be 

influenced by the financial interest of the contractor—which is 

accountable to its shareholders—which may not match the primary 

interest of the government, maximizing its return on taxpayer dollars. The 

system integrator arrangement creates an inherent risk, as the contractor

is given more discretion to make certain program decisions. Along with 

Page 5 GAO-07-460T 
this greater discretion comes the need for more government oversight and 

an even greater need to develop well-defined outcomes at the outset.

The Deepwater program has been designated as a performance-based 

acquisition. When buying services, federal agencies are currently required

to employ—to the maximum extent feasible—this concept, wherein 

acquisitions are structured around the results to be achieved as opposed 

to the manner in which the work is to be performed. That is, the 

government specifies the outcome it requires while leaving the contractor

to propose decisions about how it will achieve that outcome. 

Performance-based contracts for services are required to include a 

performance work statement; measurable performance standards (i.e., in 

terms of quality, timeliness, quantity, etc.) as well as the method of 

assessing contractor performance against these standards; and 

performance incentives, where appropriate. If performance-based 

acquisitions are not appropriately planned and structured, there is an 

increased risk that the government may receive products or services that

are over cost estimates, delivered late, and of unacceptable quality.

Performance-based 

Acquisition 

Deepwater Indicative of 

Broader, Systemic 

Acquisition Challenges 

Some of the problems the Coast Guard is experiencing with the Deepwater 

program (as discussed later in this statement), in principle, are indicative 

of broader and systemic challenges we have identified for complex, 

developmental systems. These challenges, based mostly on our reviews of 

Department of Defense programs, include: 

• Program requirements that are set at unrealistic levels, then changed 

frequently as recognition sets in that they cannot be achieved. As a 

result, too much time passes; threats may change; and/or members of 

the user and acquisition communities may simply change their minds. 

The resulting program instability causes cost escalation, schedule 

delays, fewer quantities, and reduced contractor accountability. 

• Program decisions to move into design and production are made 

without adequate standards or knowledge. 

• Contracts, especially service contracts, often do not have measures in 

place at the outset in order to control costs and facilitate 

accountability. 

• Contracts typically do not accurately reflect the complexity of projects 

or appropriately allocate risk between the contractors and the 

taxpayers. 

• The acquisition workforce faces serious challenges (e.g., size, skills, 

knowledge, and succession planning).

Page 6 GAO-07-460T 
• Incentive and award fees are often paid based on contractor attitudes 

and efforts versus positive results, such as cost, quality, and schedule. 

• Inadequate government oversight results in little to no accountability 

for recurring and systemic problems. 

Our assessment of the Deepwater program in 2004 found that the Coast 

Guard had not effectively managed the program or overseen the system 

integrator.6

 We specifically made 11 recommendations to the Coast Guard, 

which can found at Table 1 on page 12. Our reported concerns in 2004 and 

in subsequent assessments in 2005 and 2006 have centered on three main

areas: program management, contractor accountability, and cost control 

through competition. Each of these three areas is discussed in more detail 

below

 

. 

While we recognize that the Coast Guard has taken steps to address our 

findings and recommendations, aspects of the Deepwater program will 

require continued attention. A project of this magnitude will likely 

continue to experience other problems as more becomes known. We have 

ongoing work to monitor and evaluate the Coast Guard’s efforts. 

Previous GAO 

Recommendations 

Have Focused on 

Three Areas 

Program Management and 

the Importance of 

Integrated Product Teams 

Our previous work and recommendations were based on concerns about 

the Coast Guard’s program management. For example, we reported in 

2004 that the Coast Guard had not adequately communicated to its 

operational personnel decisions on how new and old assets would be 

integrated and how maintenance responsibilities would be divided 

between government and contractor personnel. We also found that the 

Coast Guard had not adequately staffed its program management function.

Despite some actions taken to more fully staff the Deepwater program, we 

reported that in January 2005 shortfalls remained. While 244 positions 

were assigned to the program, only 206 were filled, resulting in a 16

percent vacancy rate. 

