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WHAT WILL IT COST? PROTECTING THE 

TAXPAYER FROM AN UNACHIEVABLE 

COAST GUARD ACQUISITION PROGRAM 

(112–53) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COAST GUARD AND MARITIME TRANSPORTATION 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

OCTOBER 4, 2011 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

Available online at: http://www.gpo.gov/fdsys/browse/ 

committee.action?chamber=house&committee=transportation 

(II) 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JOHN L. MICA, Florida, Chairman 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

FRANK A. LOBIONDO, New Jersey 

GARY G. MILLER, California 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

DUNCAN HUNTER, California 

ANDY HARRIS, Maryland 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

JAIME HERRERA BEUTLER, Washington 

FRANK C. GUINTA, New Hampshire 

RANDY HULTGREN, Illinois 

LOU BARLETTA, Pennsylvania 

CHIP CRAVAACK, Minnesota 

BLAKE FARENTHOLD, Texas 

LARRY BUCSHON, Indiana 

BILLY LONG, Missouri 

BOB GIBBS, Ohio 

PATRICK MEEHAN, Pennsylvania 

RICHARD L. HANNA, New York 

JEFFREY M. LANDRY, Louisiana 

STEVE SOUTHERLAND II, Florida 

JEFF DENHAM, California 

JAMES LANKFORD, Oklahoma 

REID J. RIBBLE, Wisconsin 

CHARLES J. ‘‘CHUCK’’ FLEISCHMANN, 

Tennessee 

NICK J. RAHALL II, West Virginia 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

ELIJAH E. CUMMINGS, Maryland 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

RUSS CARNAHAN, Missouri 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

MAZIE K. HIRONO, Hawaii 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

STEVE COHEN, Tennessee 

LAURA RICHARDSON, California 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION

FRANK A. LOBIONDO, New Jersey, Chairman 

DON YOUNG, Alaska 

HOWARD COBLE, North Carolina 

ANDY HARRIS, Maryland 

FRANK C. GUINTA, New Hampshire 

CHIP CRAVAACK, Minnesota 

BLAKE FARENTHOLD, Texas 

JEFFREY M. LANDRY, Louisiana, 

Vice Chair 

JOHN L. MICA, Florida (Ex Officio) 

RICK LARSEN, Washington 

ELIJAH E. CUMMINGS, Maryland 

CORRINE BROWN, Florida 

TIMOTHY H. BISHOP, New York 

MAZIE K. HIRONO, Hawaii 

MICHAEL H. MICHAUD, Maine 

NICK J. RAHALL II, West Virginia 

(Ex Officio) 

(III) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... iv 

TESTIMONY 

PANEL ONE

Hutton, John P., Director, Acquisition and Sourcing Management, Government Accountability Office .................................................................................. 4 

PANEL TWO

Papp, Admiral Robert J., Jr., Commandant, United States Coast Guard .......... 11 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Hutton, John P. ........................................................................................................ 23 

Papp, Admiral Robert J., Jr. ................................................................................... 36 

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(1) 

WHAT WILL IT COST? PROTECTING THE TAXPAYER FROM AN UNACHIEVABLE COAST 

GUARD ACQUISITION PROGRAM 

TUESDAY, OCTOBER 4, 2011 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON COAST GUARD AND MARITIME

TRANSPORTATION, 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 10:30 a.m. in room 

2167, Rayburn House Office Building, Hon. Frank LoBiondo 

(Chairman of the subcommittee) presiding. 

Mr. LOBIONDO. Good morning. The subcommittee will come to 

order. The subcommittee is meeting this morning to examine the 

status of the Coast Guard’s major acquisition program, and hear 

from the commandant on what his plans are to restore public faith 

in the program. 

Though the subcommittee previously held an acquisition hearing 

in April, we promised to revisit the issue often to ensure that the 

Coast Guard’s major acquisition programs continue to improve by 

addressing valid concerns over rising costs, schedule delays, and 

capability shortfalls. 

As part of our oversight effort, the committee asked the Government Accountability Office to review the current program to determine whether it is still on track, and to make recommendations to 

ensure its success. The GAO is here today to present those findings 

and recommendations. 

In 2002 the Coast Guard signed the contract to begin the acquisition program formally known as Integrated Deepwater System. 

Deepwater was supposed to provide a complete recapitalization and 

modernization of the Service’s larger aging assets, as well as its 

outdated communications and information systems over a 20-year 

period. Now nearly a decade later, the subcommittee is concerned 

that the Service has less to show for the investment of over $7 billion in taxpayer money than it should. 

The GAO found that the 2007 rebaseline for Deepwater programs 

is no longer viable. Using that rebaseline as a guide of the Coast 

Guard’s 17 large acquisition programs, 10 are over budget, 8 are 

behind schedule, and 6 are both over budget and behind schedule. 

I hope that the commandant will address this issue and update the 

subcommittee on his efforts to provide a more realistic appraisal of 

total acquisition costs and timelines. 

2 

The GAO also questioned the Service’s assertions that new assets 

are providing increased capability. It noted that some new assets 

are not performing at full capability, while others still need to go 

through operational tests and evaluation to assure they do perform 

as required. Take, for example, the National Security Cutter. Despite an investment of over $3 billion, the GAO and inspector general have both reported that the National Security Cutter is currently not performing at its planned capability. The subcommittee 

is very concerned, and I don’t know how to underscore that enough; 

they are very concerned that the Coast Guard has not yet taken 

steps to address those capability gaps. 

The Service needs to develop a plan to provide air surveillance 

support for the NSC and achieve 225 days away from home port. 

The Service also needs to expedite the acquisition small boats for 

the NSC. 

The Transportation and Infrastructure Committee felt strong 

enough about these issues to include proscriptive language on the 

National Security Cutter in the Coast Guard and Maritime Transportation Act of 2011. The National Security Cutter is a critically 

needed asset. The Service must identify ways to mitigate the shortcomings in the near term, and fully rectify them in the long term. 

I know I speak for many, if not all of my colleagues, when I say 

that I cannot support an acquisition program that spends billions 

of dollars on so-called state-of-the-art assets, only to find out they 

are not performing as promised. I understand the Service has made 

several strides lately, and I want to applaud the Coast Guard for 

taking those steps. However, since precious time and money was 

wasted under the old Deepwater program, I feel that we are now 

at a critical point where the rate of decline and legacy assets has 

overtaken the rate of progress in bringing new assets online. 

I am very concerned that, unless the Coast Guard can get this 

program back on track, the Service will not be able to perform its 

critical missions. I know that the Service is working hard to ensure 

that doesn’t happen. I look forward to hearing from the commandant on how these acquisitions are a good investment for the 

taxpayer, and how we are going to get the results that we were 

promised. 

I want to thank the witnesses for being here today, and now I 

will turn to Mr. Larsen. 

Mr. LARSEN. Mr. Chairman, thank you for convening this morning’s hearing to discuss the latest in a series of reports released by 

the Government Accountability Office concern the U.S. Coast 

Guard’s major acquisition programs. 

I appreciate the opportunity to hear once again from the GAO 

and the Coast Guard on the progress that has been made to recapitalize the Coast Guard’s surface and air assets, and, more importantly, to discuss the challenges that remain outstanding since the 

subcommittee last visited this topic in April. 

