United States Government Accountability Office

GAO Testimony Before the Subcommittee on 

Homeland Security, Committee on 

Appropriations, House of Representatives

COAST GUARD

Preliminary Observations 

on Deepwater Program 

Assets and Management 

Challenges 

Statement of John P. Hutton, Acting Director 

Acquisition and Sourcing Management 

For Release on Delivery

Expected at 10:00 a.m. EST 

Thursday, February 15, 2007

 

GAO-07-446T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

February 15, 2007

COAST GUARD

Preliminary Observations on Deepwater 

Program Assets and Management 

Challenges 

Highlights of GAO-07-446T, a testimony 

for the Subcommittee on Homeland

Security, Committee on Appropriations, 

House of Representatives

The U.S. Coast Guard’s Deepwater 

program was designed to upgrade

or replace its aging legacy aircraft 

and vessels with assets focusing on 

the Coast Guard’s traditional at-sea

roles. After the September 11, 2001

terrorist attacks, the Coast Guard 

took on additional security 

missions, resulting in revisions to 

the Deepwater plan. GAO’s prior 

work raised concerns about Coast 

Guard’s efforts to upgrade or 

acquire assets on schedule, and

manage and effectively monitor the

system integrator. 

This testimony provides GAO’s 

preliminary observations on (1) 

events and issues surrounding the 

Coast Guard’s bridging strategy to

convert the legacy 110-foot patrol

boats to 123-foot patrol boats; (2) 

the status of the Coast Guard’s 

efforts to acquire new or upgraded

Deepwater assets; and (3) the 

Coast Guard’s ability to effectively

manage the Deepwater program,

hold contractors accountable, and 

control costs through competition. 

GAO’s preliminary observations are

based on audit work performed

from August 2006 to February 2007. 

What GAO Recommends

This testimony contains no

recommendations. In 2004, GAO

made 11 recommendations on 

management and oversight,

contractor accountability, and cost 

control through competition, and

reported in April 2006 that progress 

had been made but continued

monitoring was warranted.

Numerous events since January 2001 led up to the failure of the Coast 

Guard’s bridging strategy to convert its legacy 110-foot patrol boats into 123-

foot patrol boats. These converted boats were removed from service on 

November 30, 2006 because of operational and safety concerns. According 

to the Coast Guard Commandant, actions are being taken to mitigate the 

impact of the removal of these patrol boats on mission activities. For 

example, patrol hours of some 110-foot patrol boats have been increased 

through the addition of crews from the 123-foot patrol boats, and other 

Coast Guard vessels have been deployed to assist in carrying out missions. 

The delivery record for the 10 classes of upgraded or new Deepwater aircraft

and vessels is mixed. Specifically, 7 of the 10 asset classes are on or ahead of 

schedule. Among these, 5 first-in-class assets have been delivered on or 

ahead of schedule; 2 others remain on time but their planned delivery dates 

are in 2009 or beyond; therefore, delays could still potentially occur. Three 

Deepwater asset classes are currently behind schedule due to various 

problems related to designs, technology, or funding. For example, the Fast 

Response Cutter (a new vessel), which had been scheduled for first-in-class 

delivery in 2007, has been delayed by at least 2 years in part because work 

on its design was suspended until technical problems can be addressed. 

From the program’s outset, GAO has raised concerns about the risks 

involved with the Coast Guard’s acquisition strategy. In 2004, GAO reported 

that program management, contractor accountability, and cost control were 

all challenges, and made recommendations in these areas. Insufficient 

staffing, ineffective performance measures, and the Coast Guard’s lack of 

knowledge about the extent to which the contractor was using competition 

have contributed to program risk. The Coast Guard has taken some actions 

to address these issues. GAO plans to continue to assess the Coast Guard’s 

Deepwater program, including its efforts to address GAO recommendations, 

and will report the findings later this year. 

Deepwater Vessel and Aircraft Classes 

National Security

Cutter (NSC)

Offshore Patrol 

Cutter (OPC)

Fast Response

Cutter (FRC)

Short-Range 

Prosecutor (SRP)

Long-Range 

Interceptor (LRI)

HH-65 Multi-Mission 

Cutter Helicopter

(MCH)

HH-60 Medium

Range Recovery 

Helicopter (MRR)

Maritime Patrol 

Aircraft (MPA)

HV-911 Vertical

Takeoff Unmanned

Aerial Vehicle (VUAV)

Long-Range 

Surveillance 

Aircraft (LRS)

Source: U.S. Coast Guard.

www.gao.gov/cgi-bin/getrpt?GAO-07-446T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact John P. Hutton 

at (202) 512-4841 or huttonj@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I appreciate the opportunity to participate in today’s hearing to discuss our 

preliminary observations on the status of the United States Coast Guard’s 

Integrated Deepwater System program. These observations are based 

upon our ongoing analysis for this Committee and the Senate 

Appropriations Committee, and we plan to provide a more complete 

analysis when we issue our report later this year.

Deepwater is a 25-year, $24-billion effort to upgrade or replace existing 

Coast Guard aircraft and vessels in order to carry out its missions along 

our coastlines and farther out at sea. An initial emphasis of the Deepwater 

program was to improve existing assets, known as “legacy” assets, as a 

bridging strategy until new assets could be delivered and begin operating. 

One of the key legacy assets to be improved was the 110-foot patrol boat, 

which was to be converted to a 123-foot patrol boat by lengthening the hull 

and modernizing various components. While the Coast Guard originally 

planned to convert all 49 of its 110-foot patrol boats to 123-foot patrol 

boats, it halted the patrol boat conversion program after 8 boats because 

of hull buckling and the inability of these converted patrol boats to meet 

post-September 11, 2001 mission requirements. 

The Deepwater program is eventually to include 10 major classes of new 

or upgraded assets—5 major classes each of aircraft and vessels. By 2027,

under these 10 asset classes, a total of 215 vessels and 240 aircraft are to 

be acquired or upgraded. To carry out this effort, the Coast Guard has 

relied on an acquisition strategy that allows a prime contractor (system 

integrator) to manage the acquisition process, including identifying the 

assets needed, and then using tiers of subcontractors to design and build 

the assets. 