One of the key program management concerns we had, and one that is 

worth highlighting, is the effectiveness of IPTs. IPTs are the Coast Guard’s 

primary tool for managing the Deepwater program and overseeing the 

system integrator. Our past work has found that IPTs can improve both 

 6

GAO-04-380 . 

Page 7 GAO-07-460T 
the speed and quality of the decision-making process. They can make 

decisions involving significant trade-offs without relying unduly on other 

organizations for information or approval. 

7

In our prior work, we studied 

successful IPTs in commercial firms and found that effective teams have 

(1) expertise to master different facets of product development, (2) 

responsibility for day-to-day decisions and product delivery, (3) key 

members who are either physically colocated or connected through virtual 

means to facilitate team cohesion and the ability to share information, and 

(4) control over their membership, with membership changes driven by 

each team’s need for different knowledge. 

We identified two elements as essential to determining whether a team is 

in fact an IPT: the knowledge and authority needed to recognize problems 

and make cross-cutting decisions expeditiously. Knowledge is sufficient 

when the team has the right mix of expertise to master the different facets 

of product development. Authority is present when the team is responsible 

for making both day-to-day decisions and delivering the product. If the 

programs are experiencing problems, the teams either did not have the 

authority or the right mix of expertise to be considered IPTs. If a team 

lacks expertise, it will miss opportunities to recognize potential problems 

early; without authority, it can do little about them. 

The Deepwater IPTs—comprised of Coast Guard, ICGS, and subcontractor 

employees from Lockheed Martin and Northrop Grumman—are 

responsible for overall program planning and management, asset 

integration, and overseeing the delivery of specific Deepwater assets. We 

reported in 2004 that the teams had struggled to effectively carry out their 

missions. We identified four major issues that had impeded the effective 

performance of the IPTs. 

• First, the teams lacked timely charters to vest them with authority for 

decision making. More than merely a paperwork exercise, sound IPT 

charters are critical because they detail each team’s purpose, 

membership, performance goals, authority, responsibility, 

accountability, and relationships with other groups, resources, and 

schedules. 

• Second, the system integrator had difficulty training IPT members in 

time to ensure that they could effectively carry out their duties, and 

 7

 GAO, Best Practices: DOD Teaming Practices Not Achieving Potential Results, 

GAO-01-510 (Washington, D.C.: April 10, 2001).

Page 8 GAO-07-460T 
program officials referred to IPT training as deficient. IPT training is to 

address, among other issues, developing team goals and objectives, key 

processes, use of a Web-based system intended to facilitate 

communication, and team rules of behavior. According to a Coast 

Guard evaluation report from December 2002, IPT training had been 

implemented late, which contributed to a lack of effective 

collaboration among team members. 

• Third, very few of the operating IPTs were entirely colocated, (that is, 

all members were not in the same building) even though the Coast 

Guard’s Deepwater program management plan identified colocation of 

IPT members as a key program success factor, along with effective 

communications within and among teams. ICGS developed a Webbased system for government and contractor employees to regularly 

access and update technical delivery task order information, training 

materials, and other program information, in part to mitigate the 

challenges of having team members in multiple locations. However, the 

Deepwater program executive officer reported that, while the system 

had great potential, it was a long way from becoming the virtual 

enterprise and collaborative environment required by the contractor’s 

statement of work. 

8

• Fourth, we reported that most of the Deepwater IPTs had experienced 

membership turnover and staffing difficulties, resulting in a loss of 

team knowledge, overbooked schedules, and crisis management. In a 

few instances, such as the national security cutter and maritime patrol 

aircraft, even the IPT leadership had changed. 

In 2005, we found that the Coast Guard had taken some positive steps in 

that (1) the IPTs had been restructured, (2) 20 IPTs had charters setting 

forth their purpose, authority, and performance goals, and (3) entry-level 

training had been implemented for team members. However, some of the 

problems continued. A Coast Guard assessment of the system integrator’s 

performance found that roles and responsibilities in some teams 

continued to be unclear. Decision making was to a large extent stovepiped, and some teams lacked adequate authority to make decisions 

within their realm of responsibility. One source of difficulty for some team 

members was that each of the two major subcontractors has used its own 

 8

 In the context of the Deepwater contract, the Coast Guard considers delivery task orders

as orders for supplies or services placed against the contract.