In general, I want to commend Admiral Papp and the Coast 

Guard for continuing their efforts to implement internal reforms to 

improve the efficiency, transparency, and accountability of its recapitalization program. As a sign the Coast Guard has turned the 

corner, the Coast Guard reports since April it has awarded four 

contracts totaling approximately $728 million for major system acVerDate Aug 31 2005 11:02 Feb 10, 2012 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 P:\HEARINGS\112\CG\10-4-1~1\70554.TXT JEAN
3 

quisitions. These contracts, which will provide hundreds of highpaying jobs for U.S. shipbuilders will allow the Coast Guard to acquire a new National Security Cutter and a new Maritime Patrol 

Aircraft to provide enhanced capabilities for surveillance, interdiction, and fisheries enforcement operations. 

Additionally, these contracts will allow the construction of 4 additional Fast Response Cutters, and 10 new Medium Response 

Boats, which will improve the Coast Guard’s marine operations 

along the 95,000 nautical miles of U.S. coastline, and strengthen 

the Coast Guard’s capabilities to secure our ports and our harbors. 

In addition, the Coast Guard reports progress on several other 

important capital initiatives. The third National Security Cutter, 

the Stratton, was delivered when the Coast Guard launched two 

new Fast Response Cutters. Also, vital sustainment programs were 

completed for two legacy Medium Endurance Cutters, which will 

improve their operational effectiveness. 

Additionally, the Coast Guard maintained its efforts to upgrade 

its H–60 and H–65 helicopters, and expanded its deployment of the 

rest of the 21 emergency response system to 4 additional sectors 

around the Great Lakes and in southern California. Each of these 

accomplishments is a positive development. 

Notwithstanding this demonstrable progress, however, the recent 

GAO report finds that several substantial challenges remain with 

the Coast Guard’s recapitalization program. These challenges raise 

a legitimate question: Does the approved program of record remain 

achievable? 

When the Coast Guard began its recap program in 1996, everyone recognized that the scale and complexity of replacing or modernizing its aging fleet of over 90 cutters and some 200 aircraft was 

an unprecedented event in the Coast Guard’s long history. But as 

no less than 18 GAO reports and numerous subcommittee oversight 

hearings in this and prior Congresses has made clear, the Coast 

Guard’s past oversight and management of its major system acquisitions, especially of the $24.5 billion Deepwater program was ineffective. Moreover, this deficiency has led to substantial cost overruns, shifting baselines, design flaws, and delays in the delivery of 

new assets. 

I want to commend the former chairman of this subcommittee, 

Congressman Elijah Cummings, for his determined efforts in past 

Congresses to instill greater accountability and transparency to 

this initiative, which is of critical importance to our maritime security. GAO reports that the absence of baseline estimates for several 

assets might drive up the overall cost for major system acquisitions 

to over $29 billion. New baselines, especially for the Offshore Patrol Cutter, could push this estimate even higher. 

The GAO also asserts that cost estimates and schedules developed by the Coast Guard may be unreliable because the Coast 

Guard has not adhered consistently with its own best management 

practices. Additionally, the GAO raises concerns about the viability 

of achieving a system-of-systems capability, noting complications 

and false starts with the development of command and control and 

communication technologies generally known as C4ISR. 

Also important: GAO states that the Service has failed to conduct 

adequate operational testing and evaluation for the assets that 

4 

have been delivered. These findings raise valid questions about 

achieving the long-term concept envisioned by the former Deepwater program. 

I look forward to hearing this morning from John Hutton, GAO’s 

director for acquisitions and management, to further discuss these 

issues and other concerns contained in the new report. I am also 

interested in hearing from Admiral Papp on his views regarding 

the Coast Guard’s progress in implementing their internal reforms 

and what, if anything, the Coast Guard intends to do to adjust its 

capital investment plan to better correspond with what the Coast 

Guard can reasonably expect the Congress to provide in appropriations. 

Mr. Chairman, acquisition policy is not just a function of a process. Our policies also are reflected in the budgetary resources we 

devote to programs and in the attention we give to emerging demands, such as the Coast Guard’s need for new heavy and medium 

polar ice-breakers in the Arctic. But before the Congress appropriates any funds, agencies in the executive branch must provide 

us with timely, accurate, and reliable budget estimates. I share 

your frustration when the administration does not make such information available. 

Everyone in this room wants the Coast Guard to succeed. The 

Coast Guard deserves the best vessels and aircraft that modern 

technology can provide. The American public certainly expects no 

less. If we hope to achieve the Coast Guard’s approved program of 

record for Deepwater, we must engage each other as genuine partners and determine a common path forward. I hope that this morning’s hearing moves us in that direction. 

Mr. LOBIONDO. Thank you, Mr. Larsen. Our first witness today 

is Mr. John Hutton, director of acquisition and sourcing management for the GAO. Mr. Hutton, we welcome you and look forward 

to your testimony. 

TESTIMONY OF JOHN P. HUTTON, DIRECTOR, ACQUISITION 

AND SOURCING MANAGEMENT, GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. HUTTON. Thank you, Mr. Chairman. Chairman LoBiondo, 

Ranking Member Larsen, and members of the subcommittee, thank 

you for inviting me to discuss our July 2011 report, ‘‘Action Needed 

as Approved Deepwater Program Remains Unachievable.’’ This is 

our latest in a series of reports over the past decade where we have 

informed Congress and others not only of the problems and uncertainties related to this large, complex acquisition, but also of the 

many positive steps the Coast Guard has taken to strengthen its 

acquisition management capabilities as it assumed the systems-integrator role. 

Today, I would like to focus my remarks by simply posing three 

questions that we believe, if answered by the Coast Guard and 

DHS, should help improve the overall recapitalization efforts. First, 

what is the true cost of the current recapitalization effort? Second, 

what are the assets and capabilities the Coast Guard needs while 

considering fiscal constraints? And, third, how can the Coast Guard 

manage its recapitalization effort, given its expected funding levels 

over the next several years? 

5 

With respect to cost, there are several factors that preclude a 

solid understanding of the true cost of the program. Over the years, 

we have reported on cost growth and as of May 2011, the total 

Deepwater program could cost as much as $29.3 billion, about a 20- 

percent increase over the past 4 years. 

But further cost growth is looming because the Coast Guard’s 

current plans do not reflect all known updated costs. This contributes to the approved 2007 baseline no longer being achievable. For 

example, the Coast Guard has not developed a revised cost estimate for the Offshore Patrol Cutter. That is the largest cost driver 

in the 2000 baseline, at $8 billion. 

Further, the approved baseline for the National Security Cutter, which was revised in 2008, reflects a total acquisition cost of $4.7 

billion. However, our recent review of budget documents found that 

the program may cost an estimated $5.6 billion, representing a 19- 

percent increase over this asset’s 2008 revised baseline. 

With respect to the second question, what assets and capabilities 

are needed, we recommended in July 2010 that the Coast Guard 

conduct a comprehensive review to clarify the mix of assets required to meet mission needs within fiscal constraints. While the 

Coast Guard’s initial fleet mix analysis provided insight on the performance of fleets larger than the program of record, the analysis 

was not cost-constrained. The Coast Guard undertook a second 

analysis that considered various funding scenarios. However, we 

were told it would not assess any mixes smaller than the current 

program. 

In the meantime, DHS has conducted its own study to examine 

alternatives to the planned cutter recapitalization. We continue to 

recommend that DHS and the Coast Guard work together, using 

the information contained in the three studies, to help identify cost, 

capability, and quantity trade-offs. 

With respect to the third question, DHS and the Coast Guard are 

managing a recapitalization effort that is expected to cost more 

than what its annual budget will likely support. For example, 

Coast Guard officials said that they need up to $1.9 billion per year 

to support the approved baseline. However, these officials expect 

actual funding levels to be closer to $1.2 billion for these assets. 