Since 2001, we have reviewed the Deepwater program and have informed 

Congress, the Department of Homeland Security (DHS), and the Coast 

Guard of the problems, risks, and uncertainties inherent with such a large 

acquisition. In March 2004, we made recommendations to the Coast Guard 

to address three broad areas of concern: improving program management, 

strengthening contractor accountability, and promoting cost control 

through greater competition among potential subcontractors.1 In April 

 1

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-07-446T 
2006, we issued a follow-on report describing efforts the Coast Guard had 

taken to address the outstanding recommendations.2

This statement offers preliminary observations on the Coast Guard’s 

management of the Deepwater program. Specifically, it discusses: 

• events and issues surrounding the problems encountered with the 

Coast Guard’s bridging strategy to convert the legacy 110-foot patrol 

boats to 123-foot patrol boats; 

• the status of the Coast Guard’s efforts to acquire new or upgraded 

Deepwater assets; and 

• the Coast Guard’s ability to effectively manage the Deepwater program, 

hold contractors accountable, and control costs through competition. 

The preliminary findings and observations noted in this testimony are 

based on our review of key documents, including the 2005 Deepwater 

Acquisition Program Baseline; schedule information provided by the Coast 

Guard; Coast Guard memoranda regarding the 123-foot patrol boat 

conversion; and Coast Guard’s human capital plan, its award fee and 

award term documentation, and its competition monitoring plan. We 

conducted interviews with Coast Guard officials at agency headquarters in

Washington, D.C.; officials in Coast Guard’s System Integration Program 

Office in Arlington, VA; and Coast Guard contractor staff. In addition, we 

interviewed Coast Guard officials during visits to the Pacific and Atlantic 

Area Commands and their associated Maintenance and Logistics 

Commands and at the Coast Guard’s Aircraft Repair and Supply Center. 

Our work was conducted from August 2006 to February 2007 in 

accordance with generally accepted government auditing standards. 

Appendix I contains a list of related GAO products. 

Numerous events, dating back to January 2001, resulted in the failure of 

the Coast Guard’s bridging strategy to convert its legacy 110-foot patrol 

boats into 123-foot patrol boats. These converted boats were removed 

from service on November 30, 2006 because of operational and safety 

concerns. Specifically, the Coast Guard cited that the 123-foot patrol boats

in service in Key West, Florida displayed deck cracking, hull buckling, and

shaft alignment problems related to other structural issues. The mission of 

these boats involved, among other things, drug interdiction, intercepting 

Summary 

 2

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

Has Improved, but Continued Monitoring is Warranted, GAO-06-546 (Washington, D.C.: 

Apr. 28, 2006). 

Page 2 GAO-07-446T 
illegal aliens, and providing support for antiterrorist activities. According 

to the Commandant of the Coast Guard, actions are being taken to 

mitigate the impact of the removal of these patrol boats on mission 

activities. For example, patrol hours of some 110-foot patrol boats have 

been increased through the addition of crews from the 123-foot patrol 

boats; other Coast Guard vessels have been deployed to assist in missions 

formerly performed by the 123-foot patrol boats; and permission has been

secured from the U.S. Navy to continue using 179-foot cutters on loan for 

an additional 5 years. We will continue to review the actions the Coast 

Guard is taking to mitigate the removal from service of the 123-foot patrol 

boats. 

Of the 10 classes of upgraded or new Deepwater aircraft and vessels, the 

delivery record for first-in-class assets (that is, the first of multiple aircraft

or vessels to be delivered within each class) is mixed. Specifically, 7 of the 

10 asset classes are on or ahead of schedule. Among these, 5 first-in-class 

assets have been delivered on or ahead of schedule; and 2 others remain 

on schedule but their planned delivery dates are in 2009 or beyond. Three 

Deepwater asset classes are currently behind schedule due to various 

problems related to designs, technology, or funding. For example, the Fast 

Response Cutter (a new vessel), which had been scheduled for first-inclass delivery in 2007, has been delayed by at least 2 years in part because 

work on its design was suspended until technical problems related to its 

hull and other issues can be addressed. The Vertical Unmanned Aerial 

Vehicle (a new aircraft), which had also been scheduled for delivery in

2007, has been delayed by 6 years due to evolving technological 

developments, among other things. In addition, the Offshore Patrol Cutter, 

which had a planned delivery date in 2010, has now been delayed by 5 

years. 

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—a “systems of systems” approach with a contractor as the 

integrator. In 2004, we reported that there were significant risks related to 

program management, contractor accountability, and cost control, and we 

made recommendations in all these areas. The Coast Guard’s ability to 

effectively manage the program has been challenged by staffing shortfalls 

and poor communication and collaboration among Deepwater program 

staff, contractors, and field personnel. Despite documented problems in 

schedule, performance, cost control, and contract administration, 

measures for holding the contractor accountable resulted in an award fee 

of $4 million (of the maximum $4.6 million) for the first year. Through the 

first 4 years of the Deepwater contract, the system integrator received

Page 3 GAO-07-446T 
award fees that ranged from 87 percent to 92 percent of the total possible 

award fee (scores that ranged from “very good” to “excellent” based on 

Coast Guard criteria), for a total of over $16 million. Further, the 

program’s ability to control Deepwater costs is uncertain given the Coast

Guard’s lack of detailed information on the contractor’s competition 

decisions. While the Coast Guard has taken some actions to improve 

program outcomes, our assessment of the program and its efforts to 

address our recommendations continues, and we plan to report on our 

findings later this year. 

The Coast Guard is the lead federal agency for maritime security within 

DHS. The Coast Guard is responsible for a variety of missions, including 

ensuring ports, waterways, and coastline security; conducting search and 

rescue missions; interdicting illicit drug shipments and illegal aliens; and 

enforcing fisheries laws. In 1996, in order to continue carrying out its 

responsibilities and operations, the Coast Guard initiated the Deepwater 

program to replace or upgrade its aging vessels, aircraft, and other 

essential equipment. 

Background 

As originally conceived, Deepwater was designed around producing 

aircraft and vessels that would function in the Coast Guard’s traditional atsea roles—such as interdicting illicit drug shipments or rescuing mariners 

from difficulty at sea—and the original 2002 Deepwater program was 

focused on those traditional missions. After the terrorist attacks on 

September 11, 2001, the Coast Guard was also assigned homeland security

missions related to protection of ports, waterways, and coastal areas. 

Based on its revised mission responsibilities, the Coast Guard updated its 

Deepwater Acquisition Program Baseline in November 2005. The new 

baseline contained changes in the balance between new assets to be 

acquired and legacy assets to be upgraded and adjusted the delivery

schedule and costs for many of these assets. Overall, the Deepwater 

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

scheduled for delivery in 2027. 