Page 9 GAO-07-460T 
management systems and processes to manage different segments of the 

program. 

In 2005, we also noted that decisions on air assets were made by Lockheed 

Martin, while decisions regarding surface assets were made by Northrop 

Grumman. We reported that this approach can lessen the likelihood that a 

system-of-systems outcome will be achieved if decisions affecting the 

entire program are made without the full consultation of all parties 

involved. In 2006, we reported that Coast Guard officials believed 

collaboration among the subcontractors to be problematic and that ICGS 

wielded little influence to compel decisions among them. For example, 

when dealing with proposed design changes to assets under construction, 

ICGS submitted the changes as two separate proposals from both 

subcontractors rather than coordinating the separate proposals into one 

coherent plan. According to Coast Guard performance monitors, this 

approach complicates the government review of design changes because 

the two proposals often carried overlapping work items, thereby forcing 

the Coast Guard to act as the system integrator in those situations. 

Contractor Accountability In 2004, we also made recommendations related to contractor

accountability. We found that the Coast Guard had not developed 

quantifiable metrics to hold the system integrator accountable for its 

ongoing performance and that the process by which the Coast Guard 

assessed performance after the first year of the contract lacked rigor. For 

example, the first annual award fee determination was based largely on 

unsupported calculations. Despite documented problems in schedule, 

performance, cost control, and contract administration throughout the 

first year, the program executive officer awarded the contractor an overall

rating of 87 percent, which fell in the “very good” range. This rating 

resulted in an award fee of $4.0 million of the maximum of $4.6 million. 

We also reported in 2004 that the Coast Guard had not begun to measure 

the system integrator’s performance on the three overarching goals of the 

Deepwater program—maximizing operational effectiveness, minimizing 

total ownership costs, and satisfying the customers. Coast Guard officials 

told us that metrics for measuring these objectives had not been finalized; 

therefore the officials could not accurately assess the contractor’s 

performance against the goals. However, at the time, the Coast Guard had 

no time frame in which to accomplish this measurement. 

Page 10 GAO-07-460T 
Further, our 2004 report had recommendations related to cost control. We 

reported that, although competition among subcontractors was a key 

vehicle for controlling costs, the Coast Guard had neither measured the 

extent of competition among the suppliers of Deepwater assets nor held 

the system integrator accountable for taking steps to achieve competition.

As the two major subcontractors to ICGS, Lockheed Martin and Northrop 

Grumman have sole responsibility for determining whether to provide the 

Deepwater assets themselves or to hold competitions—decisions 

commonly referred to as “make or buy.” We noted that the Coast Guard’s 

hands-off approach to make-or-buy decisions and its failure to assess the 

extent of competition raised questions about whether the government 

would be able to control Deepwater program costs.

9

 

Cost Control through 

Competition 

Coast Guard Efforts 

Related to GAO 

Recommendations

We made 11 recommendations in 2004 in the areas of management and 

oversight, contractor accountability, and cost control through 

competition. Table 1 provides details on these recommendations. 

 9 GAO-04-380. 

Page 11 GAO-07-460T 
Table 1: Status of GAO Recommendations to the U.S. Coast Guard Regarding Management of the Deepwater Program, as of 