Coast Guard-wide support is required to reliably plan and execute an achievable recapitalization program. Thus, this year we 

recommended that the Coast Guard engage in an agency-wide effort to ensure that recapitalization programs are funded within the 

resource constraints. This effort should involve the acquisition, resource, and capabilities directorates. 

In commenting on our report recommendations, DHS stated that 

the Coast Guard already does make trade-offs as part of its annual 

budget process. However, under this budget process, DHS and the 

Coast Guard have continued to face the problem of approved acquisition programs not being feasible. 

In closing, fiscal realities underscore the importance of answering 

these questions so that more realistic budgets can be submitted to 

Congress and the Coast Guard can better manage the modernization of its ships, aircraft, and other supporting capabilities. 

Mr. Chairman, this completes my statement. I would be happy 

to respond to any questions you have. 

6 

Mr. LOBIONDO. Thank you very much. Your report declared that 

the acquisition of Deepwater assets is unachievable with the 2007 

baseline. Can you tell us, or do you have any idea what the Coast 

Guard is doing to prevent acquisition costs from rising beyond the 

expected level? 

Mr. HUTTON. Well, I think one of the important things that we 

pointed out in our report is that, as you gain more knowledge and 

you see that your current baselines aren’t accurate, that you revise 

those as quickly as possible, get them approved so you have a good 

handle on cost, schedule, and other performance parameters. 

We noted in the report that there are several assets—at least 

two, in particular, the UAS and the OPC—which represent about 

35 percent of the dollars considered under the original 2007 baseline, and no baselines have been updated. So I think there are 

issues, as it relates to keeping all your baselines as accurate as the 

knowledge that you currently have. But also, as our report mentioned, you need to have good life-cycle cost estimates, good schedules. And I think that the best practices that GAO used in looking 

at the Coast Guard’s activities for a couple of the assets showed 

that there could be some improvements in those areas, and we had 

a recommendation directed at that. 

Mr. LOBIONDO. We have—your report states that the Service is 

not getting the full plan capability out of the National Security 

Cutters delivered to this date. Do you know if the Coast Guard has 

any performance metrics that prove that we are getting greater capability out of the National Security Cutter than the High Endurance Cutter? 

Mr. HUTTON. That’s a great question, and we thought a lot about 

that, just in terms of performance overall for the assets that they 

are acquiring. 

One thing we do note is that the assets have not gone through 

operational test and evaluation. That is a very key phase of the acquisition process. That is where you help ensure that when you establish your mission needs statement up front, when you establish 

your operational requirements document, when you establish your 

baselines, that you have traceability through all those, that you’re 

going to test it in an operational situation and be able to assure 

yourself that what you are buying is actually what you thought you 

were buying, and is going to meet the mission gap that you were 

hoping to. 

Mr. LOBIONDO. Mr. Larsen. 

Mr. LARSEN. Mr. Hutton, on that point can you be more specific 

about what the implications for those assets are for not completing 

initial operating and testing? 

Mr. HUTTON. Well—— 

Mr. LARSEN. Initial operational testing. 

Mr. HUTTON. Right. They are scheduled—several assets are 

scheduled to go through initial operational testing within the next 

year or two. Those are planned. I have every reasonable expectation that the Coast Guard is going to follow through with those 

processes. There is a certain appropriate time when you do that. 

They are working towards that. So it’s not necessarily that it’s 

something they’re not considering, not caring to do. They know 

7 

they need to do it. And those are going to be scheduled within the 

next year or so. 

But again, I think that’s where you get some insights. The Coast 

Guard does a lot of different kind of testing along the way, operational assessments and things of that nature. That’s where they 

gain some insights, early insights. They try to take corrective actions where necessary. But I think, ultimately, you would like to 

see the results of the initial operational test. 

Mr. LARSEN. Does the Coast Guard have a separate operational 

test and evaluation units, much like the Department of Defense 

does, or is it tied in with their acquisition? 

Mr. HUTTON. Under the process, they have officials that are involved in developing the test and evaluation plan. But I think 

what’s also important is that the Department of Homeland Security, over the last couple of years, has really stepped up and refined 

their departmental processes. They have submitted a new directive 

on test and evaluation probably a couple years ago, and I would 

suspect that the Coast Guard’s plans are going to be reviewed by 

the Department as another set of eyes, to make sure that they are 

testing the things that they should be testing, and that the way 

they’re conducting the tests you can expect a reasonable answer to 

the questions that you have. 

Mr. LARSEN. Now, we know on this committee from previous 

hearings—not just this year, but over the last several years—this— 

the Deepwater program, this acquisition program, has been under 

a lot of scrutiny. We have put it under a lot of scrutiny. We have 

actually changed how the Coast Guard is organized to implement 

this. You know, we went from an outside integrator and acquisition 

oversight to inside. 

How much of that do you think that—how much of this change 

do you think is contributing to this cost growth? In other words, 

is this a hiccup, but a big hiccup, in the steps to get to where we 

have wanted to go with the acquisition process in the Coast Guard? 

Mr. HUTTON. Well, I personally have been tracking this over the 

last 5, 6 years. I have seen what was going on while they were part 

of the systems integrator. And then I was also here when the Coast 

Guard decided to pull away and start beginning to manage their 

assets on an asset-by-asset basis. 

We have commented in past reports how the Coast Guard, in 

fact, had taken some steps to realign their directorates. They had 

a blueprint for acquisition improvement, which had a lot of key 

steps. That was based on a GAO framework for, basically, a best 

practice of an acquisition organization. So, we saw that they were 

taking a lot of good steps. 

Two points, though. One, it is hard to say for sure, but what 

you’re seeing now is, on one level, a result of the fact that they now 

are looking at these systems on an asset-by-asset basis. They are 

not relying on the contractor to do a lot of things. I think they are 

getting a lot more insight on these assets than they may have had 

3 years ago and probably wouldn’t have, to this day, if they were 

still under that model, in my opinion. 

So, what you’re seeing is you’re getting a lot more insights probably earlier—well, in this case maybe later, because—— 

Mr. LARSEN. Right. 

8 

Mr. HUTTON [continuing]. Of the way it worked out. But they’re 

getting insights now that they didn’t have before. But the key always comes down to, if you have better knowledge—and you want 

knowledge as you’re going along the acquisition process—the key is 

what are the individual decisions you’re making as you’re going 

along, and are you putting the acquisition program and the acquisition directorate on the best footing to have success, by making sure 

that you have resources that match what you’re trying to do. 

Mr. LARSEN. Yes. Judging from the criticism of the handling of 

the fleet mix analysis, and the optimistic funding projections in the 

Coast Guard’s capital investment plan, in your estimation is the 

Coast Guard’s acquisition directorate adhering to its own policies 

establishing their blueprint for acquisition reform? 

Mr. HUTTON. Well, that is an acquisition directorate blueprint. 

And what we noted in our report is that while they laid out something that we thought made a lot of sense, such as looking at what 

the needs are and the funding requirements, the acquisition directorate needs then to interact with the resources people and the capabilities people. 

And that’s what we were trying to do, that they better connect 

or better yet, make decisions about what trade-offs have to be 

made, given the available funding. Once that decision is made, 

then plan realistically in future budgets, so that you don’t have a 

lot of churn over time. If you will notice, in their 5-year capital investment plan, where we looked at it over a series of years, you 

could see where one year they wanted to spend their money a certain way, but each year that mix of what they’re going to put on 

aviation assets versus surface assets changed, mainly because of 

some of the things they had to deal with. 