Upon its completion, the Deepwater program is to consist of 5 new classes 

of vessels, 1 new class of fixed-wing aircraft, 1 new class of unmanned 

aerial vehicles, 2 classes of upgraded helicopters, and 1 class of upgraded 

fixed-wing aircraft.3

 The 215 new vessels consist of five new asset 

 3

In addition to these asset classes, Coast Guard plans to procure surveillance data from 

another unmanned aerial vehicle, the RQ-4A. Because this is not to be acquired as a capital

investment, we do not include it among the assets to be acquired or upgraded. 

Page 4 GAO-07-446T 
classes—the National Security Cutter (NSC), Offshore Patrol Cutter 

(OPC), Fast Response Cutter (FRC), Long-Range Interceptor (LRI), and 

Short-Range Prosecutor (SRP). The 240 aircraft are composed of two new 

aircraft classes, the Vertical Unmanned Aerial Vehicle (VUAV) and the 

Maritime Patrol Aircraft (MPA); and three upgraded asset classes—the 

Long-Range Surveillance Aircraft (LRS), Medium-Range Recovery 

Helicopter (MRR), and the Multi-Mission Cutter Helicopter (MCH). 

Table 1 provides an overview, by asset class, of the Deepwater vessels to 

be acquired and table 2 provides an overview of the Deepwater aircraft to

be acquired or upgraded. As noted in Table 1, the 140-foot FRC was 

designated as a replacement vessel for the 110-foot and 123-foot patrol 

boats. 

Page 5 GAO-07-446T 
Table 1: Deepwater Vessels to be Acquired

National Security

Cutter (NSC)

Current number 

of assets planned

Asset being 

replaced

Missions • Maritime safety

• Maritime security

• Protection of 

 natural resources

• National defense

• Maritime safety

• Maritime security

• Protection of 

 natural resources

• National defense

• Maritime safety

• Maritime security

• Protection of 

 natural resources

• National defense

• Maritime safety

• Maritime security

• Maritime safety

• Maritime security

8

378-foot highendurance cutters210-foot and 270-foot

medium-endurance 

cutters 

110-foot and 123-foot

patrol boats 

New asset New asset

25 58 91 33

Offshore Patrol 

Cutter (OPC)

Fast Response

Cutter (FRC)

Short-Range 

Prosecutor (SRP)

Long-Range 

Interceptor (LRI)

Source: GAO analysis of Coast Guard documentation.

Page 6 GAO-07-446T 
Table 2: Deepwater Aircraft to be Upgraded or Acquired 

HH-65 Multi-Mission 

Cutter Helicopter

(MCH)

Current number 

of assets planned

Asset being 

replaced

Missions • Maritime safety 

• Maritime security

• Protection of 

 natural resources

• Maritime safety 

• Maritime security

• Protection of 

 natural resources

• Maritime safety 

• Maritime security

• Protection of 

 natural resources

• Maritime safety 

• Maritime security

• Protection of 

 natural resources

• National defense

• Maritime safety 

• Maritime security

• Protection of 

 natural resources

102

Upgraded asset 

(HH-65)

Upgraded asset 

(HH-60)

HU-25 Falcon New asset Upgraded asset 

(HC-130)

42 36 45 22

HH-60 Medium

Range Recovery 

Helicopter (MRR)

Maritime Patrol 

Aircraft (MPA)

HV-911 Vertical

Takeoff Unmanned

Aerial Vehicle (VUAV)

Long-Range 

Surveillance Aircraft 

(LRS)

Source: GAO analysis of Coast Guard documentation.

Since 2001, we have reviewed the Deepwater program and have informed 

Congress, DHS, and Coast Guard of the problems, risks, and uncertainties 

inherent with such a large acquisition that relies on a system integrator to 

identify the assets needed and then using tiers of subcontractors to design 

and build the assets. In March 2004, we made recommendations to the 

Coast Guard to address three broad areas of concern: improving program 

management, strengthening contractor accountability, and promoting cost 

control through greater competition among potential subcontractors (see 

table 3). 4 We have issued a number of follow-on reports describing efforts 

the Coast Guard has taken to address these recommendations. (See app. I 

for a list of related GAO products.) 

 4 GAO-04-380 

Page 7 GAO-07-446T 
Table 3: 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 (human 

capital plan was

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 

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 

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 through Implemented

competition 

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. 

Page 8 GAO-07-446T 
Between January 2001 and November 2006, numerous events led up to the 

failure of the Coast Guard’s bridging strategy to convert the legacy 

110-foot patrol boats into 123-foot patrol boats. In January 2001, an

independent study found that the 110-foot patrol boats based in south 

Florida and Puerto Rico were experiencing severe hull corrosion and that 

their structural integrity was deteriorating rapidly.

5

 To address these 

issues, the Coast Guard’s original (2002) Deepwater plan included a 

strategy to convert all 49 of the 110-foot patrol boats into 123-foot patrol 

boats to strengthen the hulls. Also, the plan was to provide additional 

capabilities, such as stern launch and recovery capabilities and enhanced 

and improved command, control, communications, computers, 

intelligence, surveillance, and reconnaissance (C4ISR). While Coast Guard 

originally planned to convert all 49 of its 110-foot patrol boats to 123-foot 

patrol boats, it halted the patrol boat conversion program after 8 boats 

because of continued hull buckling and the inability of these converted 

patrol boats to meet post-September 11, 2001 mission requirements. These 

8 converted boats were removed from service on November 30, 2006 

because of operational and safety concerns. 

Coast Guard 

Removed 123-foot 

Patrol Boats from 

Service for 

Operational and 

Safety Reasons, and is

Acting to Mitigate 

Operational Impacts 

The first patrol boat conversion was completed in March 2004, on the 

Matagorda. Between March 2004 and late August 2004, the Matagorda

underwent additional maintenance that was not included in the contract to

convert it to 123 feet, according to Coast Guard officials. On September 10, 

2004, while en route to its home port in Key West, the Matagorda

experienced hull and deck buckling, while transiting the Gulf of Mexico. 

By March 2005, 2 other converted 123-foot patrol boats, the Nunivak and 

the Padre, also began experiencing problems with hull buckling. That 

same month, similar hull deformations were discovered in 3 other 123-foot 

patrol boats—the Metompkin, Vashon, and Monhegan. As a result of the 

deteriorating hull conditions, Coast Guard imposed operational 

restrictions in April 2005 on the 123-foot patrol boats. These restrictions 

specified that the converted patrol boats could not operate in seas with 

wave heights exceeding 8 feet (they were originally intended to operate in

seas up to roughly 13 feet) and that they had to operate at reduced speeds. 

Figure 1 provides a timeline of key events that led to the eventual removal 

from service of the 123-foot patrol boats. 