April 28, 2006

Areas of concern Recommendations to the U.S. Coast Guard Recommendation status

Put in place a human capital plan to ensure adequate staffing of the 

Deepwater program 

Implemented

Improve integrated product teams (IPTs) responsible for managing the 

program by providing better training, approving charters for sub-IPTs, 

and improving systems for sharing information between teams 

Partially implemented

Key components of 

management and 

oversight are not 

effectively implemented

Provide field operators and maintenance personnel with timely 

information and training on how the transition to Deepwater assets will 

occur and how maintenance responsibilities are to be divided between 

the system integrator and Coast Guard personnel 

Partially implemented

Develop measurable award fee criteria consistent with guidance from 

the Office of Federal Procurement Policy 

Implemented

Provide for better input from U.S. Coast Guard performance monitors Implemented 

Hold the system integrator accountable in future award fee 

determinations for improving effectiveness of the IPTs

Implemented

Establish a baseline for determining whether the acquisition approach is 

costing the government more than the traditional asset replacement 

approach 

Will not be implemented

Establish a time frame for when the models and metrics will be in place 

with the appropriate degree of fidelity to be able to measure contractor’s 

progress toward improving operational effectiveness 

Partially implemented

Procedures for ensuring 

contractor accountability 

are inadequate

Establish criteria to determine when to adjust the project baseline and 

document the reasons for change 

Partially implemented

For subcontracts over $5 million awarded by the system integrator to the 

two major subcontractors, require notification to the Coast Guard about 

decision to perform the work in-house rather than contracting it out 

Control of future costs Implemented

through competition 

remains at risk because of 

weak oversight Develop a comprehensive plan for holding the system integrator 

accountable for ensuring adequate competition among suppliers 

Partially implemented

Source: GAO-04-380 and GAO-06-546. 

In April 2006, we reported that the Coast Guard had implemented five of

the recommendations. Actions had been taken to 

• revise the Deepwater human capital plan; 

• develop measurable award fee criteria; 

• implement a more rigorous method of obtaining input from Coast 

Guard monitors on the contractor’s performance; 

• include in the contractor’s performance measures actions taken to 

improve the integrated product teams’ effectiveness; and 

Page 12 GAO-07-460T 
require the contractor to notify the Coast Guard of subcontracts over 

$10 million that were awarded to the two major subcontractors.10

The Coast Guard had begun to address five other recommendations by 

• initiating actions to establish charters and training for integrated 

product teams; 

• improving communications with field personnel regarding the 

transition to Deepwater assets; 

• devising a time frame for measuring the contractor’s progress toward 

improving operational effectiveness; 

• establishing criteria to determine when to adjust the project baseline; 

and 

• developing a plan to hold the contractor accountable for ensuring 

adequate competition among suppliers. 

In our April 2006 report, we determined that, based on our work, these 

recommendations had not been fully implemented. 

The Coast Guard disagreed with and declined to implement one of our 11 

recommendations: to establish a baseline to determine whether the 

system-of-systems acquisition approach is costing the government more 

than the traditional asset replacement approach. 

We will continue to review Deepwater implementation and contract 

oversight. We are currently reviewing aspects of the Deepwater program 

for the House and Senate Appropriations Committees’ Subcommittees on

Homeland Security. As part of that effort, we will review the status of the 

Coast Guard’s implementation of our 2004 recommendations on 

Deepwater contract management for improving Deepwater program 

management, holding the prime contractor accountable for meeting key 

program goals and facilitating cost control through competition. We will 

share our results with those committees in April of this year.

11

 10 Our 2004 recommendation was to use a $5 million threshold because Lockheed Martin, 

one of the major subcontractors, uses that amount as the threshold for considering its

suppliers major. The Coast Guard decided to use the $10 million threshold based on the

criteria in the make-or-buy program provisions of the Federal Acquisition Regulation. 

11 This work is based on Conference Committee Report language (H.R. Conf. Rep. No. 109-

699, at 113 (2006)) incorporating GAO reporting provisions contained in a House 

Appropriations Committee Report (H.R. Rep. No. 109-476, at 64 (2006)).

Page 13 GAO-07-460T 
In addition to overall management issues discussed above, there have

been problems with the performance and design of Deepwater patrol 

boats that pose significant operational challenges to the Coast Guard. 