So, it wasn’t really going to help them have a smooth acquisition, 

because they were planning for more money than what they really 

were going to reasonably get. 

Mr. LARSEN. And finally, if that’s the case, you know, as recently 

as, you know, a couple of years ago we were expecting a $24.5 billion program over a period of years. And you are now estimating, 

at a minimum—you are seeing, at a minimum, $29 billion, based 

on what happens with Offshore Patrol Cutter. 

This program seems—at least right now, without some changes— 

seems to be headed towards spending up to a certain amount until 

the money is gone, but the Coast Guard still hasn’t built out everything they wanted. That’s where this seems to be going. 

Mr. HUTTON. Yes. And I think, in part, that is why our title was 

stated that way. I think there is an issue that they need to address, as it relates to here is what we have said we’re going to buy, 

recognizing that even the current baseline may not fully represent 

what we think ultimately we’re going to need to carry out this program. 

And our concern is that you need to basically make those priority 

trade-offs now. And then make sure that your budget submissions 

are representative and linked to what they think they can buy. 

I do want to mention, though, the thing that’s hard for us to get 

behind is the relationship between when a Coast Guard budget 

goes to the Department, when the Department sends the budget to 

9 

OMB, when it goes to you all on the Hill, the ins and outs. We 

don’t have good visibility into that. So I will be open for that. 

Mr. LARSEN. What was the original estimate on this program? 

Mr. HUTTON. Well, I think it depends. The pre-9/11 estimate—— 

Mr. LARSEN. All right. 

Mr. HUTTON [continuing]. I think was in the $14 billion range. 

Is that right? Seventeen billion. I stand corrected. 

Mr. LARSEN. Pre-September 11, 2001. 

Mr. HUTTON. Yes, and I think even if you go back in the late 

1990s, you might find another estimate in a GAO report—but, of 

course, you know, a lot has changed. 

Mr. LARSEN. Right. 

Mr. HUTTON. Missions and requirements. But it was less than 

that. 

Mr. LARSEN. And I think generally—not—I don’t want to speak 

for all of Congress, but generally, when we looked at the program 

inflating up to $24 billion, it was obviously an eye-opener, a bit of 

a shock, but there was some understanding and some give-and-take 

between the Coast Guard and Congress about, well, we understand 

what the mission requirement is, post-9/11. 

But at some point now we are getting—we are looking at north 

of $29 billion, and we are back to scratching our heads. And it’s 

not a place we would like to get back to. 

Mr. HUTTON. Well, again, I would like to just say, if I could, the 

key is do you have good information to make good decisions. And 

I think, up until now, we are seeing them get more insights into 

what they are actually buying. But as our report notes, there are 

still some areas that we are going to be interested in seeing, what 

the new estimates are going to look like. And then, to what extent 

there are going to be any trade-offs. Because, as our report mentioned—— 

Mr. LARSEN. Right. 

Mr. HUTTON [continuing]. There are several studies that we understand are to be used to consider those trade-offs. But it’s early; 

we haven’t seen what those are. 

Mr. LARSEN. Yes, good. Thank you, Mr. Chairman. 

Mr. LOBIONDO. Master Chief Coble. 

Mr. COBLE. Thank you, Mr. Chairman. Mr. Hutton, it’s good to 

have you with us. 

Mr. HUTTON. Thank you. 

Mr. COBLE. I was going to put this question to the commandant, 

but I will run it by you, as well. During previous testimony by Secretary Napolitano, she emphasized her commitment to building 

eight National Security Cutters. The fiscal year 2012 budget, you 

will recall, request included a projected $77 million to complete the 

fifth National Security Cutter. But the ship was funded in its entirety, I’m told, in fiscal year 2011. 

Since that ship’s funding has been secured, what are the Coast 

Guard’s plans, if you know, during the fiscal year 2012 for National 

Security Cutters 6, 7, and 8? 

Mr. HUTTON. I believe, as the budget is going through the process, your characterization is the way I understand it. Unless Congress were to put some money in the budget that the Coast Guard 

might not have asked for, I don’t expect you would see anything 

10 

for 2012 if the bills pass the way they are currently being considered. 

I also think you are asking about buying the eight NSCs. And 

I think what I find interesting is when you look out at the 2012 

through 2016 range, you will see in 2015, in their capital improvement plan—investment plan, you will see that there is money in 

there to buy three surface ships, three classes: the OPC, NSC, and 

the FRC. And we point that out because that is the first time you 

will see three major surface ships being put into the budget for the 

same year. And what I think is in that particular year is a little 

over $2 billion. 

Mr. COBLE. I thank you, sir. No further questions. Thank you, 

Mr. Chairman. 

Mr. LOBIONDO. OK. Rick, do you have anything else? 

Mr. LARSEN. Thank you, Mr. Chairman. Just with regard to the 

system of systems and your thoughts on that, how far is the Coast 

Guard from achieving this concept than it was originally proposed? 

And is it possible for the Coast Guard to deliver that capability 

within these budget constraints? 

Mr. HUTTON. Well, that’s a great question. As the report points 

out, there are a lot of questions we still have on the system of systems, Mr. Larsen. We noted in our report that some of the newer 

assets like the NSC, the MPA, and the HC–130 right now are not 

in a position to fully share data. 

One thing that we do point out, is this is a very complex, integrated-type system. When they decided to go in-house with the acquisition, one of their biggest challenges was to get insights into 

what the prior systems lead integrator was doing, what software 

and technical data they had, to gain a good understanding of where 

they were headed. 

But there are still some major decisions to be made. For example, there is an approved baseline. I think it was February 2011. 

But even when that was approved by the Department, it’s our understanding that it was essentially out of date, particularly because 

of some questions about the life-cycle cost estimate. 

So I just think there is a lot of open questions. That is one area 

that we got into a little heavier this past year than we have in the 

past. And I would expect that, in doing any future work, we would 

continue to look at that issue. Because, as you know, that was the 

key piece to integrate all the assets, surface and air and land, 

that’s going to allow you to get maybe a better outcome, leverage 

all the collective capabilities and get more. And that’s where some 

of the trade-off comes in with the assets, as well, the quantity of 

assets. 

Mr. LARSEN. OK. You’re right in pointing out that’s exactly why 

you do these kinds of things with the—on the communications side, 

the technology side. You integrate them, and you basically multiply—— 

Mr. HUTTON. You have a multiplier. 

Mr. LARSEN. You multiply your capability, as opposed to just 

having a few ships out there, a few boats out there, a few fixedwing or rotor aircraft in the air. 

So, I would look forward to your continuing to look at that aspect 

of this a little more in-depth. 

11 

Mr. HUTTON. Thank you. 

Mr. LARSEN. Thanks. Thanks, Mr. Chairman. 

Mr. LOBIONDO. Well, Mr. Hutton, I want to thank you very 

much, and I also want to thank your team for helping us better understand how this is coming together or not coming together, and 

what we need to focus on. I know you have spent an enormous 

amount of time and energy and years on this, and we just want to 

tell you how very much we appreciate it. 

So, we thank you very much and—— 

Mr. HUTTON. Thank you, Mr. Chairman. 

Mr. LOBIONDO. And we will now switch over to our second panel, 

which will be Admiral Robert Papp. 