 5

 CSC Advanced Marine, Evaluation of the 110’ WPB Class Cutter Fleet (January 2001). 

Page 9 GAO-07-446T 
Figure 1: Timeline of Key Events Leading to Removal from Service of 123-foot

Patrol Boats 

01/2001

08/2002

05/2004

09/2004

10/2004

03/2005

04/2005

06/2005

11/2006

Date Event

Independent assessment of 22 of the 49 110-foot patrol boat fleet 

commissioned by Coast Guard indicates moderate to severe corrosion 

problems with hull plating and supporting structures for the 14 patrol 

boats stationed in South Florida and Puerto Rico.

Coast Guard issues delivery order for design and construction of first 

patrol boat designated for conversion to a 123-foot vessel, the Matagorda.

Deepwater test and evaluation team reports that issues with 

workmanship and construction quality affect crew’s ability to operate, 

and team’s ability to conduct testing.

Matagorda experiences hull and deck buckling while transiting the Gulf 

of Mexico. Coast Guard notifies systems integrator that it considers hull 

buckling a design defect.

Coast Guard and system integrator finalize structural upgrade to address 

buckling issue; upgrade subsequently installed on Matagorda, Metompkin, 

Nunivak, Vashon, Monhegan, Manitou; upgrade planned for Padre and Attu.

Nunivak, Padre experience hull buckling. A subsequent survey reported 

that similar deformations occurred on 3 other converted 123-foot patrol 

boats (Metompkin, Vashon, and Monhegan).

Coast Guard places completed 123-foot patrol boats under operational 

restrictions; tells system integrator that defects in vessel design prevent 

operation at full speed under certain sea conditions.

Coast Guard halts conversion of patrol boats at 8, rather than the 49 

originally planned, due to continued hull conditions and inability of 

converted vessels to meet post-9/11 mission requirements.

Coast Guard removes from service 8 converted 123-foot patrol 

boats assigned to Key West following a comprehensive, independent 

analysis of their hulls.

Source: GAO analysis of Coast Guard data.

The Coast Guard is taking actions to mitigate the operational impacts 

resulting from the removal of the 123-foot patrol boats from service. 

Specifically, in recent testimony, the Commandant of the Coast Guard 

stated that Coast Guard has taken the following actions: 

• multi-crewing certain 110-foot patrol boats with crews from the 

123-foot patrol boats that have been removed from service so that 

patrol hours for these vessels can be increased; 

• deploying other Coast Guard vessels to assist in missions formerly 

performed by the 123-foot patrol boats; and 

Page 10 GAO-07-446T 
• securing permission from the U.S. Navy to continue using 179-foot 

cutters on loan from the Navy for an additional 5 years (these were 

originally to be returned to the Navy in 2008) to supplement the Coast 

Guard’s patrol craft. 

We will continue to review the actions the Coast Guard is taking to 

mitigate the removal from service of the 123-foot patrol boats as part of 

our ongoing work. 

Our review of available data show that as of January 2007, of the 10 

classes of Deepwater assets to be acquired or upgraded, 4 are ahead of 

schedule; 3 remain on schedule (and for 1 of these, design problems have 

arisen); and 3 are behind scheduled delivery and face design, funding, or 

technology challenges. Using the 2005 Deepwater Acquisition Program 

Baseline as the baseline, figure 2 indicates, for each asset class, whether 

delivery of the first-in-class (that is, the first of several to be produced in 

its class) is ahead of schedule, on schedule, or behind schedule, as of 

January 2007. 

Deepwater Asset 

Delivery Schedule is 

Mixed, with 7 of 10 on 

or Ahead of Schedule 

and 3 Behind Due to 

Various Factors 

Page 11 GAO-07-446T 
Figure 2: Comparison of the Estimated Delivery Dates for the First-in-Class 

Deepwater Assets from the 2005 Deepwater Acquisition Baseline and as of January 

2007 

2000

2005

2010

2015

2020

OPC FRC VUAV NSC LRI SRP MPA LRS MRR MCH

Year that first-in-class asset is delivered

Source: GAO analysis of documentation provided by U.S. Coast Guard.

Asset

Delivery as of 2005 Acquisition Program Baseline

Delivery as of January 2007

Among the Deepwater assets, 3 of the 5 aircraft classes are upgrades to 

existing legacy systems, and these are all on or ahead of schedule; 1 new 

aircraft class is ahead of schedule; and the remaining new aircraft class is 

6 years behind schedule. With respect to Deepwater vessels, all 5 asset 

classes are new, and of these, 2 are behind schedule, and a third, while on 

schedule, faces structural modifications. The remaining 2 new maritime 

assets are small vessels that are on or ahead of schedule at this time. Table 

4 provides an overview of schedule status for the Deepwater aircraft and

vessel classes. 

Page 12 GAO-07-446T 
Table 4: Delivery Status of the Deepwater Aircraft and Vessels, as of January 2007 

Asset category

Behind 

schedule 

On 

schedule Ahead of schedule 

Upgraded legacy aircraft N/AaMCH LRS, MRR 

New aircraft VUAV N/AaMPA 

New vessels OPC, FRCb NSC, LRI SRP 

Source: GAO analysis of Coast Guard data. 

a

There are no such assets in this category. 

b

The FRC will replace the 110-foot and 123-foot patrol boats. 

Assets That Are on 

Schedule as of January 

2007 

The status of each asset class, and our preliminary observations on the 

factors affecting their status, is discussed below. 

The LRI is a 36-foot small boat that is to be carried and deployed on each 

NSC and OPC. Coast Guard has one LRI on contract for delivery in August

2007, to match delivery of the first NSC. 

Long-Range Interceptor 

Short-Range Prosecutor According to the Coast Guard, the SRP is on schedule at this time and 8 

have been delivered to date. Coast Guard is currently planning to pursue 

construction and delivery of the remaining SRPs outside of the system 

integrator contract. By doing so, the Coast Guard expects to achieve a 

cost savings.

The MPA is a commercial aircraft produced in Spain that is being acquired 

to replace the legacy HU-25 aircraft and will permit the Coast Guard to 

carry out missions, such as search and rescue, marine environmental 

protection, and maritime security. The first MPA was delivered to the 

Coast Guard in December 2006, and the second and third are due for 

delivery by April 2007. Pilots and aircrew participated in training classes in 

Spain, and Coast Guard is to take responsibility for the development and 

implementation of MPA’s maintenance and logistics. 