The Deepwater program’s conversion of the legacy 110-foot patrol boats to 

123-foot patrol boats has encountered performance problems. The Coast 

Guard had originally intended to convert all 49 of its 110-foot patrol boats 

into 123-foot patrol boats in order to increase the patrol boats’ annual 

operational hours. This conversion program was also intended to add 

additional capability to the patrol boats, such as enhanced and improved 

C4ISR capabilities, as well as stern launch and recovery capability for a 

small boat. However, the converted 123-foot patrol boats began to display 

deck cracking and hull buckling and developed shaft alignment problems, 

and the Coast Guard elected to stop the conversion process at eight hulls 

upon determining that the converted patrol boats would not meet their 

expanded post-9/11 operational requirements. 

The performance problems illustrated above have clear operational 

consequences for the Coast Guard. The hull performance problems with 

the 123-foot patrol boats led the Coast Guard to remove all of the eight

converted normal 123-foot patrol boats from service effective November 

30, 2006. The Commandant of the Coast Guard has stated that having

reliable, safe cutters is “paramount” to executing the Coast Guard’s 

missions. Thus, removing these patrol boats from service impacts Coast 

Guard’s operations in its missions, such as search and rescue and migrant 

interdiction. The Coast Guard is exploring options to address operational 

gaps resulting from the suspension of the 123-foot patrol boat operations.

12

Performance and 

Design Problems 

Creating Operational 

Challenges for Coast 

Guard 

Performance Problems 

with the Converted 

123-Foot Patrol Boats 

Design Problems with the 

Fast Response Cutter 

The FRC—which was intended as a long-term replacement for the legacy

110-foot patrol boats—has experienced design problems that have 

operational implications. As we recently reported, the Coast Guard 

suspended design work on the FRC due to design risks such as excessive 

 12 U.S. Coast Guard, Office of Public Affairs, Coast Guard Suspends Converted Patrol Boat

Operations, November 30, 2006,. 

Page 14 GAO-07-460T 
weight and horsepower requirements. Coast Guard engineers raised 

concerns about the viability of the FRC design (which involved building

the FRC’s hull, decks, and bulkheads out of composite materials rather 

than steel) beginning in January 2005. In February 2006, the Coast Guard 

suspended FRC design work after an independent design review by thirdparty consultants demonstrated, among other things, that the FRC would 

be far heavier and less efficient than a typical patrol boat of similar length,

in part, because it would need four engines to meet Coast Guard speed 

requirements.

13

One operational challenge related to the FRC, is that the Coast Guard will

end up with two classes of FRCs. The first class of FRCs to be built would 

be based on an adapted design from a patrol boat already on the market to 

expedite delivery. The Coast Guard would then pursue development of a 

follow-on class that would be completely redesigned to address the 

problems in the original FRC design plans. Coast Guard officials now 

estimate that the first FRC delivery will slip to fiscal year 2009, at the 

earliest, rather than 2007 as outlined in the 2005 Revised Deepwater 

Implementation Plan. Thus, the Coast Guard is also facing longer-term 

operational gaps related to its patrol boats. In regard to the suspension of 

FRC design work, as of our June 2006 report, Coast Guard officials had not 

yet determined how changes in the design and delivery date for the FRC 

would affect the operations of the overall system-of-systems approach.

We will continue to review Coast Guard operational challenges related to 

Deepwater patrol boats. Our ongoing work for the House and Senate 

Appropriations Committees’ Subcommittees on Homeland Security 

includes a review of the history of the contract, design, fielding, and 

grounding of the converted 123-foot patrol boats and operational 

adjustments the Coast Guard is making to account for the removal from 

service of the 123-foot patrol boats.

Madame Chair, that concludes my statement. I would be happy to respond 

to any questions you or other Members of the Subcommittee may have at 

this time.

 13 GAO-06-764. 

Page 15 GAO-07-460T 
For information about this testimony, contact Stephen L. Caldwell at (202) 

512-9610 or John Hutton at (202) 512-4841. Other individuals making key 

contributions to this testimony include Michele Mackin, Christopher 

Conrad, and Adam Couvillion.

Page 16 GAO-07-460T 

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