Admiral Papp, I want to thank you for being here today. We also 

want to thank you for your leadership on this issue. Very challenging issue. I want to assure you that the subcommittee supports 

the acquisition goals of the Service. Nothing we would love to see 

more than to have this all completed. 

Legislation that I introduced was recently reported from the 

transportation committee, authorizing funding for the Coast 

Guard’s acquisition at a level that is significantly higher than was 

requested by the President or provided by the appropriators. We 

did so because we understand the critical importance of recapitalization, the program, and we want it to succeed. 

We are looking to you to continue the progress made by the previous commandant to get the ship on the right course, address remaining concerns, and move forward effectively and efficiently. And 

once again, I want to thank you for being here. And you are recognized. 

TESTIMONY OF ADMIRAL ROBERT J. PAPP, JR., 

COMMANDANT, UNITED STATES COAST GUARD 

Admiral PAPP. Thank you, Mr. Chairman, for welcoming me 

here. It is great to be back here. Ranking Member Larsen, thank 

you, sir, as well. And distinguished members of the subcommittee, 

it’s an honor to appear before you today to discuss the Coast 

Guard’s top priority: recapitalizing our fleet of cutters and aircraft. 

I welcome the opportunity to update you on our acquisition efforts and discuss the GAO’s report. But more importantly, I want 

to speak to you about how the ships and aircraft we buy today will 

not just take shape, but in large part will define the Coast Guard’s 

next 50 years of capability, and to discuss their value to America. 

Let me begin by expressing my complete understanding and full 

appreciation for the historic times that we are in, and for the challenges both you and the President face. Without question, the Nation faces fiscal challenges that are causing us, all of us, to confront 

some of the toughest choices that we faced in our respective public 

Service roles. In my case, these are some of the toughest choices 

I have confronted in nearly four decades of Coast Guard service. 

But I must admit I was a bit discouraged by the title of the hearing: ‘‘Protecting the Taxpayer from an Unachievable Coast Guard 

Acquisition Program.’’ I want to assure you, Mr. Chairman, that 

every Coast Guardsman, including our acquisition professionals, 

knows that protecting Americans from maritime threats is job 

number one. 

12 

But our Coast Guardsmen cannot fulfill this duty without the 

tools they need to do the job. So I welcome the opportunity to discuss our acquisition program, a portfolio of projects designed to 

protect Americans from maritime threats, and to discuss why and 

how this project is not only achievable, but necessary. 

As a Service chief, it is my responsibility and duty to convey my 

best military advice. For the Coast Guard, this subcommittee 

serves as our de facto House Armed Services Committee. Just as 

my fellow Service chiefs report to the HASC, it is my job to advise 

you on what my Service needs in order to provide security and protection that our taxpayers deserve. We have been fortunate 

throughout the years to have members of this subcommittee who 

understand this and have given us their full support. 

In the midst of an economic crisis in the 1930s, the President 

and the Congress chose to invest in America’s Coast Guard, building a class of seven new major Coast Guard cutters. Why? Because 

America needed capable multimission ships to meet both its known 

maritime challenges, as well as its unknown future challenges. 

These seven major cutters carried out missions never imagined 

in their original concept of operations, such as World War II convoy 

patrol, combat operations, and weather stations. They were able to 

do this because leaders foresaw that capable ships with speed, endurance, and versatility were a sound investment against an uncertain and what proved to be a menacing half-century to come. 

The last of these cutters was decommissioned in the mid-1980s 

at over 50 years of age. Then, as now, building multimission cutters was not merely a budget decision, it was a leadership decision, 

a leadership decision that required vision, fortitude, and courage. 

The current class of High Endurance Cutters, the 378s, were 

built in the late 1960s. When introduced, they were capable ships 

with space, endurance, and speed. They too were used for missions 

barely imagined, such as combat missions in Vietnam, and 

transitioning from ocean station program duty to prosecute the new 

threats of maritime drug trafficking and illegal migration. But this 

fleet is now well in excess of 40 years old. It is antiquated, expensive to maintain, and unreliable to operate. 

What my shipmates and this country desperately need is a modern, reliable fleet of vessels, and aircraft equipped with effective 

command and control and communications systems to ably perform 

our expanding maritime missions. And that, members of the subcommittee, is why recapitalizing this fleet is my number one priority. And I reaffirm that the Coast Guard requires at least 8 National Security Cutters and 25 Offshore Patrol Cutters, the approved project baseline. 

This subcommittee’s oversight continues to play a vital role in 

our recapitalization. So do the GAO’s thoughtful insights. The GAO 

report notes that we have already instituted reforms, and we continue to make significant progress. As our response to the GAO report confirms, we take its recommendations seriously. And I am 

personally committed to the continued improvement of our acquisition processes and program management. 

But it is also important to note that the GAO’s report analyzed 

data that was collected over a year ago. So today I want to focus 

13 

not where we were, but where we are. And I am proud to report 

to you that we are making real progress. 

On September 2nd, we accepted the on-time delivery of the cutter Stratton, the third National Security Cutter. The fabrication of 

the cutter Hamilton, NSC number 4, started in August. And we 

awarded a fixed-price contract for the cutter James, NSC number 

5, just this last month. These successes reflect benefits we have realized from stable requirements, rigorous adherence to our acquisition processes. 

Of note, the recently awarded NSC number 5 costs almost exactly the same as NSC number 4, which is remarkable, when you 

consider the enormous inflation in material costs between the 

award periods. This demonstrates that the NSC program has 

turned the learning curve, and has tremendous positive momentum, momentum that must be sustained. 

The NSCs Bertholf and Waesche are both now operational. Initial 

mission results are impressive. During Bertholf’s first Alaska patrol 

this spring, she demonstrated superior sea-keeping ability while 

launching her boats, recovering her helicopters, and conducting 

over 40 fishery boardings in the treacherous Bering Sea. Last year, 

her enhanced C4ISR capabilities were instrumental in interdicting 

a drug-smuggling vessel carrying a multiton load of cocaine. 

In April and August, the first two Fast Response Cutters, the replacement for the venerable Island-class patrol boat, were 

launched. Production of hulls 3 through 8 are underway, and we 

just exercised a fixed-price contract for the production of hulls 9 

through 12. We have also delivered 12 of 36 HC–144 Maritime Patrol Aircraft, and we have 3 more on order. And I could go on and 

on about the successes of these ships and those aircraft. 

Are there challenges we must overcome to deliver the full set of 

capabilities and mission results that the President, the Congress, 

and the American public rightly demands of our Coast Guard? Certainly. But our dedicated and professional acquisition directorate 

has made great strikes in identifying and correcting gaps between 

projected and realized capability. 

But it is also clear America needs these capabilities. These ships, 

boats, and aircraft will assist our crews in defending our homeland 

against maritime threats for the next half-century. Can we attain 

the program of record? I submit to you that this is the very least 

the Americans will demand of us. 

Unachievable? I think not. We have stable prices and requirements. We simply need the courage, foresight, and conviction to 

move forward in recapitalizing our Coast Guard in order to protect 

our vital maritime interests, interests which impact every American. 

I want to thank this subcommittee for the rigorous oversight that 

you have given us throughout the years on this project. I don’t 

deny errors, mistakes, trying to climb a very steep learning curve 

in executing this project. But I want to reconfirm our commitment 

for doing this right. And while I respect and admire everybody’s responsibilities, whether it is GAO holding us accountable for proper 

practices, the Congress giving us its proper oversight, it is my job 

to come up here as the leader of the Coast Guard and give you my 

14 

best military advice on what we need to carry out our missions for 

the country. 

So, thank you for the opportunity, sir, and I am ready to answer 

your questions. 

Mr. LOBIONDO. Well, thank you, Admiral Papp. I mean there is 

no daylight between what you would like to see and your vision, 

and what we would like to see for the men and women of the Coast 

Guard. But some of these findings require a little probing, a little 

asking, a little clarification as we move through this. 

One of the things I want to focus on a little bit is where we’re 

bouncing around with these numbers. There was a GAO report 

that noted an annual appropriation level of about $1.2 billion. 

There is an assumption that maybe to do the program we need $1.9 

billion. Or maybe it’s $1.7 billion. The legislation, as I mentioned 

before, that I introduced, is $1.5 billion for the next 3 fiscal years, 

because the highest level of appropriations thus provided for the 

program, and I felt that it was the most robust and realistic number that was achievable in the current budget climate, which I 

don’t have to remind you is pretty tough. 

Can you tell me what the current value of the Coast Guard’s capital assets are: cutters, small boats, aircraft, et cetera? 

Admiral PAPP. Yes, sir, I can, because, as you know, we have 

also, at the same time as improving our acquisition programs, we 

have also been improving our audit programs, as well, as we are 

being held to new rules. 

We have done a full capital review of the entire Coast Guard. And when I say our capital assets come out roughly $30 billion, 

having learned a little bit about this, that also reflects depreciation. In other words, that doesn’t reflect the replacement value of 

the ship’s aircraft and everything that we have. It’s just that the 

current evaluation of all our capital assets is about $30 billion. Obviously, it would cost much more to replace all those ships and aircraft. 

Mr. LOBIONDO. Can you give us your take on what percentage 

of value must be invested each year to maintain current levels of 

effort, and to allow the Coast Guard to fully carry out its missions? 

Admiral PAPP. I think I can, Mr. Chairman. Actually, in discussions and looking at our budget—and I will give you rough numbers here—what we do now is we have to live within the constraints of—we have been averaging about $1.4 billion in acquisition money each year. 

If you look at our complete portfolio, the things that we would 

like to do, when you look at the shore infrastructure that needs to 

be taken care of, when you look at renovating our smaller ice 

breakers and other ships and aircraft that we have, we have done 

some rough estimates that it would really take closer to about $2.5 

billion a year, if we were to do all the things that we would like 

to do to sustain our capital plan. 

So, I am just like any other head of any other agency here. At 

the end of the day we are given a top line, and we have to make 

choices and trade-offs. And basically my trade-offs boil down to sustaining frontline operations, balancing that with trying to recapitalize the Coast Guard. And there is where the break is, and where 

we have to define our spending. 

15 

Mr. LOBIONDO. One of the things that we are trying to understand—and it is challenging to sort of get our arms around what 

the accurate information is—but what level of mission execution 

would the Coast Guard be able to carry out if the appropriation 

were, say, $1.2 billion versus $1.9 billion. 

Because we are obviously the authorizers, the appropriators, 

have to have a case made. We have a concern that, based on some 

of the things they have seen, they may try to slice and dice a little 

bit harder than they have. So this—the question is posed to try to 

be able to frame an argument for mission execution that is necessary. 

Admiral PAPP. Well, I can tell you, sir, that right now, for the 

fiscal year 2012 budget, the President’s budget requests approximately $1.4 billion. It was very tough for us this year, as we analyzed our budget, and we tried to strike that balance between mission execution—in other words, maintaining frontline operations— 

and still continuing on our acquisition project baselines. 

And we are able to keep our frontline operations going within the 

budget, but we had to make some very challenging choices in terms 

of distribution of resources within our acquisition accounts. In 

other words, in some of the projects we might have to choose only 

the minimum order quantity. Obviously, if you can order the maximum order quantity for any given year, you gain the benefits of 

economies of scale by ordering more in an individual year. 

So, it’s just a balancing act within that acquisition appropriation, 

in terms of numbers of ships, numbers of aircraft. And those are 

the tough decisions that we are having to make trade-offs on. 

Mr. LARSEN. Thank you, Admiral, for coming today. The current 

baseline is at $24.2 billion, and then—but the GAO report, as you 

know, has a new overall baseline in its view of—estimated at about 

$29 billion. And I think, from our testimony and the report, that 

doesn’t include the Offshore Patrol Cutter, so maybe it would be 

north of there. 

Can you talk about some of the factors that have contributed to 

that—about 20-percent cost increase in the last 4 years? 

Admiral PAPP. Yes, sir. Part of what has contributed to that cost 

increase is we are doing our job better now. I will be the first to 

admit that in the late 1990s we had reached a point where we had 

depleted most of our acquisition professionals within the Coast 

Guard. We didn’t have a lot of large projects going on. We had a 

very small acquisition budget. We had been working for years to 

start what was then called the Deepwater project. 

September 11, 2001, changed that equation. And all of a sudden 

the money started coming in. And people talk about analogies of 

trying to build an aircraft while you’re flying, or trying to build a 

ship while you’re sailing. That’s exactly what we were doing within 

our acquisition community inside the Coast Guard. In part, that’s 

what necessitated having a lead systems integrator, basically hiring people to run the project for us as we tried to build up the capacity within the Coast Guard. 

Mr. LARSEN. Right. 

Admiral PAPP. So, when it became evident that we should take 

on the role of leading this, as I think Mr. Hutton described, we 

16 

started our blueprint for acquisition reform. That was approximately 5 years ago. 

I am intimately familiar with that, because I was chief of staff 

of the Coast Guard at the time. And then Rear Admiral Currier 

was the chief of acquisitions. And he did an outstanding job in 

leading that effort to build up our acquisition workforce. And that 

continues today. He is now on the job as the deputy commandant 

for mission support, and is supervising—continuing to supervise 

our acquisition reform. 

We got about the business of hiring good people, some people we 

hired away from the Navy to bring them in, to give us an increase 

in expertise within our acquisition community. And then we set 

about coming up with training programs for our people. And what 

I would say is our people are good now, and they know how to take 

very rigorous reviews of costs, take into account all the costs that 

are out there. And what we have found is there were some costs 

that we didn’t account for. 

There were other things that complicated, such as Hurricane 

Katrina, which basically shut down the shipyard in Pascagoula for 

a time, delayed deliveries. There was our own changes to requirements that occurred after September 11, 2001, that added to the 

cost, as well, culminating in a 2007 review which showed the initial 

increase. And what I would say is we are working very hard to 

make sure that we have revised APBs and costs. We are working 

them with the administration right now. 

And I fully recognize that the OPC, the Offshore Patrol Cutter, 

is going to be a major contributor. But when I came in as commandant, one of the first things we did was we took another review 

of the requirements on that ship, and we redirected our philosophy 

to say that the number one driving factor is going to be affordability. And we have, in fact, even reduced some of our threshold 

requirements, getting them where they’re still acceptable for carrying out Coast Guard operations, but keeping into account that 

that ship is going to have to be affordable. 

So, I can’t sit here today and tell you that’s not going to increase. 

Obviously, we are working very hard to stay within the numbers 

where we can. But I will be completely forthright and honest with 

you, as we determine what those numbers are going to be. 

Mr. LARSEN. Would you say on the OPC that GAO is in the ballpark, in terms of its contribution to driving—— 

Admiral PAPP. Well, I—yes, sir. I think they are definitely within 

the ballpark, and I think that it’s always a challenge. We are basing things on conditions as they exist right now. So you can pick 

a figure and, if it’s reasonable, it’s in the ballpark. But what conditions are going to change between now and when we start cutting 

steel on that project? What unforseen things are going to happen 

in the country? What’s the price of steel going to do during that 

period? There is always going to be changes; that’s the one thing 

I have learned from studying the acquisition process. 

Mr. LARSEN. So then, is—at what point does the Coast Guard 

then look at realigning the budget projections in its capital investment plan to the level of funding that you’re receiving? Or does 

this continue—does the plan continue to get pushed to the right on 

the spreadsheet? 

17 

Admiral PAPP. Well, sir, I hope it doesn’t get pushed to the right, 

because the further you press it to the right, that’s another contributing factor to costs going up. 

What we have got right now, at least for the NSC, for MPA, for 

the FRC, we have stable programs. We know what the costs are. 

We are not changing our requirements. And, really, when you look 

at standard acquisition, there is this triangle of cost, performance, 

and schedule. We are controlling the costs now, we know what they 

are. We know what the performance is that we want. It’s the 

schedule that will drive any cost increases, because the further you 

drive the schedule to the right, the prices will increase. 

So, I am trying to make the effort to build the things we need 

as fast as we can. I fully understand there is fiscal constraints 

within our Government. But it’s my job, as the commandant, to tell 

you what we need, and that the faster we build them, the lower 

our costs will be in the long run, because we are able to decommission aging costly assets and get a better price for the new assets 

if we build them quicker. 

Mr. LARSEN. So, are you approaching, though—are you approaching your platform budget different than you are approaching your 

systems budget? Because your time-cost-performance triangle 

might apply to the ships, the boats, the aircraft, but it doesn’t seem 

to apply yet to your—the C4ISR systems, because the integration 

that the Coast Guard has proposed in the past doesn’t seem to be 

even near caught up with where you are in building actual platforms. 

Admiral PAPP. Well, I think—sir, I think we are moving ahead. 

Mr. LARSEN. Are you moving ahead from a place that’s behind, 

though? 

Admiral PAPP. Well, one of the challenges I think we all face, if 

you look at—I don’t know what number iPhone is out there today, 

I think we’re up to number 5, and they’re already talking about 

number 6. 

Mr. LARSEN. Tomorrow. 

Admiral PAPP. Technology just continues to evolve faster than 

the budgetary process or even the engineering processes that we 

have. The things that we envisioned 10 years ago when we started 

thinking about this system of systems, putting these ships linked 

with aircraft and shore bases, is obsolete technology now, as we envisioned it then. It continues to evolve, it continues to improve. 

On a daily basis, our technicians within the Coast Guard are 

making incremental improvements to our C4ISR systems in our 

legacy assets and in the new assets to optimize—maybe not get to 

the optimal, but to optimize what we have, what we have available, 

so that we can communicate between those assets. And I think we 

are doing a pretty good job on it, as is demonstrated by some of 

the cases we have prosecuted with our new AC–144, vectoring surface assets to interdict drug smugglers. The National Security Cutter, in its ability to communicate with Maritime Patrol Aircraft and 

other cutters, and its small boats—we are making those incremental improvements, and they are improvements. They might not 

be as fast as we would like them to do, but we are doing the best 

we can. 

Mr. LOBIONDO. Master Chief Coble? 

18 

Mr. COBLE. Thank you. Thank you, Mr. Chairman. Admiral 

Papp, good to have you back on the Hill. 

Admiral PAPP. Thank you, sir. 

Mr. COBLE. Admiral, during the previous testimony with Secretary Napolitano in March, she emphasized her commitment to 

building eight National Security Cutters. The fiscal year 2012 

budget request included a projected $77 million to complete the 

fifth cutter. But the ship was funded in its entirety in fiscal year 

2011. Since that ship’s funding has been secured, what are the 

Coast Guard’s plans during the fiscal year 2012 for national cutters 

6, 7, and 8? 

Admiral PAPP. Well, first of all, I need to express once again my 

appreciation to the Congress for putting the full funding for National Security Cutter number 5 into our fiscal year 2011 budget. 

That will get that ship out there at a better price and sooner, to 

start serving the American people. 

The challenge continues to be getting six, seven, and eight constructed. And right now we have—in our capital investment plan 

we have plans to put number 6 in the fiscal year 2013 budget, 7 

in the fiscal year 2014 budget, and 8 in the fiscal year 2015 budget. 

And right now we are constructing it that way because of OMB circular A11, which requires full funding for a project in any given 

year. It’s a little different constraint that we are dealing with right 

now, and we are adjusting our capital investment plan to be able 

to accommodate that. 

Mr. COBLE. Thank you, Admiral. Admiral, OMB is insisting that 

the Coast Guard comply with full funding requirements under 

OMB circular A–11 for the National Security Cutters and other 

Service acquisition projects. This means, as I understand it, the 

Coast Guard must budget for and receive funds to cover the cost 

of long lead material, construction, and post-construction activities 

prior to awarding a contract for production of a new asset. 

Let me put a two-part question to you, Admiral. What’s the impact of the OMB policy on the cost of delivery schedule for the NSC 

program? And what is the impact of this policy on the Coast 

Guard’s acquisition program? And will trade-offs be necessary? 

Admiral PAPP. Well, sir, as I stated, it—the quicker you can 

spend the money, have the money available, the—it affects the cost 

of the ship. 

Generally, the cost of the ship will be less, the earlier you can 

build it. And having long lead materials allows a shipyard to make 

certain assumptions about the stability of the program, certain assertions that, yes, in fact, we are going to be building six or seven 

or eight, and they can plan, they have to make management decisions as it relates to their workforce, to buying supplies and long 

lead materials, et cetera, which, if they have stability in schedule, 

they can give you a lower price. And I think we have confirmed 

that in what we did this last year, in keeping number 5 at virtually 

the same price as number 4. 

We have, in the past—OMB has allowed us to spend long lead 

money, and it has generally provided—produced lower prices for a 

ship because the shipyard is able to get them, and it gets the ship 

out there faster. We had $77 million in the fiscal year 2012 budget, 

which was intended to be money to complete number 5, as I said 

19 

earlier. We are grateful that the Congress decided to put all the 

money for NSC number 5 in the fiscal year 2011 budget. 

The Senate currently has a mark, or kept the $77 million in their 

mark, and designated that as long lead materials for NSC number 

6. If that stands, and if in conference the House works with the 

Senate on that, what that does, it—I don’t have authority to spend 

on long lead. I would have to go to OMB and get an exception to 

A–11 to be able to spend long lead money on number 6. 

Mr. COBLE. Thank you, sir. Mr. Chairman, my time is about to 

expire. Can I have one more question? 

Mr. LOBIONDO. For you, certainly. 

Mr. COBLE. Thank you, sir. Admiral, finally, I am told that the 

Coast Guard has made several successful acquisitions since our 

hearing earlier this year in the spring—April, I think. What are 

some of these successes, A. B, were any of the successes achieved 

ahead of schedule? C, were they achieved for lower cost than originally expected? 

Admiral PAPP. Well, I think that the biggest success, because it 

means the most in terms of value to the Coast Guard and value 

to the taxpayer, are the National Security Cutters. First of all, national security number 3, the Stratton, while it wasn’t, sir, delivered ahead of schedule, it was ready to go early, it passed builder’s 

ship trials and acceptance ship trials with flying colors. And this 

is not just a biased Coast Guardsman saying this. We bring Navy 

people on board to evaluate the ships. And as you might imagine, 

sir, as a Coastie, the Navy guys don’t cut us any slack. 

Mr. COBLE. Yes. 

Admiral PAPP. So, they were astounded, though, at the quality 

of the ship, the lack of discrepancies, and the vast improvement 

that had been demonstrated by the shipyard from hull number 1 

to hull number 3. So, delivering that on time within the cost designated is, I think, a very significant event. 

The other very significant thing is our acquisition force now has 

taken over that project. And heretofore the first three ships were 

acquired under a cost-plus contract. What we needed was predictability and stability in pricing, and what we did—it was very hard, 

but we hammered out a fixed price contract for number 4. And 

many people were amazed, first of all, that we were able to do that. 

But then people were even more amazed that, within the same 

year, we were able to negotiate and execute a second fixed-price 

contract for hull number 5 when Congress gave us that money. 

So, those are the major accomplishments. But I would say also 

the Fast Response Cutter, our new patrol boat, two of them are in 

the water right now, and we are anxiously awaiting delivery later 

this year. We have hulls 3 through 8 that are under construction, 

and we have just awarded a fixed-price contract for three more. 

That’s another success. And our Maritime Patrol Aircraft, as well, 

we are taking deliveries on them, and they are performing outstanding. 

Mr. COBLE. Thank you, Admiral. Mr. Chairman, I yield back. 

Mr. LOBIONDO. Frank, do you have any questions? 

Mr. GUINTA. Not at this time, Mr. Chairman. 

Mr. LOBIONDO. OK. Rick? 

20 

Mr. LARSEN. Admiral, with regards to the fleet mix analysis, will 

phase two include an analysis of any trade-offs, not just between 

assets within the Deepwater, but trade-offs among major system 

acquisition programs? And when can we expect to see that? 

Admiral PAPP. The fleet mix analysis number 2 is still being 

worked through the Department, through the administration. And 

I am not sure what timeline has been designated for getting it up 

here. Obviously, I will work as hard as I can to get it up here as 

quickly as possible. 

The frustration I feel with fleet mix analysis and other analysis 

and other evaluations is none of them have refuted the basic assumption of the need for 8 National Security Cutters and 25 Offshore Patrol Cutters. All of these studies continue to point towards 

that is the right number to provide the services we need for our 

country. 

In fact, the fleet mix analysis one, which we all acknowledge is 

an unconstrained study, demonstrates, that to carry out all our 

missions, we need more ships. What I will say today is I am satisfied with the acquisition project baseline, as the commandant, that 

those are the numbers of ships that I need to carry out the missions. And we need to move forward smartly with that. But we will 

continue to provide whatever documentation and work that 

through the administration to get it up here to substantiate what 

we need for our Service. 

Mr. LARSEN. The conversation about the project baseline is one 

thing, but this gets back to the crux of the intent, I think, of the 

title of the hearing, which is the project and the platforms are one 

thing, but there is a certain dollar amount out there today. 

Admiral PAPP. Right. 

Mr. LARSEN. And at what point, then, does this approved program of record, you know, become unachievable? That is the question we are trying to answer, because we have to answer that eventually. And you want to answer that before we answer it. 

Admiral PAPP. Right. 

Mr. LARSEN. At some point. So, can you give me a perspective 

about decisionmaking that will have to take place within the Coast 

Guard about the platforms that you want under Deepwater versus 

what dollar amount is available over time to accomplish that? 

Again, short of pushing that spreadsheet out to the right, and adding costs to the program as a result. 

Admiral PAPP. Right. Well, Mr. Larsen, I—as I was sitting up 

last night thinking about all that could be asked today and really 

thinking deeply about this project, one of the things that strikes me 

is probably—not probably. I would say is one of the things we had 

to do when we were trying to gain the attention—you know, remember, this project goes back to the 1990s. And there was a time 

when, in the mid-1990s, we were reduced by about 6,000 people. 

We were cutting back on frontline operations, and we couldn’t get 

any money to recapitalize ships. The truth of the matter is 9/11 

turned this around. 

But our strategy, the way we were marketing this—and I think 

rightly at the time—was this system of systems approach, which 

then drives the need to quantify what’s the cost of this system. So, 

21 

whenever anything changes with the system now we are rightly 

criticized for increasing costs. 

What I would suggest is we have gone in the right direction, we 

have disaggregated this thing that was called Deepwater, and we 

have discrete ship-building functions, aircraft functions, and others. 

And we are more adept now at identifying what the real costs of 

those projects are, which is contributing to, once again, that total 

acquisition project baseline cost. And what we really need to do is 

focus on the discreet elements of it. 

But more importantly than that, what we have done is we have 

said, ‘‘OK, what’s the cost of this thing going to be at the end of 

the 30 years, or whatever it is that it’s going to take to recapitalize?’’ And I would suggest that perhaps a better way to look at 

that is this discussion that we had up front, which—we are an enterprise. We have a capital plant in the Coast Guard that requires 

renewal each year. And there is probably some level of funding, a 

steady-state level of funding, that is required in order to do that. 

Is $1.4 billion enough to do it? Well, no. I don’t think so. But at 

the end of the day, I am given a top line of what I have to fit within. 

So, it would be very easy if I, right up front, said, ‘‘Yeah, sure, $1.4 billion is enough.’’ But it’s my job to tell you what we need, 

and then it’s the administration and the Congress that then tells 

me how much I have to spend. And then I make informed military 

decisions within my Service on how we best spend those things, 

which, once again, are rightly subject to criticism by all of you, if 

you don’t think I’m doing that the right way. 

So, I think a better way of looking at it is, you know, is it going to be $30 billion over 30 years? Maybe. I don’t know. But maybe 

perhaps another way of looking at it is when you have a business, 

an enterprise as large as the United States Coast Guard, there is 

probably some level of acquisition money that is required every 

year, just to sustain the things that we have. Because right now 

we are spending some of that acquisition money on sustaining our 

legacy fleet in order to keep them operational until we can start 

building the OPC. 

So, it’s a continuum. It’s not one discreet project. 

Mr. LARSEN. Just finally I will just make a note. I have some 

questions about ice-breakers, but I understand we’re going to have 

a hearing in November on the Arctic. I understand it’s going to be 

a field hearing. Just kidding, Mr. Chairman. 

But I will save my questions, but I want you to stay up the night 

before that hearing as well, and think about your comments and 

maybe times where you said we were basically starting from 

ground zero when it comes to a presence in the Arctic to accomplish missions up there, and what that means for acquisition and 

capital investment, as well. 

Admiral PAPP. Yes, sir. 

Mr. LARSEN. Because those will be the gist of my questions. 

Admiral PAPP. Thank you, sir. I welcome the opportunity. 

Mr. LARSEN. Thank you. 

Mr. LOBIONDO. Admiral Papp, we thank you very much. Appreciate your insight into this. And once again, to repeat and reiterate, 

we are completely in line with the goals that you have and what 

22 

you want to do. It’s just that some of these reports become disconcerting if we can’t get to the bottom of why they’re that way. 

And it had nothing to do with your leadership or the current 

leadership, but 6 or so years ago we had direct assurances about 

what was going to happen and how it was going to happen, and 

there were no problems, and just everything was fine, and it really 

wasn’t. So we’re trying to be cautious, but move forward in a positive way. I look forward to continuing to working with you, and 

thank you and your team and all the men and women of the Coast 

Guard for what they do. 

Thank you. The hearing is adjourned. 

[Whereupon, at 11:41 a.m., the subcommittee was adjourned.] 

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