Maritime Patrol Aircraft 

The LRS is an upgraded legacy fixed-wing aircraft that includes 6 C-130Js 

and 16 C-130Hs. The first aircraft entered the modification process in 

January 2007, and five additional aircraft are to be modified by July 2008. 

In fiscal year 2008, funding has been requested to upgrade the C-130H 

radar and avionics, and for the C-130J fleet introduction. 

Long-Range Surveillance 

Aircraft 

Page 13 GAO-07-446T 
The MRR is an upgraded legacy HH-60 helicopter. It began receiving a 

series of upgrades beginning in fiscal year 2006, which will continue into 

fiscal year 2012, including the service life extension program and radar 

upgrades. 

Medium-Range Recovery 

Helicopter

The MCH is an upgraded legacy HH-65 helicopter. According to Coast 

Guard officials, the MCH assets will not have a single delivery date, as the 

process involves three phases of upgrades. Phase I is the purchase and 

delivery of new engines and engine control systems, Phase II is a servicelife extension program, and Phase III includes communications upgrades. 

A Coast Guard official stated that 84 of the 95 HH-65s should be re-engined 

by June 2007, and all 95 should be finished by October 2007. The fiscal 

year 2008 congressional justification states that Phase II began in fiscal 

year 2007 and will end in fiscal year 2014, and that Phase III is to begin in

fiscal year 2008 and is to end in fiscal year 2014. 

Multi-Mission Cutter Helicopter 

Deepwater Asset Reported 

to Be on Schedule as of 

January 2007, Despite 

Design Issues 

According to Coast Guard documentation, the NSC is on schedule for 

delivery despite required modifications regarding its structural integrity. In

particular, the Coast Guard Commandant recently stated that internal 

reviews by Coast Guard engineers, as well as by independent analysts, 

have concluded that the NSC, as designed, will need structural 

reinforcement to meet its expected 30-year service life. In addition, the 

DHS Office of Inspector General recently reported that the NSC design 

will not achieve a 30-year service life based on an operating profile of 230 

days underway per year in general Atlantic and North Pacific sea 

conditions and added that Coast Guard technical experts believe the 

NSC’s design deficiencies will lead to increased maintenance costs and 

reduced service life.6

National Security Cutter 

To address the structural modifications of the NSC, Coast Guard is taking 

a two-pronged approach. First, Coast Guard is working with contractors to 

 6

 DHS OIG-07-23. 

Page 14 GAO-07-446T 
enhance the structural integrity of the hulls of the remaining six NSCs that

have not yet been constructed. Second, after determining that the NSC’s 

deficiencies are not related to the safe operation of the vessel in the near 

term, Coast Guard has decided to address the structural modifications of 

the hulls of the first two cutters as part of planned depot-level 

maintenance about 5 years after they are delivered. The Commandant 

stated that he decided to delay the repairs to these hulls to prevent further 

delays in construction and delivery.

Deepwater Assets Behind 

Schedule as of January 

2007 

Offshore Patrol Cutter Coast Guard officials have stated that further work on the development of 

the OPC is on hold and the Coast Guard did not request funding for the 

OPC in fiscal years 2007 or 2008. Delivery of the first OPC has been 

delayed by 5 years—from 2010 to 2015. 

Concerns about the viability of the design of the FRC have delayed the 

delivery of the first FRC by at least 2 years. As we have previously 

reported,7

 design and delivery of the original FRC was accelerated as a 

bridging strategy to offset the failed conversion of the 110-foot patrol 

boats into 123-foot patrol boats. According to the 2005 Deepwater 

Acquisition Program Baseline, the first FRC was scheduled to be delivered 

in 2007—11 years earlier than the 2018 date listed in the original (2002) 

Deepwater plan. Coast Guard suspended design work on the FRC in late 

February 2006; however, because of design risks, including excessive 

weight and horsepower requirements. As a result, Coast Guard is moving 

forward with a “dual-path approach” for acquiring new patrol boats to 

replace its existing 110-foot and 123-foot patrol boats. 

Fast Response Cutter 

The first component of this dual path approach is to have the Deepwater 

system integrator purchase a commercial (off-the-shelf) patrol boat design 

 7

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

GAO-06-764 (Washington, D.C.: June 23, 2006).

Page 15 GAO-07-446T 
that can be adapted for Coast Guard use.8

 According to Coast Guard 

officials, unlike the original plans, this FRC class is not expected to meet 

all performance requirements originally specified, but is intended as a way 

to field an FRC more quickly than would otherwise occur and that can, 

therefore, serve as an interim replacement for the deteriorating fleet of 

110-foot patrol boats. The Coast Guard Commandant recently stated that

the Coast Guard expects delivery of the commercial FRCs in the first half 

of fiscal year 2010, about 2 years behind the estimated delivery date 

specified in the 2005 Deepwater Acquisition Program Baseline. 

The second component of the dual-path approach is to eventually acquire 

another cutter—a redesigned FRC.9

 However, due to continuing questions 

about the feasibility of its planned composite hull, Coast Guard has now 

further delayed a decision about its development or acquisition until it 

receives results from two studies. First, the Coast Guard is conducting a 

business case analysis comparing the use of composite versus steel hulls. 

Second, the Coast Guard told us that DHS’s Science and Technology 

Directorate will be conducting tests on composite hull technology, and 

that it will wait to see the results of these tests before making a decision 

on the redesigned FRC. Until recently, the Coast Guard anticipated 

delivery of the redesigned FRC in 2009 or 2010. However, the decision to

not request funding for this redesigned FRC in fiscal year 2008, and to 

await the results of both studies before moving forward, will likely further 

delay delivery of the redesigned FRC. 

According to the Coast Guard, evolving technological developments and 

the corresponding amount of funding provided in fiscal year 2006 have 

delayed the delivery of the VUAV by 6 years—from 2007 to 2013. As a 

result, the Coast Guard has adjusted the VUAV development plan. The 

fiscal year 2008 DHS congressional budget justification indicates that the 

Coast Guard does not plan to request funding for the VUAV through fiscal 

year 2012. Coast Guard originally intended on matching the NSC and 

VUAV delivery dates so that the VUAV could be launched from the NSC to 

provide surveillance capabilities beyond the cutter’s visual range or 

sensors. However, with the delay in the VUAV’s development schedule, it

no longer aligns with the NSC’s initial deployment schedule. Specifically, 

Coast Guard officials stated that the VUAV will not be integrated with the 

NSC before fiscal year 2013, 6 years later than planned. Coast Guard 

Vertical Unmanned Aerial 

Vehicle 

 8

 Coast Guard refers to this vessel as the FRC-B. 

9

 Coast Guard refers to this as the FRC-A. 

Page 16 GAO-07-446T 
officials stated that they are discussing how to address the operational 

impacts of having the NSC operate without the VUAV. In addition, Coast 

Guard officials explained that since the time of the original contract 

award, the Department of Defense has progressed in developing a 

different unmanned aerial vehicle—the Fire Scout—that Coast Guard 

officials say is more closely aligned with Coast Guard needs. Coast Guard 

has issued a contract to an independent third party to compare the 

capabilities of its planned VUAV to the Fire Scout. 

Since the inception of the Deepwater program, we have expressed 

concerns about the risks involved with the Coast Guard’s system-ofsystems acquisition approach and the Coast Guard’s ability to manage and 

oversee the program. Our concerns have centered on three main areas: 

program management, contractor accountability, and cost control through 

competition. We have made a number of recommendations to improve the 

program—most of which the Coast Guard has agreed with and is working 

to address. However, while actions are under way, a project of this 

magnitude will likely continue to experience other problems as more 

becomes known. We will continue our work focusing on the Coast 

Guard’s efforts to address our recommendations and report on our 

findings later this year. 

In 2004, we reported that the Coast Guard had not effectively implemented 

key components needed to manage and oversee the system integrator. 

Specifically, we reported at that time and subsequently on issues related to

integrated product teams (IPT), the Coast Guard’s human capital strategy, 

and communication with field personnel (individuals responsible for 

operating and maintaining the assets). Our preliminary observations on 

the Coast Guard’s progress in improving these program management 

areas, based on our ongoing work, follow. 

In 2004, we found that IPTs, the Coast Guard’s primary tool for managing 

the Deepwater program and overseeing the contractor, had not been 

effective due to changing membership, understaffing, insufficient training,

lack of authority for decision making, and inadequate communication. We 

recommended the Coast Guard take actions to address IPT effectiveness. 

We subsequently reported that IPT decision-making was to a large extent 

stove-piped, and some teams lacked adequate authority to make decisions 

Preliminary 

Observations on the 

Status of Deepwater 

Program 

Management, 

Contractor 

Accountability, and 

Cost Control 

Program Management 

Integrated Product Teams 

Page 17 GAO-07-446T 
within their realm of responsibility.10 Coast Guard officials believed 

collaboration among the subcontractors was problematic and that the 

system integrator wielded little influence to compel decisions among 

them. For example, proposed design changes to assets under construction 

were submitted as two separate proposals from both subcontractors 

rather than one coherent plan. According to Coast Guard performance 

monitors, this approach complicated 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. Although some efforts have been made to improve the 

effectiveness of the IPTs—such as providing them with more timely 

charters and entry-level training—our preliminary observations are that 

more improvements are needed. 

The Coast Guard’s ability to assess IPT performance continues to be 

problematic. Former assessments of IPT effectiveness simply focused on 

measures such as frequency of meetings, attendance, and training. As a 

result, IPTs received positive assessments while the assets under their 

realm of responsibility—such as the National Security Cutter—were 

experiencing problems. The new team measurements include outcomebased metrics such as cost and schedule performance of assets (ships, 

aircraft, and command, control, communications, computers, intelligence,

surveillance, and reconnaissance (C4ISR)). However, Deepwater’s overall 

program management quarterly report shows that the connection between 

IPT performance and program results continues to be misaligned.11 For 

example, the first quarterly report to incorporate the new measurements, 

covering the period October to December 2006, indicates that the IPTs’ 

performance for all domains is “on-schedule or non-problematic” even 

while some assets’ cost or schedule performance is rated “behind schedule 

or problematic.” 12 Further, even though the Deepwater program is 

addressing fundamental problems surrounding the 123-foot patrol boat 

and FRC, IPTs no longer exist for these assets. In some cases, Coast 

Guard officials stated they have established work groups outside of the 

 10 GAO, Coast Guard: Progress Being Made on Addressing Legacy Asset Condition Issues 

and Program Management, but Acquisition Challenges Remain, GAO-05-757 

(Washington, D.C.: July 22, 2005). 

11 The program management reports were produced on a monthly basis in the past; now

they are produced on a quarterly basis. 

12 IPTs are focused on the development and fielding of a particular product (e.g., the NSC) 

and are organized by domain. Examples of domains are air, surface, C4ISR, and legacy 

assets. 

Page 18 GAO-07-446T 
existing IPT structure to address identified issues and problems related to 

assets, such as the NSC. We will continue to review the IPTs’ roles and 

relevance in the management of the Deepwater program. 

We also reported in 2004 that the Coast Guard had not adequately staffed 

its program management function for Deepwater. Although its Deepwater 

human capital plan set a goal of a 95 percent or higher “fill rate” annually 

for both military and civilian personnel, funded positions were below this 

goal. We recommended that the Coast Guard follow the procedures in its 

Deepwater human capital plan to ensure that adequate staffing was in 

place and that turnover of Coast Guard military personnel was proactively 

addressed. The Coast Guard subsequently revised its Deepwater human 

capital plan in February 2005 to emphasize workforce planning, including

determining needed knowledge, skills, and abilities and developing ways 

to leverage institutional knowledge as staff rotate out of the program. We 

reported in 2005 that the Coast Guard also took some short-term steps to 

improve Deepwater program staffing, such as hiring contractors to assist 

with program support functions, shifting some positions from military to 

civilian to mitigate turnover risk, and identifying hard-to-fill positions and 

developing recruitment plans specifically for them. 

Human Capital 

However, in February 2007, Coast Guard officials told us that key human 

capital management objectives outlined in the revised plan have not been

accomplished and that the staffing levels needed to accomplish the known 

workload have not been achieved. In one example, a manager cited the

need for five additional staff per asset under his domain to satisfy the 

current workload in a timely manner: contracting officer’s technical 

representative, scheduler, cost estimator, analyst, and configuration 

manager. Further, a February 2007 independent analysis found that the 

Coast Guard does not possess a sufficient number of acquisition personnel 

or the right level of experience needed to manage the Deepwater 

program.13 The Coast Guard has identified an acquisition structure reorganization that includes human capital as one component of the reform. 

We will continue to monitor the implementation of the reorganization as 

part of our ongoing work. 

In 2004, we found that the Coast Guard had not adequately communicated 

to field personnel decisions on how the new and old assets were to be 

integrated during the transition and whether Coast Guard or system 

Communications with Field 

Personnel 

 13 Defense Acquisition University, Quick Look Study: United States Coast Guard 

Deepwater Program, (Fort Belvoir, VA.): Feb. 5, 2007 

Page 19 GAO-07-446T 
integrator personnel—or both—would be responsible for maintenance. 

We recommended that the Coast Guard provide timely information and 

training on the transition to Deepwater assets. In 2006, we reported that 

the Coast Guard had taken some steps to improve communications 

between Deepwater program and field personnel, including having field 

personnel as members on some IPTs. However, we continued to express 

concerns that field personnel were not receiving important information 

regarding training, maintenance, and integration of new Deepwater assets. 

During our ongoing work, the field personnel involved in operating and

maintaining the assets and Deepwater program staff we interviewed 

expressed continued concern that maintenance and logistics plans had not 

been finalized. Another official commented that there continues to be a 

lack of clarity defining roles and responsibilities between the Coast Guard 

and system integrator for maintenance and logistics. Coast Guard officials 

stated in fall 2006 that the system integrator was contractually responsible 

for developing key documents related to plans for the maintenance and 

logistics for the NSC and Maritime Patrol Aircraft. However, Deepwater 

program officials stated that because the Coast Guard was not satisfied 

with the level of detail provided in early drafts of these plans, it was 

simultaneously developing “interim” plans that it could rely on while the 

system integrator continued to develop its own versions. While the Coast

Guard’s more active role may help its ability to ensure adequate support 

for Deepwater assets that are coming on-line in the near term, our ongoing work will continue to focus on this issue. 

Our 2004 review revealed that the Coast Guard had not developed 

quantifiable metrics to hold the system integrator accountable for its 

ongoing performance. For example, the process by which the Coast 

Guard assessed performance to make the award fee determination after 

the first year of the contract lacked rigor. At that time, we also found that

the Coast Guard had not yet begun to measure contractor performance 

against Deepwater program goals—the information it would need by June 

2006 to decide whether to extend the system integrator’s contract award 

term by up to another 5 years. Additionally, we noted that the Coast 

Guard needed to establish a solid baseline against which to measure 

progress in lowering total ownership cost—one of the three overarching 

goals of the Deepwater program. Furthermore, the Coast Guard had not 

developed criteria for potential adjustments to the baseline. Preliminary 

observations from our ongoing work on the Coast Guard’s efforts to 

improve system integrator accountability follow. 

Concerns Remain with 

Holding System Integrator 

Accountable 

Page 20 GAO-07-446T 
In 2004 we found 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 as reported by the Coast Guard award fee determining official. This 

rating resulted in an award fee of $4 million of the maximum $4.6 million. 

The Coast Guard continued to report design, cost, schedule, and delivery 

problems, and evaluation of the system integrator’s performance 

continued to result in award fees that ranged from 87 percent to 92 

percent of the total possible award fee (with 92 percent falling into the 

“excellent” range), or $3.5 to $4.8 million annually, for a total of over $16 

million the first 4 years on the contract. The Coast Guard continues to 

revise the award fee criteria under which it assesses the system 

integrator’s performance. 

Award Fee Criteria 

The current award fee criteria demonstrate the Coast Guard’s effort to use

both objective and subjective measures and to move toward clarity and

specificity with the criteria being used. For example, the criteria include 

24 specific milestone activities and dates to which the system integrator 

will be held accountable for schedule management. However, we recently 

observed two changes to the criteria that could affect the Coast Guard’s 

ability to hold the contractor accountable. First, the current award fee 

criteria no longer contain measures that specifically address IPTs, despite 

a recommendation we made in 2004 that the Coast Guard hold the system 

integrator accountable for IPT effectiveness. The Coast Guard had agreed 

with this recommendation and, as we reported in 2005, it had incorporated

award fee metrics tied to the system integrator’s management of 

Deepwater, including administration, management commitment, 

collaboration, training, and empowerment of the IPTs. Second, a new 

criterion to assess both schedule and cost management states that the 

Coast Guard will not take into account milestone or cost impacts 

determined by the government to be factors beyond the system

integrator’s control. However, a Coast Guard official stated that there are 

no formal written guidelines that define what factors are to be considered

as being beyond the system integrator’s control, what process the Coast 

Guard is going to use to make this determination, or who is ultimately 

responsible for making those determinations. 

The Deepwater program management plan included three overarching 

goals of the Deepwater program: increased operational effectiveness, 

lower total ownership cost, and customer satisfaction to be used for 

determining whether to extend the contract period of performance, known 

as the award term decision. We reported in 2004 that the Coast Guard had 

Award Term Evaluation 

Page 21 GAO-07-446T 
not begun to measure the system integrator’s performance in these three 

areas, even though the information was essential to determining whether 

to extend the contract after the first 5 years.14 We also reported that the 

models the Coast Guard was using to measure operational performance 

lacked the fidelity to capture whether improvements may be due to Coast

Guard or contractor actions, and program officials noted the difficulty of 

holding the contractor accountable for operational effectiveness before 

Deepwater assets are delivered. We made a recommendation to Coast 

Guard to address these issues. 

According to a Coast Guard official, the Coast Guard evaluated the 

contractor subjectively for the first award term period in May 2006, using 

operational effectiveness, total ownership costs, and customer satisfaction 

as the criteria. The result was a new award term period of 43 of a possible

60 months. To measure the system’s operational effectiveness, the Coast 

Guard has developed models to simulate the effect of the Deepwater 

assets’ capabilities on its ability to meet its missions and to measure the 

“presence” of those assets. However, in its assessment of the contractor, 

the Coast Guard assumed full operational capability of assets and 

communications and did not account for actual asset operating data. 

Furthermore, the models still lacked the fidelity to capture whether 

operational improvements are attributable to Coast Guard or contractor 

actions. As a result the contractor received credit for factors beyond its 

control—although no formal process existed for approving such factors. 

Total ownership cost was difficult to measure, thus the contractor was 

given a neutral score, according to Coast Guard officials.15 Finally, the 

contractor was rated “marginal” in customer satisfaction.

The Coast Guard has modified the award term evaluation criteria to be 

used to determine whether to grant a further contract extension after the 

43-month period ends in January 2011. The new criteria incorporate more 

objective measures. 

 

• While the three overall Deepwater program objectives (operational 

effectiveness, total ownership costs, and customer satisfaction) 

carried a weight of 100 percent under the first award term decision, 

they will represent only about a third of the total weight for the second 

 14 Award-term incentives can best be described as a variant of an award-fee incentive, 

where the contractor is rewarded for excellent performance with an extension of the

contract period instead of additional fee. 

15 The award term determination rated total ownership cost as “good.” 

Page 22 GAO-07-446T 
award term decision. The criteria include items such as new 

operational effectiveness measures that will include an evaluation of 

asset-level key performance parameters, such as endurance, operating 

range, and detection range. 

• The new award term criteria have de-emphasized measurement of total 

ownership cost, concentrating instead on cost control. Program 

officials noted the difficulty of estimating ownership costs far into the 

future, while cost control can be measured objectively using actual 

costs and earned value data. In 2004, we recommended that the Coast 

Guard establish a total ownership cost baseline that could be used to 

periodically measure whether the Deepwater system-of-systems 

acquisition approach is providing the government with increased 

efficiencies compared to what it would have cost without this 

approach. Our recommendation was consistent with the cost baseline 

criteria set forth in the Deepwater program management plan. The 

Coast Guard agreed with the recommendation at the time, but 

subsequently told us it does not plan to implement it. 

In our current work, we will explore the implication of the revised award 

term evaluation criteria and the Coast Guard’s ability to measure the 

overarching goals of the acquisition strategy. 

Establishing a solid baseline against which to measure progress in 

lowering total ownership cost is critical to holding the contractor 

accountable. The Coast Guard’s original plan, set forth in the Deepwater 

program management plan, was to establish as its baseline the dollar value 

of replacing assets under a traditional, asset-by-asset approach as the 

“upper limit for total ownership cost.” In practice, the Coast Guard 

decided to use the system integrator’s estimated cost of $70.97 billion plus 

10 percent (in fiscal year 2002 dollars) for the system-of-systems approach 

as the baseline. In 2004, we recommended that the Coast Guard establish 

criteria to determine when the total ownership cost baseline should be 

adjusted and ensure that the reasons for any changes are documented. 

Establishing Criteria and 

Documenting Changes to the 

Baseline 

Since then, the Coast Guard established a process that would require DHS 

approval for adjustments to the total ownership cost baseline. The 

Deepwater Program Executive Officer maintains authority to approve 

baseline revisions at the asset or domain level. However, depending on 

Page 23 GAO-07-446T 
the severity of the change, these changes are also subject to review and 

approval by DHS. In November 2005, the Coast Guard increased the total 

ownership cost baseline against which the contractor will be evaluated to

$304 billion. Deepwater officials stated that the adjustment was the result 

of incorporating the new homeland security mission requirements and 

revising dollar estimates to a current year basis. Although the Coast 

Guard is required to provide information to DHS on causal factors and 

propose corrective action for a baseline breach of 8 percent or more, the 

8 percent threshold has not been breached because the threshold is 

measured against total program costs and not on an asset basis.17 For 

example, the decision to stop the conversion of the 49 110-foot patrol 

boats after 8 hulls did not exceed the threshold; nor did the damages and 

schedule delay to the NSC attributed to Hurricane Katrina. During our 

ongoing work, Coast Guard officials acknowledged that only a 

catastrophic event would ever trigger a threshold breach. According to a 

Coast Guard official, DHS approval is pending on shifting the baseline 

against which the system integrator is measured to an asset basis. 

Limited Knowledge of Cost 

Control Achieved Through 

Competition 

Further, our 2004 report also had recommendations related to cost control

through the use of competition. We reported that, although competition 

among subcontractors was a key mechanism 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.18 As the two first-tier 

subcontractors to the system integrator, Lockheed Martin and Northrop 

Grumman have sole responsibility for determining whether to provide the 

Deepwater assets themselves or 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. 

The Coast Guard has taken steps to establish a reporting requirement for 

the system integrator to provide information on competition on a semiannual basis. The system integrator is to provide detailed plans, policies,

and procedures necessary to ensure proper monitoring, reporting, and 

control of its subcontractors. Further, reports are to include total 

procurement activity, the value of competitive procurements, and the 

 17 According to DHS officials, a baseline breach occurs when a cost or schedule threshold 

is exceeded or when a performance threshold cannot be met. 

18 See GAO-04-380. 

Page 24 GAO-07-446T 
subcontractors’ name and addresses. The system integrator provided the 

first competition report in October 2006. However, because the report did 

not include the level of detail required by Coast Guard guidelines, a Coast 

Guard official deemed that the extent of competition could not be 

validated by the information provided and a request was made to the 

system integrator for more information. We will continue to assess the 

Coast Guard’s efforts to hold the system integrator accountable for 

ensuring an adequate degree of competition. 

- - - - - 

Mr. Chairman, this concludes my testimony. I would be happy to respond

to any questions Members of the Committee may have. 

For further information about this testimony, please contact:

John Hutton, Acting Director, Acquisition and Sourcing Management, 

(202) 512-4841, huttonj@gao.gov

GAO Contact and 

Staff 

Acknowledgments 

Stephen L. Caldwell, Acting Director, Homeland Security & Justice, (202) 

512-9610, caldwells@gao.gov

In addition to the contacts named above, Penny Berrier Augustine, Amy 

Bernstein, Christopher Conrad, Adam Couvillion, Kathryn Edelman, 

Melissa Jaynes, Crystal M. Jones, Michele Mackin, Jessica Nierenberg, 

Raffaele Roffo, Karen Sloan, and Jonathan R. Tumin made key 

contributions to this report. 

Page 25 GAO-07-446T 
Page 1 GAO-07-446T 

Appendix I: Related GAO Products 

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

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, 

GAO-06-546 (Washington, D.C.: Apr. 28, 2006). 

Coast Guard: Progress Being Made on Addressing Deepwater Legacy 

Asset Condition Issues and Program Management, but Acquisition 

Challenges Remain, GAO-05-757 (Washington, D.C.: Jul. 22, 2005). 

Coast Guard: Preliminary Observations on the Condition of Deepwater

Legacy Assets and Acquisition Management Challenges, GAO-05-651T

(Washington, D.C.: Jun. 21, 2005). 

Coast Guard: Preliminary Observations on the Condition of Deepwater

Legacy Assets and Acquisition Management Challenges, GAO-05-307T

(Washington, D.C.: Apr. 20, 2005). 

Coast Guard: Deepwater Program Acquisition Schedule Update Needed, 

GAO-04-695 (Washington, D.C.: Jun. 14, 2004). 

Contract Management: Coast Guard’s Deepwater Program Needs 

Increased Attention to Management and Contractor Oversight, GAO-04-

380 (Washington, D.C.: Mar. 9, 2004). 

Coast Guard: Actions Needed to Mitigate Deepwater Project Risks, GAO01-659T (Washington, D.C.: May 3, 2001). 

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

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

(440585) 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER