Testimony Before the House Committee 

on Transportation and Infrastructure, 

Coast Guard and Maritime Transportation 

Subcommittee

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 2:00 p.m. 

Wednesday, April 20, 2005 COAST GUARD

Preliminary Observations 

on the Condition of 

Deepwater Legacy Assets 

and Acquisition 

Management Challenges 

Statement of Margaret T. Wrightson, Director 

Homeland Security and Justice Issues 

GAO-05-307T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-307T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Margaret 

Wrightson at (415) 904-2200 or 

wrightsonm@gao.gov. 

Highlights of GAO-05-307T, a testimony 

for the Subcommittee on Coast Guard and 

Maritime Transportation, Committee on 

Transportation and Infrastructure 

April 20, 2005

COAST GUARD

Preliminary Observations on the 

Condition of Deepwater Legacy Assets 

and Acquisition Management Challenges 

Available Coast Guard condition measures indicate that the Coast Guard’s 

deepwater legacy aircraft and cutters are generally declining, but these 

measures are inadequate to capture the full extent of the decline in the 

condition of deepwater assets with any degree of precision. GAO’s field 

visits and interviews with Coast Guard staff, as well as reviews of other 

evidence, showed significant problems in a variety of the assets’ systems and 

equipment. The Coast Guard has acknowledged that it needs to develop 

condition measures that more clearly demonstrate the extent to which 

asset conditions affect mission capabilities, but such measures have not 

yet been finalized or implemented.

The Coast Guard has taken several types of actions to help keep the 

deepwater legacy assets operational, but these actions, while helpful, may 

not fully address mission capability issues and may require additional 

funding. For example, to help meet mission requirements, Coast Guard staff 

are performing more extensive maintenance between deployments, but even 

so, aircraft and cutters continue to lose mission capabilities. One Coast 

Guard command is using a new approach to help sustain the oldest class of 

cutters, but this approach will likely require additional funds—something 

not included thus far in Coast Guard budget plans or requests. 

 

If the Coast Guard adopts a more aggressive acquisition schedule, it will 

likely continue to face a number of challenges that have already affected 

its ability to effectively manage the Deepwater program. GAO has warned 

that the Coast Guard’s acquisition strategy, which relies on a prime 

contractor (“system integrator”) to identify and deliver the assets needed, 

carries substantial risks. In 2004, well into the contract’s second year, key 

components for managing the program and overseeing the system 

integrator’s performance had not been effectively implemented. The Coast 

Guard has begun addressing some problems—for example, putting more 

emphasis on competition as a way to control costs—but many areas have 

not been fully addressed. A more aggressive schedule would only heighten 

the risks. 

U. S. Coast Guard Deepwater Legacy Assets 

Source: Photographs courtesy of the U.S. Coast Guard.

HC-130 HU-25 HH-60 HH-65

378-foot cutter 378-foot cutter 270-foot cutter 270-foot cutter 210-foot cutter 210-foot cutter 110-foot patrol boat 110-foot patrol boat

HC-130 HU-25 HH-60 HH-65

378-foot cutter 270-foot cutter 210-foot cutter 110-foot patrol boat

In 2002, the Coast Guard began a 

multiyear, $19 billion to $24 billion 

acquisition program to replace or 

modernize its fleet of deepwater 

aircraft and cutters, so called 

because they are capable of 

operating many miles off the coast. 

For several years now, the Coast 

Guard has been warning that the 

existing fleet—especially cutters—

was failing at an unsustainable rate,

and it began studying options for 

replacing or modernizing the fleet 

more rapidly. Faster replacement 

is designed to avoid some of the 

costs that might be involved in 

keeping aging assets running for 

longer periods. 

This testimony, which is based 

both on current and past GAO 

work, addresses several issues 

related to these considerations: 

(1) changes in the condition of 

deepwater legacy assets during 

fiscal years 2000 through 2004; 

(2) actions the Coast Guard has 

taken to maintain and upgrade 

deepwater legacy assets; and 

(3) management challenges the 

Coast Guard faces in acquiring new 

assets, especially if a more 

aggressive schedule is adopted. 
Page 1 GAO-05-307T 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss our preliminary observations on 

the condition of deepwater legacy assets,1

 actions the Coast Guard has 

taken to maintain and upgrade these assets, and management challenges 

the Coast Guard faces in acquiring new assets, especially if a more 

aggressive schedule is adopted. Deepwater legacy assets consist mainly of 

aircraft and cutters capable of operating further out to sea, but missions 

may begin at ports, waterways, and coasts and extend seaward to 

wherever the Coast Guard is required to take action. The Coast Guard uses 

these assets to perform a variety of missions, such as interdicting illicit 

drug shipments or attempted landings by illegal aliens, rescuing mariners 

in difficulty at sea, protecting important fishing grounds, and responding 

to marine pollution. After the events of September 11, 2001, these missions 

were expanded to include a greater emphasis on port, waterways, and 

coastal security. The Coast Guard’s expanded responsibilities caused 

changes in how the deepwater legacy assets are used—for example, in 

conducting more security patrols—and they also created a need to make 

adjustments in mission requirements for assets that would be updated or 

built as part of the long-term acquisition program. 

Many deepwater legacy assets are at or approaching the end of their 

estimated service lives. In 2002, the Coast Guard began a multiyear 

Integrated Deepwater System acquisition program to replace or modernize 

the legacy assets. The Coast Guard’s new implementation plan estimates 

the cost for the Deepwater program at $19 billion to $24 billion. From 

fiscal years 2002 through 2005, the Coast Guard was appropriated nearly 

$2.2 billion for the Deepwater program. This amount included close to $1.3 

billion for new acquisitions and $460.5 million for upgrades of the legacy 

assets. Further, because the Coast Guard must continue to operate the 

deepwater legacy assets until the new assets are acquired, the Coast Guard 

 1

 For purposes of this testimony, we use the term “legacy assets” to refer to the existing 

fleet of deepwater aircraft and cutters. These legacy assets include the HC-130, HU-25, HH60, and HH-65 aircraft and the 378-foot high-endurance cutters, the 210-foot and 270-foot 

medium-endurance cutters, and the 110-foot and 123-foot patrol boats. We did not include 

the 213-foot Acushnet, the 230-foot Storis, or the 282-foot Alex Haley as part of our 

analyses of the deepwater legacy assets because they are one-of-a-kind vessels. 
Page 2 GAO-05-307T 

has spent close to $594 million during fiscal years 2002 through 2004 to 

fund intermediate- and depot-level maintenance of these assets.2

The Coast Guard is requesting $966 million for the Deepwater program for 

fiscal year 2006—$242 million more than Congress appropriated for the 

program last year. Part of this request ($239.5 million) is for maintenance 

and upgrades to some deepwater legacy assets and is predicated, in part, 

on the Coast Guard’s assertion that its deepwater legacy assets are “failing 

at an unsustainable rate” and “headed for a train wreck.” Faced with this 

concern, the Coast Guard has studied options for replacing deepwater 

legacy assets more rapidly than initially planned and thereby avoiding 

some of the costs that might be involved in upgrading these assets 

sufficiently to keep them running for longer periods. In the coming years, 

both the Coast Guard and Congress will likely be considering the 

advisability of such changes in the program. 

My testimony today addresses three issues related to these considerations: 

• Changes in the condition of deepwater legacy assets during fiscal years 

2000 through 2004; 

• Actions the Coast Guard has taken to maintain and upgrade deepwater 

legacy assets; and 

• Management challenges the Coast Guard faces in acquiring new assets, 

especially if a more aggressive schedule is adopted. 

My testimony is based on past and current work for this subcommittee and 

other congressional committees. Our current work included analyzing data 

and condition measures3

 used by the Coast Guard for determining 

 2

 Intermediate-level and depot-level maintenance include repairs and upgrades that are too 

time-consuming or complicated to be performed at the unit level. For aircraft, this would 

include repairing, overhauling, or rebuilding parts, components, and end items, and 

emergency manufacturing of unavailable parts. For cutters, intermediate- and depot-level 

maintenance would include preventive or corrective maintenance, as well as a major 

overhaul or complete rebuild of parts, assemblies, and end items; as well as major hull 

repairs, general modifications, and testing. 

3

 To assess the reliability of the Coast Guard’s data and condition measures, we questioned 

knowledgeable officials and reviewed existing documentation about the data and the 

systems that produced the data. We determined that the data were sufficiently reliable for 

the purposes of this testimony. 
Page 3 GAO-05-307T 

deepwater legacy assets’ condition,4 reviewing Coast Guard actions to 

maintain and upgrade the legacy assets, meeting with operations and 

maintenance staff covering each type of deepwater legacy aircraft and 

each class of deepwater legacy cutter, and assessing the improvements the 

Coast Guard is making in its management of the Deepwater acquisition. 

We will be following up this testimony with a written report that will 

contain additional, detailed information related to the condition of 

deepwater legacy assets, and the actions the Coast Guard is taking to 

maintain and upgrade them. As part of the follow-on report, we will also 

further examine the Coast Guard’s management of the Deepwater program 

and follow up on recommendations made in a prior GAO report.5

 Our work 

was carried out in accordance with generally accepted governmental 

auditing standards. 

In summary, our work thus far shows the following: 

• Coast Guard condition measures show that the deepwater legacy 

assets generally declined between fiscal years 2000 and 2004, but the 

Coast Guard’s available condition measures are inadequate to capture 

the full extent of the decline in the condition of deepwater assets with 

any degree of precision. While there is no systematic, quantitative 

evidence sufficient to demonstrate that deepwater legacy assets are 

“headed for a train wreck,” this does not mean that the assets are able 

to perform their missions safely, reliably, and at levels that meet or 

exceed Coast Guard standards. Evidence we gathered in ways other 

than reviewing condition measures, such as interviewing Coast Guard 

operations and maintenance staff, showed deteriorating and obsolete 

systems and equipment as a major cause of the reduction in mission 

 4

 In assessing the condition of deepwater aircraft and cutters for this testimony, we 

analyzed what Coast Guard officials told us were the best available condition measures. 

For deepwater aircraft, we reviewed the availability index (percentage of time aircraft were 

available to complete missions), cost per flight hour, labor hours per flight hour, 

programmed flight hours per year, scheduled versus unscheduled maintenance 

expenditures, and estimated deferred maintenance. For cutters, we reviewed the number 

of major casualties, the percent of time free of major casualties, scheduled versus 

unscheduled maintenance, and estimated deferred maintenance. We also reviewed data on 

mishaps and the dispatch reliability index for aircraft, and lost cutter days and unscheduled 

maintenance days for cutters. We did not use data on these measures, though, because the 

data were either not relevant to our analysis, incomplete, not available for the entire time 

period covered by our review, or not sufficiently reliable for our purposes. 

5

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

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

March 9, 2004). 
Page 4 GAO-05-307T 

capabilities for a number of deepwater legacy aircraft and cutters that 

will need to be addressed if the assets are to continue performing their 

missions at or near current levels until replacement assets become 

operational. These problems are not necessarily reflected in the 

condition measures. For example, the Coast Guard’s HH-65 helicopter 

consistently exceeded the Coast Guard’s primary condition measure 

during fiscal years 2000 through 2004, yet its engine is being replaced 

because of increasing in-flight power loss incidents, a significant safety 

and reliability issue. The Coast Guard has acknowledged that it needs 

measures that more clearly demonstrate the extent to which asset 

conditions affect mission capabilities, but such measures have not yet 

been finalized or implemented. 

• The Coast Guard has taken several types of actions to keep existing 

assets operational, but these actions, while helpful, may not fully 

address mission capability issues and may require additional funding. 

The Coast Guard now compiles information that can be used to better 

identify and prioritize the maintenance or upgrade projects that need to 

be done to keep existing assets operating. Coast Guard personnel, 

according to evidence obtained during our site visits, are also 

performing more maintenance on these assets than they have in the 

past—for example, spending additional time on maintenance when 

cutters are in port between deployments. These additional 

maintenance efforts are likely helping to prevent a more rapid decline 

in the condition of these assets, but it is important to note that even so, 

cutters and aircraft are still losing mission capabilities because of 

equipment and system failures. Finally, the Coast Guard’s Pacific Area 

Command, which is heavily dependent on deteriorating 378-foot 

cutters, is attempting to use new strategies to help sustain the 

operation of these cutters through 2016, when they are currently 

scheduled to be fully replaced with newer cutters. According to the 

Pacific Area Commander, however, doing so is likely to require an 

additional infusion of funds—something the Coast Guard has so far not 

included in its budget requests or plans. 

• The Coast Guard’s fiscal year 2006 budget request of $966 million for 

the Deepwater program reflects significant revisions to the program’s 

requirements, capabilities, and schedule in light of the homeland 

security mission. We have not yet analyzed the likely cost and schedule 

impact of these revisions. However, if a more aggressive acquisition 

schedule were adopted, the Coast Guard would likely continue to face 

a number of management challenges that have already affected its 

ability to effectively administer the Deepwater program. From the 

outset, we have expressed concern about the risks involved with the 
Page 5 GAO-05-307T 

Coast Guard’s acquisition strategy, which involves relying on a prime 

contractor (or “system integrator”) to identify the assets needed, using 

tiers of subcontractors to design and build the actual assets. Last year, 

we reported that well into the contract’s second year, key components 

needed to manage the program and oversee the system integrator’s 

performance had not been effectively implemented. We made a number 

of recommendations in the areas of program management, contractor 

accountability, and cost control through competition. While the Coast 

Guard agreed with nearly all of these recommendations and has 

initiated actions to address these problems, we remain concerned that 

the program still carries major and inherent risks. The majority of our 

recommendations have yet to be fully addressed. Recent information 

shows continued challenges in the areas of overall system integration, 

cost and schedule management, and integrated product teams, which 

consist of contractor and government personnel and are the Coast 

Guard’s principal tool for managing the Deepwater program. In our 

opinion, the uncertainties associated with the proposed revisions to the 

Deepwater program only heighten these risks. 

As the lead federal agency for maritime homeland security within the 

Department of Homeland Security, the Coast Guard is responsible for 

homeland and nonhomeland security missions, including ensuring security 

in ports and waterways and along coastlines, conducting search and 

rescue missions, interdicting drug shipments and illegal aliens, enforcing 

fisheries laws, and responding to reports of pollution. The deepwater fleet, 

which consists of 186 aircraft and 88 cutters of various sizes and 

capabilities, plays a critical role in all of these missions. As shown in table 

1, the fleet includes fixed-wing aircraft, helicopters, and cutters of varying 

lengths. 

Background 
Page 6 GAO-05-307T 

Table 1: Deepwater Legacy Aircraft and Cutter Fleets (as of April 14, 2005) 

a

Because of scheduled depot-level maintenance and upgrades that the deepwater aircraft have 

received or will receive, the service lives can be extended beyond the original estimated service lives. 

For the HH-65 helicopter, a Coast Guard aviation official told us that the aircraft had no original 

estimated service life in terms of flight hours, but rather can continue to be operated as long as the 

structure of the aircraft is sound. 

Deepwater Number Description Photograph

Aircraft

HC-130

(long-range 

surveillance airplane)

27 This is the largest aircraft in the Coast Guard’s fleet. It has a planned crew size of 7, a 

maximum speed of 290 knots, and an operating range of 2,600 nautical miles. The 

original estimated service life of the HC-130 was 30 years or 40,000 flight hours.a The inservice fleet average age for the Coast Guard’s HC-130H aircraft is 21.9 years.

Cutters

HU-25

(medium-range 

surveillance airplane)

23 This is the fastest aircraft in the Coast Guard’s fleet. It has a planned crew size of 5, a 

maximum speed of 410 knots, and an operating range of 2,045 nautical miles. The 

original estimated service life of the HU-25 was 20 years or 20,000 flights or 30,000 flight 

hours.a The in-service fleet average age for the Coast Guard’s HU-25 aircraft is 22.1 

years.

HH-60

(medium-range 

recovery helicopter)

41 This helicopter has a planned crew size of 4, a maximum speed of 160 knots, and a 

maximum range of 700 nautical miles. It is capable of flying 300 miles offshore, 

remaining on scene for 45 minutes, hoisting 6 people on board, and returning to its point 

of origin. The original estimated service life of the HH-60 was approximately 20 years or 

10,000 flight hours.a The in-service fleet average age for the Coast Guard’s HH-60 

helicopter is 12.6 years.

HH-65

(short-range recovery 

helicopter)

95 This helicopter has a planned crew size of 3, a maximum speed of 165 knots, a 

maximum range of 400 nautical miles, and a maximum endurance of 3.5 hours. It is 

capable of flying 150 miles offshore. The original estimated service life of the HH-65 was 

20 years.a The in-service fleet average age for the Coast Guard’s HH-65 helicopter is 

17.6 years.

378-foot highendurance cutter12 This is the largest cutter in the Coast Guard’s deepwater fleet. It has a planned crew size 

of 167, a maximum speed of 29 knots, and a cruising range of 14,000 nautical miles. It 

can support helicopter operations. The estimated service life of the 378-foot cutter is 

about 40 years. The average age of the Coast Guard’s 378-foot cutters is 35.3 years.

270-foot mediumendurance cutter13 This cutter has a planned crew size of 99, a maximum speed of 19.5 knots, and a 

cruising range of 10,250 nautical miles. It can support helicopter operations. The 

estimated service life of the 270-foot cutter is 30 years. The average age of the Coast 

Guard’s 270-foot cutters is 17.0 years.

210-foot mediumendurance cutter14 This cutter has a planned crew size of 75, a maximum speed of 18 knots, and a cruising 

range of 6,100 nautical miles. It can support short-range recovery helicopter operations. 

The estimated service life of the 210-foot cutter is from 43 to 49 years. The average age 

of the Coast Guard’s 210-foot cutters is 37.3 years.

110-foot and

123-foot patrol boats

49 The patrol boats have a planned crew size of 16 and a maximum speed of 29.5 knots. 

The 110-foot patrol boat has a cruising range of between 3,300 and 3,500 nautical miles, 

and the 123-foot patrol boat has a cruising range of 3,180 nautical miles, depending on 

the class of the patrol boat. The estimated service life of the patrol boats is from 14 to 20 

years. The average age of the Coast Guard’s patrol boats is 15.4 years.

Source: Developed by GAO from U.S. Coast Guard data. Photographs are courtesy of the U.S. Coast Guard.
Page 7 GAO-05-307T 

Some Coast Guard deepwater cutters were built in the 1960s. 

Notwithstanding extensive overhauls and other upgrades, a number of the 

cutters are nearing the end of their estimated service lives. Similarly, while 

a number of the deepwater legacy aircraft have received upgrades in 

engines, operating systems, and sensor equipment since they were 

originally built, they too have limitations in their operating capabilities. 

In 1996, the Coast Guard began developing what came to be known as the 

Integrated Deepwater System acquisition program as its major effort to 

replace or modernize these aircraft and cutters. This Deepwater program 

is designed to replace some assets—such as deteriorating cutters—with 

new cutters and upgrade other assets—such as some types of aircraft—so 

they can meet new performance requirements.6

The Deepwater program represents a unique approach to a major 

acquisition in that the Coast Guard is relying on a prime contractor—the 

system integrator—to identify and deliver the assets needed to meet a set 

of mission requirements the Coast Guard has specified.7

 In 2002, the Coast 

Guard awarded a contract to Integrated Coast Guard Systems (ICGS) as 

the system integrator for the Deepwater program. ICGS has two main 

subcontractors—Lockheed Martin and Northrop Grumman—who in turn 

contract with other subcontractors. The resulting program is designed to 

provide an improved, integrated system of aircraft, cutters, and unmanned 

aerial vehicles to be linked effectively through systems that provide 

command, control, communications, computer, intelligence, surveillance, 

reconnaissance, and supporting logistics. We have been reviewing the 

Deepwater program for several years. In recent reports we have pointed 

out difficulties the Coast Guard has been having in managing the 

 6

 Current plans call for the Coast Guard to replace all of its deepwater legacy cutters and 

patrol boats, beginning with the 378-foot cutters. The Coast Guard also plans to replace the 

HU-25 aircraft, but will upgrade the existing HC-130 aircraft and HH-60 and HH-65 

helicopters to extend their service lives. 

7

 The mission requirements include such things as the ability to (1) respond to 90 percent of 

all distress incidents within 2 hours; (2) detect and track targets of any material such that 

the probability of detection is at least 90 percent for small targets, such as a person in the 

water or a single-engine civil aircraft; and (3) respond to National Emergency Response 

Operations within 48 hours. 
Page 8 GAO-05-307T 

Deepwater program and ensuring that the acquisition schedule is up to 

date and on schedule.8

The existing schedule calls for acquisition of new assets under the Coast 

Guard’s Deepwater program to occur over an approximately 20-year 

period. By 2007, for example, the Coast Guard is to receive the first 

National Security Cutter, which will have the capability to conduct military 

missions related to homeland security. Plans call for 6 to 8 of these cutters 

to replace the 12 existing 378-foot cutters. However, in order to carry out 

its mission effectively, the Coast Guard will also need to keep all of the 

deepwater legacy assets operational until they can be replaced or 

upgraded. 

Coast Guard condition measures show that the deepwater legacy assets 

generally declined between 2000 and 2004, but the Coast Guard’s available 

condition measures are inadequate to capture the full extent of the decline 

in the condition of deepwater assets with any degree of precision. Other 

evidence we gathered, such as information from discussions with 

maintenance personnel, point to conditions that may be more severe than 

the available measures indicate. The Coast Guard acknowledges that it 

needs better condition measures but has not yet finalized or implemented 

such measures. 

During fiscal years 2000 through 2004, the Coast Guard’s various condition 

measures show a general decline, although there were year-to-year 

fluctuations (see table 2). For deepwater legacy aircraft, a key summary 

measure of the condition—the availability index (the percentage of time 

aircraft are available to perform their missions)—showed that except for 

the HU-25 medium-range surveillance aircraft, the assets continued to 

perform close to or above fleet availability standards over the 5-year 

period. In contrast, other condition measures for aircraft, such as cost per 

flight hour and labor hours per flight hour, generally reflected some 

deterioration. For cutters, a key summary measure of condition—percent 

 8

See GAO, Coast Guard: Deepwater Program Acquisition Schedule Update Needed, 

GAO-04-695 (Washington, D.C.: June 14, 2004); Coast Guard: Key Management and Budget 

Challenges for Fiscal Year 2005 and Beyond, GAO-04-636T (Washington, D.C.: April 7, 

2004); and GAO-04-380. 

Deepwater Legacy 

Assets Show General 

Decline in Condition, 

But Current Measures 

Do Not Capture True 

Extent 

Coast Guard’s Condition 

Measures Show General 

Decline in Deepwater 

Assets, with Some 

Fluctuations 
Page 9 GAO-05-307T 

of time free of major casualties9—fluctuated but generally remained well 

below target levels. The number of major casualties generally rose from 

fiscal years 2000 through 2003 and then dropped slightly in fiscal year 

2004.10

Table 2: Synopsis of Deepwater Legacy Assets’ Condition 

Deepwater 

legacy asset Synopsis of general asset condition 

HC-130 aircraft The percentage of time the HC-130 fleet was available to 

perform missions nearly met or exceeded the Coast Guard’s 

target level during fiscal years 2000 through 2003, but dropped 

below the target level in fiscal year 2004. 

HU-25 aircraft The percentage of time the HU-25 fleet was available to perform 

missions varied from year to year, but was consistently below 

the Coast Guard’s target level during fiscal years 2000 through 

2004. 

HH-60 aircraft The percentage of time the HH-60 fleet was available to perform 

missions met or was just below the Coast Guard’s target level 

during fiscal years 2000 though 2004. 

HH-65 aircraft The percentage of time the HH-65 fleet was available to perform 

missions consistently exceeded the Coast Guard’s target level 

during fiscal years 2000 through 2004. 

378-foot highendurance cutters The percentage of time the 378-foot cutter fleet has operated 

free of deficiencies in mission-essential equipment remained 

substantially below the Coast Guard’s target level during fiscal 

years 2000 through 2004. 

270-foot and 

210-foot mediumendurance cutters 

The percentage of time the 210-foot and 270-foot cutter fleets 

have operated free of deficiencies in mission-essential 

equipment was well below the Coast Guard’s target level during 

fiscal years 2000 through 2004, but showed slight improvement 

in fiscal year 2004. 

110-foot and 

123-foot patrol boatsa

The percentage of time the patrol boat fleet has operated free of 

deficiencies in mission-essential equipment was below but near 

the Coast Guard’s target level during fiscal years 2000 and 

2001, but declined in more recent years. 

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

a

Data on the 123-foot patrol boats were not compiled until fiscal year 2004. That year’s data were 

added to the 110-foot patrol boat data to arrive at totals for the patrol boat fleet. 

 9

 A casualty is a deficiency in mission essential equipment; a major casualty causes the 

major degradation or loss of at least one primary mission. 

10 However, major casualties for the 378-foot high-endurance cutters continued to increase 

in 2004. 
Page 10 GAO-05-307T 

Another, albeit less direct, measure of an asset’s condition is deferred 

maintenance—the amount of scheduled maintenance that must be 

postponed on an asset in order to pay for unscheduled repairs. Such 

deferrals can occur when the Coast Guard does not have enough money to 

absorb unexpected maintenance expenditures and still perform all of its 

scheduled maintenance, thus creating a backlog. For example, in spring 

2004, while on a counter-drug mission, the 210-foot cutter Active

experienced problems in the condition of its flight deck that were to be 

corrected during its scheduled depot-level maintenance. However, 

because of a lack of funding, the maintenance was deferred and the flight 

deck not repaired. As a result, the cutter lost 50 percent of its patrol time, 

since the required support helicopters could not take off from or land on 

it. 

As table 3 shows, deferred maintenance does not show a clear pattern 

across all classes of deepwater legacy assets. For the deepwater legacy 

aircraft, the overall amount of estimated deferred maintenance increased 

each year during fiscal years 2002 through 2004, from $12.3 million to 

about $24.6 million. However, most of the increase came from one type of 

asset, the HH-60 helicopter, and was mainly the result of shortening the 

interval between scheduled depot-level maintenance from 60 months to 48 

months—thereby increasing the scheduled maintenance workload—and 

not from having to divert money to deal with unscheduled maintenance. 

For the deepwater cutters, the amount of estimated deferred maintenance 

increased from fiscal year 2002 to 2003, but then dropped significantly in 

fiscal year 2004. The decrease in fiscal year 2004 came mainly because (1) 

the Coast Guard ceased maintenance on an icebreaker, thus freeing up 

some maintenance funds; and (2) the Coast Guard also received 

supplemental operational and maintenance funding, allowing it to deal 

with both scheduled and unscheduled maintenance. Thus, the drop in the 

estimate of deferred maintenance costs for fiscal year 2004 is not 

necessarily an indicator that the condition of the legacy assets was 

improving; it could result from the Coast Guard having more money to 

address the maintenance needs. 
Page 11 GAO-05-307T 

Table 3: Estimated Costs for Deferred Maintenance of Deepwater Aircraft and Cutters, Fiscal Years 2002-2004 

Deepwater asset Fiscal year 2002 Fiscal year 2003 Fiscal year 2004

HC-130 $4,691,000 $7,016,000 $5,737,000

HU-25 0 $201,000 0

HH-60 $7,630,000 $9,436,000 $18,824,000

HH-65 0 0 0

Subtotal for aircraft $12,321,000 $16,653,000 $24,561,000

378-foot cutters $2,556,000 $8,135,000 $3,000,000

270-foot cutters $2,070,000 $870,000 0

210-foot cutters $786,000 $1,137,000 0

110-foot patrol boats $1,618,000 $1,961,000 $500,000

Subtotal for cutters $7,030,000 $12,103,000 $3,500,000

Total for all deepwater assets $19,351,000 $28,756,000 $28,061,000

Source: U.S. Coast Guard 

Note: The Coast Guard estimates the cost for aircraft deferred maintenance by multiplying a 

percentage of average depot maintenance costs by the number of aircraft overdue for depot 

maintenance overhauls, plus the annual cost for extension inspections each year. The Coast Guard 

generally does not track deferred maintenance costs by cutter class, but compiled these data at 

GAO’s request for fiscal years 2002 through 2004. The Coast Guard estimated the costs of only the 

planned cutter maintenance that had to be deferred to the following year and not the amount of 

maintenance that should have been conducted and was not funded. 

At the time we began our work, the Coast Guard’s condition measures 

were not sufficiently robust to systematically link assets’ condition with 

degradation in mission capabilities. As we discussed with Coast Guard 

officials, without such condition measures, the extent and severity of the 

decline in the existing deepwater legacy assets and their true condition 

cannot be fully determined. As a result, the picture that emerges regarding 

the condition of the deepwater legacy assets based on current Coast 

Guard condition measures should be viewed with some caution. While 

there is no systematic, quantitative evidence sufficient to demonstrate that 

deepwater legacy assets are nearing a “train wreck,” this does not mean 

the assets are in good condition or have been performing their missions 

safely, reliably and at levels that meet or exceed Coast Guard standards. 

We identified two factors that need to be considered to put these 

condition measures in proper context. 

The first factor deals with limitations in the measures themselves. Simply 

put, the Coast Guard’s measures of asset condition do not fully capture the 

extent of the problems. As such, they may understate the decline in the 

legacy assets’ condition. More specifically, Coast Guard measures focus on 

Current Condition 

Measures Not Robust 

Enough to Clearly Link 

Condition with Effect on 

Missions 
Page 12 GAO-05-307T 

events, such as flight mishaps or equipment casualties, but do not measure 

the extent to which these and other incidents degrade mission capabilities. 

Here are two examples in which the Coast Guard’s current measures are 

not sufficiently robust to systematically capture degradation in mission 

capabilities: 

• The surface search radar system on the HC-130 long-range surveillance 

aircraft, called the APS-137 radar, is subject to frequent failures and is 

quickly becoming unsupportable. Flight crews use this radar to search 

for vessels in trouble and to monitor ships for illegal activity, such as 

transporting illicit drugs or illegal immigrants. When the radar fails, 

flight crews are reduced to looking out the window for targets, greatly 

reducing mission efficiency and effectiveness. A flight crew in Kodiak, 

Alaska, described this situation as being “like trying to locate a boat 

looking through a straw.” Mission capability degradations such as these 

are not reflected in the Coast Guard’s current condition measures. 

• The 378-foot cutter Jarvis recently experienced a failure in one of its 

two main gas turbines shortly after embarking on a living marine 

resources and search and rescue mission. While Jarvis was able to 

accomplish its given mission, albeit at reduced speeds, this casualty 

rendered the cutter unable to respond to any emergency request it 

might have received—but did not in this case—to undertake a mission 

requiring higher speeds, such as drug interdiction. The Coast Guard 

condition measures are not robust enough to capture these distinctions 

in mission capability. 

The second factor that needs to be kept in mind is the compelling nature 

of the other evidence we gathered outside of the Coast Guard’s condition 

measures. This evidence, gleaned from information collected during our 

site visits and discussions with maintenance personnel, showed 

deteriorating and obsolete systems and equipment as a major cause of the 

reduction in mission capabilities for a number of deepwater legacy aircraft 

and cutters. Such problems, however, are not captured by the Coast 

Guard’s condition measures. One example of this involves the HH-65 

short-range recovery helicopter. While this helicopter consistently 

exceeded availability standards established by the Coast Guard over the 5-

year period we examined, it is currently operating with underpowered 

engines that have become increasingly subject to power failures. As a 

result, Coast Guard pilots employ a number of work arounds, such as 

dumping fuel or leaving the rescue swimmer on scene if the load becomes 

too heavy. Further, because of increasing safety and reliability problems, 

the Coast Guard has also implemented a number of operational 
Page 13 GAO-05-307T 

restrictions—such as not allowing the helicopter to land on helipads—to 

safeguard crew and passengers and prevent mishaps until all of the fleets’ 

engines can be replaced. 

The Coast Guard has recently recognized the need for improved measures 

to more accurately capture data on the extent to which its deepwater 

legacy assets are degraded in their mission capabilities, but as of March 

2005, such measures have not yet been finalized or implemented. 

Subsequent to our inquiries regarding the lack of condition and mission 

capability measures, Coast Guard naval engineers reported that they had 

begun developing a “percent of time fully mission capable” measure to 

reflect the degree of mission capability, as well as measures to track cutter 

readiness. We agree that measures like this are needed—and as soon as 

possible. Further, current plans call for the measure, if approved, to be 

used for cutters, but not for aircraft. Consequently, even if this measure 

were to be implemented across the Coast Guard, there would still be no 

measure to address degradation in mission capabilities for aircraft. We will 

be exploring this issue further in our follow-on report. 

The Coast Guard has taken several actions to address maintenance issues 

and upgrades for its deepwater legacy assets. These include establishing a 

compendium of information for making decisions regarding maintenance 

and upgrades, performing more extensive maintenance between 

deployments, and, at the Pacific Area Command, applying new business 

rules and strategies to better sustain the 378-foot high-endurance cutters 

through 2016. These additional efforts are likely helping to prevent a more 

rapid decline in the condition of these assets, but condition problems 

continue, and the efforts will likely involve additional costs. 

Since 2002, the Coast Guard has annually issued a Systems Integrated Near 

Term Support Strategy compendium. Among other things, this 

compendium consolidates information needed to make planning and 

budgeting decisions regarding maintenance and upgrades to sustain legacy 

assets. Its purpose is to serve as a tool for senior Coast Guard 

management in setting priorities and planning budgets. From this strategic 

document, the Coast Guard has identified a number of upgrades to 

improve the capabilities of the deepwater legacy aircraft and cutters. The 

most recent compendium (for fiscal year 2006) lists more than $1 billion 

worth of upgrades to the deepwater legacy assets. The planned upgrades 

identified in the compendium that have been approved and received initial 

funding account for an estimated $856 million the Coast Guard anticipates 

Actions to Maintain 

and Upgrade 

Deepwater Legacy 

Assets Are Under 

Way, but Condition 

Issues Remain 

Compendium of Needs Is 

Being Compiled and Used 
Page 14 GAO-05-307T 

it will need to complete those projects. The approved upgrades for 

deepwater legacy assets are shown in table 4. 

Table 4: Approved Upgrades for Deepwater Legacy Aircraft and Cutters 

Deepwater asset Synopsis of planned upgrades 

Estimated costs and time frames of 

upgrades 

HC-130 aircraft The Coast Guard is beginning to replace 

aircraft’s dated and difficult to support surface 

search radar system. 

The radar system replacement is projected to 

cost $78 million and be completed in fiscal 

year 2008. A total of $9 million has been 

funded to date. 

HH-60 

aircraft 

The Coast Guard has begun a service life 

extension plan and a replacement of the 

obsolete avionics suite. 

The service life extension program is 

estimated to cost $16 million and be 

completed by fiscal year 2009. The avionics 

replacement program is projected to cost $121 

million and be completed by fiscal year 2010. 

A total of $32.8 million has been funded to 

date for these upgrades. 

HH-65 aircraft Serious safety and reliability problems with the 

engine led the Coast Guard to place 

operational restrictions on the HH-65 fleet in 

October 2003. 

The Coast Guard plans to re-engine 84 HH-65 

aircraft at a projected cost of $349 million, now 

estimated to be completed by February 2007. 

A total of $160.7 million has been funded to 

date. 

270-foot and 

210-foot medium- endurance cutters 

During fiscal year 2005 these cutters are to 

enter a legacy asset sustainment project 

known as the Mission Effectiveness Program 

(MEP) aimed at increasing their service lives 

until their replacement by a new cutter. The 

MEP includes upgrading major engineering 

subsystems such as evaporators, sewage 

systems, and gyrocompasses. 

The MEP is projected to cost a total of $292 

million and be completed by fiscal year 2015. 

The medium-endurance cutters will ultimately 

be replaced by the Offshore Patrol Cutter. A 

total of $12.5 million has been funded to date. 

Total: $856 million total needed to fund these 

projects, of which $215 million has been 

funded to date. 

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

Note: While there has not been any funding approved for upgrades to the HU-25 aircraft, the 378-foot 

cutters, or the 110-foot and 123-foot patrol boats, since all of these deepwater legacy assets are 

scheduled to be replaced, each of these assets has upgrades listed in the Systems Integrated Near 

Term Support Strategy compendium. The HU-25 aircraft has an engine replacement project 

estimated to cost $78.1 million; the 378-foot cutter has an MEP estimated to cost $137.8 million; and 

the patrol boats have three projects—replacement of the fin stabilizer system that is estimated to cost 

$10.4 million, an MEP that is estimated to cost $162 million, and replacement of the ship service 

generators that is estimated to cost $20.7 million. If the Coast Guard were to request funding for all of 

these sustainment projects, it would cost an additional $409 million. 

Among the projects already begun is the re-engining of the HH-65 

helicopters to increase the helicopter’s power and capabilities. The Coast 

Guard is also upgrading several other aviation systems in an effort to 

improve aircraft capabilities. Enhancements are also planned for certain 
Page 15 GAO-05-307T 

classes of deepwater cutters. For example, during this fiscal year, the 

Coast Guard is to begin a maintenance effectiveness project on the 210-

foot and 270-foot cutters. This project includes replacing major 

engineering subsystems with the goal of extending the cutters’ service 

lives until their replacement by the Offshore Patrol Cutter. Of the $856 

million total estimated costs needed for the planned upgrades to the 

deepwater legacy assets listed above, the Coast Guard has received $215 

million through fiscal year 2005 and has requested another $217.3 million 

in its fiscal year 2006 budget. The remaining estimated costs of $423.7 

million would have to be funded beyond fiscal year 2006. 

Coast Guard personnel consistently reported to us that crewmembers 

have to spend increasingly more time between missions to prepare for the 

next deployment. For example, to prevent further corrosion-related 

problems, air station maintenance personnel at the locations we visited 

said they have instituted additional measures, such as washing and 

applying fluid film to the aircraft prior to each deployment. Similar 

accounts were told by personnel working on cutters. For example, officers 

of the 270-foot cutter Northland told us that because of dated equipment 

and the deteriorating condition of its piping and other subsystems, 

crewmembers have to spend increasingly more time and resources while 

in port to prepare for their next deployment. While we could not verify 

these increases in time and resources because the Coast Guard does not 

capture data on these additional maintenance efforts, the need for 

increasing amounts of maintenance was a message we consistently heard 

from the operations and maintenance personnel with whom we met. 

Such efforts are likely helping to prevent a more rapid decline in the 

condition of these deepwater legacy assets, but it is important to note that 

even with the increasing amounts of maintenance, these assets are still 

losing mission capabilities because of deteriorating equipment and system 

failures. For example, in fiscal year 2004, one 378-foot cutter lost 98 

counterdrug mission days because of a number of patrol-ending 

casualties—including the loss of ability to raise and lower boats and run 

major electrical equipment—requiring $1.2 million in emergency 

maintenance. Another 378-foot cutter lost 27 counterdrug mission days in 

the fall of 2004 when it required emergency dry-dock maintenance because 

of hydraulic oil leaking into the reduction gear. 

Increasing Amounts of 

Maintenance Are Being 

Performed, but Loss of 

Mission Capabilities 

Continues 
Page 16 GAO-05-307T 

One effort is under way at the Coast Guard’s Pacific Area Command to 

improve maintenance practices for the 378-foot cutters.11 Pacific Area 

Command officials have recognized that a different approach to 

maintaining and sustaining legacy cutters may be needed and, as a first 

step, they have undertaken an initiative applying what they refer to as 

“new business rules and strategies” to better maintain the 378-foot highendurance cutters through 2016. Under the original Deepwater proposal, 

the final 378-foot cutter was to be decommissioned in 2013, but by 2005, 

that date had slipped to 2016. To help keep these cutters running through 

this date, Pacific Area Command officials are applying such rules and 

strategies as (1) ensuring that operations and maintenance staffs work 

closely together to determine priorities, (2) recognizing that maintaining 

or enhancing cutter capabilities will involve trade-off determinations, and 

(3) accepting the proposition that with limited funding not all cutters will 

be fully capable to perform all types of missions. Pacific Area Command 

officials believe that in combination, these principles and strategies will 

result in more cost-effective maintenance and resource allocation 

decisions—recognizing that difficult decisions will still have to be made to 

balance maintenance and operations. 

The Pacific Area Command’s new initiative has the potential for assisting 

the Coast Guard in making more informed choices regarding the best use 

of their resources, but the approach will likely require additional funding. 

In particular, the Pacific Area Commander told us that in order for the 378-

foot cutters to be properly maintained until their replacements become 

operational; the Coast Guard will have to provide additional funding for 

sustaining the 378-foot cutters. So far, the Coast Guard’s budget plans or 

requests do not address this potential need. 

Since the inception of the Deepwater program, we have expressed 

concerns about the degree of risk in the acquisition approach and the 

Coast Guard’s ability to manage and oversee the program. Last year, we 

reported that, well into the contract’s second year, key components 

needed to manage the program and oversee the system integrator’s 

performance had not been effectively implemented.12 We also reported that 

the degree to which the program was on track could not be determined 

 11 The Pacific Area Command is responsible [0]for operations covering 74 million square 

miles, ranging from South America, north to the Arctic Circle and west to the Far East. 

12 GAO-04-380. 

New Initiative for 

Maintaining 378-Foot 

Cutters Is Under Way, but 

Additional Funding Will 

Likely Be Needed 

Management 

Challenges Faced in 

Acquiring New Assets 

Remain Significant 
Page 17 GAO-05-307T 

because the Coast Guard was not updating its schedule.13 We detailed 

needed improvements in a number of areas, shown in table 5. These 

concerns have a direct bearing on any consideration to increase the 

program’s pace. Because the Coast Guard was having difficulty managing 

the Deepwater program at the pace it had anticipated, increasing the pace 

by attempting to speed the acquisition would only complicate the problem. 

Table 5: Summary of Deepwater Areas Needing Management Attention as Reported by GAO 

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

Improve integrated product teams responsible for managing the program by providing 

better training, approving charters, and improving systems for sharing information 

between teams 

Ensure adequate staffing of the Deepwater program 

Provide field personnel with guidance and training on transitioning to new Deepwater 

assets 

Key components of management and 

oversight have not been effectively 

implemented 

Update the original acquisition schedule to support future budget requests, starting with 

the fiscal year 2006 request 

Develop measurable award fee criteria consistent with guidance from the Office of 

Federal Procurement Policy 

Provide for better input from U.S. Coast Guard technical representatives 

Hold system integrator accountable for improving effectiveness of integrated product 

teams 

Establish a time frame for putting steps in place to measure contractor’s progress toward 

improving operational effectiveness 

Establish a baseline for determining whether the acquisition approach is costing the 

government more than a traditional asset replacement approach 

Procedures for ensuring contractor 

accountability are inadequate 

Establish criteria to determine when to adjust the project baseline and document the 

reasons for change 

Develop a comprehensive plan for holding the system integrator accountable for ensuring 

adequate competition among suppliers 

Control of future costs through competition 

remains at risk because of weak oversight 

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

subcontractors, require notification to the Coast Guard about decisions to perform the 

work in-house rather than contracting it out. 

Source: Developed by GAO from our reports GAO-04-380 and GAO-04-695. 

The Coast Guard agreed with nearly all of our recommendations and has 

made progress in implementing some of them. In most cases, however, 

while actions are under way, management challenges remain that are 

likely to take some time to fully address. 

 13 GAO-04-695. 
Page 18 GAO-05-307T 

We have seen mixed success in the Coast Guard’s efforts to improve 

management of the program and contractor oversight. All four areas of 

concern—improving integrated project teams (IPT), ensuring adequate 

staff for the program, planning for human capital requirements for field 

units receiving new assets, and updating the program’s schedule—have yet 

to be fully addressed. 

Although the Deepwater program has made some efforts to improve the 

effectiveness of IPTs, we continue to see evidence that more 

improvements are needed for the teams to effectively do their jobs. These 

teams, the Coast Guard’s primary tool for managing the program and 

overseeing the contractor, are generally chaired by a subcontractor 

representative and consist of members from subcontractors and the Coast 

Guard. The teams are responsible for overall program planning and 

management, asset integration, and overseeing delivery of specific 

Deepwater assets. Since our March 2004 report, the teams have been 

restructured, and 20 teams have charters setting forth their purpose, 

authority, and performance goals. And new, entry-level training is being 

provided to team members. 

Despite this progress, however, the needed changes are not yet sufficiently 

in place. A recent assessment by the Coast Guard of the system 

integrator’s performance found that roles and responsibilities in some 

teams continue to be unclear. Decision making is to a large extent 

stovepiped, and some teams still lack adequate authority to make 

decisions within their realm of responsibility. One source of difficulty for 

some team members has been the fact that each of the two major 

subcontractors has used its own databases and processes to manage 

different segments of the program. Decisions on air assets are made by 

Lockheed Martin, while decisions regarding surface assets are made by 

Northrop Grumman. This approach can lessen the likelihood that a 

“system of systems” outcome will be achieved. Officials told us that more 

attention is being paid to taking a systemwide approach and that the Coast 

Guard has emphasized the need to ensure that the two major 

subcontractors integrate their management systems. 

The Coast Guard has taken steps to more fully staff the Deepwater 

program, with mixed effects. In February 2005, the Deepwater program 

executive officer approved a revised human capital plan. The plan 

emphasizes workforce planning, including determining needed knowledge, 

skills, and abilities and developing ways to leverage institutional 

knowledge as staff rotate out of the program. This analysis is intended to 

help determine what gaps exist between needed skills and existing skills 

Improvement of Program 

Management and 

Contractor Oversight Is 

Mixed 

Strengthening Integrated 

Product Teams 

Ensuring Adequate Staffing for 

the Deepwater Program 
Page 19 GAO-05-307T 

and to develop a plan to bridge these gaps. The Coast Guard has also taken 

some short-term steps to improve Deepwater program staffing, 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. Finally, the Deepwater program and the Coast Guard’s acquisition 

branch are now working on an automated system for forecasting military 

rotation cycles, a step Deepwater officials believe will help with longrange strategic workforce planning and analysis. 

Despite these actions, however, vacancies remain in the program, and 

some metrics that may have highlighted the need for more stability in the 

program’s staff have been removed from the new human capital plan. As 

of January 2005, 244 positions were assigned to the program, but only 206 

of these were filled, a 16 percent vacancy rate. A year ago, 209 staff were 

assigned to the program. Further, the new human capital plan removes a 

performance goal that measured the percentage of billets filled at any 

given time. Coast Guard officials acknowledged that the prior plan’s goal 

of a 95 percent or higher fill rate was unduly optimistic and was a poor 

measure of the Coast Guard’s ability to meet its hiring goals. For example, 

billets for military personnel who plan to rotate into the program in the 

summer are created at the beginning of the budget year, leading the metric 

to count those positions as vacant from the beginning of the budget year 

until summer. Other performance metrics that were included in the prior 

plan to measure progress in human capital issues have also been removed. 

For example, to help ensure that incoming personnel received acquisition 

training and on-the-job training, a billet was included in the prior plan to 

serve as a floating training position that replacement personnel could use 

for a year before the departure of military incumbents. This position was 

never funded, and the new plan removes the billet. 

The Coast Guard recognizes the critical need to inform the operators who 

are to use the Deepwater assets of progress in the program, and officials 

stated that, on the basis of our recommendations, they have made a 

number of improvements in this area. A November 2004 analysis of the 

Deepwater program’s communication process, conducted in coordination 

with the National Graduate School, found that the communication and 

feedback processes were inadequate. Emphasis has now been placed on 

outreach to field personnel, with a multipronged approach involving 

customer surveys, face-to-face meetings, and presentations. We have not 

yet evaluated the effectiveness of the new approach. 

Improving Communication 

with Personnel Who Will Use 

the New Assets 
Page 20 GAO-05-307T 

Human capital requirements for the Deepwater program—such as crew 

numbers and schedules, training, and support personnel—will have an 

increasing impact on the program’s ability to meet its goals as the pace at 

which assets are delivered to field units picks up. Recent assessments by 

Coast Guard performance monitors show this to be an area of concern.14

Coast Guard officials have expressed concern about whether the system 

integrator is appropriately considering human capital in systems 

engineering decisions. The system integrator is required to develop a 

workforce management plan for Deepwater, as well as “human factors 

engineering” plans for each Deepwater asset and for the overall system of 

systems. The Coast Guard rejected the contractor’s workforce 

management plan and several of the proposed human factors engineering 

plans as being inadequate. The rejections were due, in part, to the lack of 

an established and integrated system-level engineering approach that 

shows how issues relating to human capabilities and limitations of actually 

performing with the system will be approached. One performance monitor 

noted that, as of late 2004, requirements for staffing and training of 

maintenance facilities and organizations had yet to be determined. 

According to the Coast Guard, emphasis on a contractor’s approach to 

addressing human capital considerations is necessary to ensure that 

Deepwater goals are met, especially as they pertain to operational 

effectiveness and total ownership cost. 

The Coast Guard has recently undertaken efforts to update the original 

2002 Deepwater acquisition schedule—an action that we suggested in our 

June 2004 report.15 The original schedule had milestone dates showing 

when work on an asset would begin and when delivery would be expected, 

as well as the integrated schedules of critical linkages between assets, but 

we found that the Coast Guard was not maintaining an updated and 

integrated version of the schedule.16 As a result, the Coast Guard could not 

demonstrate whether individual components and assets were being 

integrated and delivered on schedule and in critical sequence. As recently 

 14 Performance monitors are contracting officers’ technical representatives, who represent 

the contracting officer in monitoring the contractor’s performance. 

15 GAO-04-695. 

16 Not maintaining a current and integrated schedule lessens the Coast Guard’s ability to 

monitor the integrator’s performance and take early action to resolve risks that could 

become problems later. Maintaining such a schedule is an industry best practice; the 

Department of Defense is required to do so in order to be able to report any breaches in 

cost, schedule, or performance targets.

Updating the Acquisition 

Schedule 
Page 21 GAO-05-307T 

as October 2004, Deepwater performance monitors likewise expressed 

concern that the Coast Guard lacked adequate visibility into the program’s 

status and that lack of visibility into the schedules for component-level 

items prevented reliable forecasting and risk analysis. The Coast Guard 

has since taken steps to update the outdated schedule, and has indicated 

that it plans to continue to update the schedule each month for internal 

management purposes, and semiannually to support its budget planning 

efforts. We think this is an important step toward improving the Coast 

Guard’s management of the program because it provides a more tangible 

picture of progress, as well as a baseline for holding contractors 

accountable. We will continue to work closely with the Coast Guard to 

ensure progress is made and to monitor how risks are mitigated. 

We have seen progress in terms of the rigor with which the Coast Guard is 

periodically assessing the system integrator’s performance, but concerns 

remain about the broader issues of accountability for achieving the 

overarching goals of minimizing total ownership costs and maximizing 

operational effectiveness. 

Improvements continue to be made to the criteria for assessing the system 

integrator’s performance. In March 2004, we reported that the process for 

assessing performance against specific contract tasks lacked rigor. The 

criteria for doing so have since been revised to more clearly reflect those 

that are objective, (that is, measured through automated tools against 

established metrics), and those that are subjective, meaning the narrative 

comments by Coast Guard performance monitors. Weights have been 

assigned to each set of evaluation factors, and the Coast Guard continues 

to refine the distribution of the weights to reach an appropriate balance 

between automated results and the eyewitness observations of the 

performance monitors. Coast Guard officials told us that they have also 

provided additional guidance and training to performance monitors. We 

found that efforts have been made to improve the consistency of the 

format used for their input in assessments of the system integrator’s 

performance. Coast Guard officials said that they are continuing to make 

improvements to ensure that performance monitors’ relevant observations 

are appropriately considered in making award fee determinations. 

It is important to note that although performance monitor comments are 

considered subjective, they are valuable inputs to assessing the system 

integrator’s performance, particularly when they are tied to measurable 

outcomes. It will be necessary for the Coast Guard to continue refining the 

award fee factors as the program progresses. In some cases, we noted that 

Procedures for Ensuring 

System Integrator 

Accountability Are More 

Rigorous, but Concerns 

Remain 

Improving Criteria for 

Assessing Performance 
Page 22 GAO-05-307T 

the performance monitors’ assessments differed vastly from the results of 

automated, data-driven assessments. For example, while schedule 

management is discussed in the Coast Guard’s most recent assessment of 

the system integrator’s performance as a major area of challenge and risk, 

the objective measure showed 100 percent compliance in this area. 

Another metric assesses the extent to which integrated product teams 

consider the impact of their decisions on the overall cost and effectiveness 

of the Deepwater program. Performance monitors reported that because 

system-level guidance had not been provided to the teams responsible for 

specific assets, they had a limited ability to see the whole picture and 

understand the impact of decisions on total ownership costs and 

operational effectiveness. However, the automated measure was again 100 

percent compliance. Coast Guard officials said that, in some cases, the 

data-driven metrics do not accurately reflect the contractor’s performance. 

For the next award fee assessment, Deepwater officials plan to revise the 

metrics and place more weight on the performance monitors’ input, while 

ensuring that it is based on measurable outcomes. 

Changes have been made to the award fee metrics that place additional 

emphasis on the system integrator’s responsibility for making integrated 

project teams effective. Award fee criteria now incorporate specific 

aspects of how the integrator is managing the program, including 

administration, management commitment, collaboration, training, and 

empowerment of these teams. However, as discussed above, concerns 

remain about whether the teams are effectively accomplishing their goals. 

While the Coast Guard has developed models to measure the system 

integrator’s performance in operational effectiveness and total ownership 

costs, concrete results have not yet emerged. Minimizing total ownership 

costs and maximizing operational effectiveness are two of the overarching 

goals of the Deepwater program. The system integrator’s performance in 

these two areas will be a critical piece of information when the Coast 

Guard makes a decision about whether to award the contractor the first 

contract option period of 5 years. Initial decision making is to start next 

year. 

With regard to the operational effectiveness of the program, measuring the 

system integrator’s impact has yielded limited results to date because few 

of the new assets are operational. The Coast Guard has developed 

modeling capabilities to simulate the effect of the new capabilities on its 

ability to meet its missions. However, until additional assets become 

operational, progress toward this goal will be difficult to determine. 

Holding the System Integrator 

Accountable for Effectiveness 

of Project Teams 

Evaluation of Operational 

Effectiveness and Total 

Ownership Cost 
Page 23 GAO-05-307T 

With regard to total ownership costs, the Coast Guard does not plan to 

implement our recommendation. It has not adhered to its original plan, set 

forth in the Deepwater program management plan, of establishing as its 

baseline a cost not to exceed the dollar value of replacing the assets under 

a traditional approach (e.g., on an asset-by-asset basis rather than a 

system-of-systems approach). Although a cost baseline consistent with the 

program management plan’s approach was initially established, this 

number has not been rebaselined, as has the system integrator’s cost 

estimate baseline, and is not being used to evaluate the contractor’s 

progress in holding total ownership costs down. In practice, the baseline 

being used to measure total ownership cost is the system integrator’s own 

cost estimate. As we reported in March 2004, we believe that measuring 

the system integrator’s cost growth compared with its own cost proposal 

will tell the government nothing about whether it is gaining efficiencies by 

turning to the system of systems concept. 

Coast Guard officials stated that the contract total ownership cost and 

operational effectiveness baseline is adjusted based on approved decision 

memorandums from the Agency Acquisition Executive, the Vice 

Commandant of the Coast Guard. 

The Coast Guard reported taking steps to address our recommendations 

concerning cost control through competition. Our recommendations 

pertained to competition among second-tier suppliers and notification of 

“make” decisions.17

• Competition among second-tier suppliers. Coast Guard officials told us 

that in making the decision about whether to award the first contract 

option, the government will specifically examine the system 

integrator’s ability to control costs by assessing the degree to which 

competition is fostered at the major subcontractor level. The 

evaluation will consider the subcontractors’ project management 

structure and processes to control costs, as well as how market 

surveys of similar assets and major subsystems are implemented. The 

Coast Guard is focusing its attention on those areas that were priced 

after the initial competition for the Deepwater contract was completed, 

 17 A “make item” means an item or work effort to be produced or performed by the prime 

contractor or its affiliates, subsidiaries, or divisions. 

Establishing Criteria and 

Documenting Changes to the 

Baseline 

Coast Guard Has Taken 

Steps to Hold the System 

Integrator Accountable for 

Competition 
Page 24 GAO-05-307T 

such as the HH-65 re-engining and the C-130J missionization.18 For 

example, a new process implemented for the C-130J missionization was 

a requirement for competition in subcontracting and government 

approval of all subcontracts exceeding $2 million in order for the Coast 

Guard to monitor the integrator’s competition efforts. 

• Notification of make decisions. According to the Federal Acquisition 

Regulation, the prime contractor is responsible for managing contract 

performance, including planning, placing, and administering 

subcontracts as necessary to ensure the lowest overall cost and 

technical risk to the government. When “make-or-buy programs” are 

required, the government may reserve the right to review and agree on 

the contractor’s make-or-buy program when necessary to ensure 

negotiation of reasonable contract prices, among other things. We 

recommended that the Coast Guard be notified of make decisions over 

$5 million in order to facilitate controlling costs through competition. 

We suggested the $5 million threshold because Lockheed Martin, one 

of the major subcontractors, considers that amount to be the threshold 

for considering its suppliers major. The Coast Guard has asked the 

system integrator, on a voluntary basis, to provide notification one 

week in advance of a make decision of $10 million or more based on 

the criteria in the Federal Acquisition Regulation.19 According to Coast 

Guard officials, to date, no make decision has exceeded $10 million 

since the request was made. The details implementing this 

recommendation have not yet been worked out, such as specifically 

who in the Coast Guard will monitor the subcontractors’ make 

decisions to ensure that the voluntary agreement is complied with. 

Our work to date suggests the costly and important Deepwater program 

will need constant monitoring and management attention to successfully 

accomplish its goals. In this respect, we identified three points that should 

be kept in mind in considering how to proceed with the program. 

• First, the need to replace or upgrade deteriorating legacy assets is 

considerable. While the Coast Guard lacks measures that clearly 

demonstrate how this deterioration affects its ability to perform 

 18 The C-130J missionization, planned for the Coast Guard’s six C-130J aircraft, is intended 

to modify and install mission-essential equipment to convert the aircraft into C-130J longrange surveillance maritime patrol aircraft. 

19 Federal Acquisition Regulation §15.407-2, “Make or Buy Programs.” 

Concluding 

Observations 
Page 25 GAO-05-307T 

deepwater-related missions, it is clear that the deepwater legacy assets 

are insufficient for the task. 

• Second, although the need to replace and upgrade assets is strong, 

there still are major risks in the Coast Guard’s acquisition approach. 

The cost increases and schedule slippages that have already occurred 

are warning signs. We will continue to work with the Coast Guard to 

determine how best to manage these risks so that the Deepwater 

missions can be accomplished in the most cost-effective way. 

• Third, there are signs that as the Deepwater program moves ahead, the 

Coast Guard will continue to report more problems with sustaining 

existing assets, together with the attendant need for additional 

infusions of funding to deal with them. Some of these problems, such 

as those on the 378-foot cutters, are included in the compendium the 

Coast Guard uses to set sustainment priorities and plan budgets, but 

have not been funded because they pertain to assets that are among the 

first to be replaced. However, projects to address these problems are 

nevertheless likely to be needed. We will continue to work with the 

Coast Guard to determine if there is a more systematic and 

comprehensive approach to keeping the Congress abreast of the 

potential bill for sustaining these assets. 

Mr. Chairman and Members of the Subcommittee, this completes my 

prepared statement. I would be happy to respond to any questions that you 

or other Members of the Subcommittee may have at this time. 

Contacts and Acknowledgements 

For information about this testimony, please contact Margaret Wrightson, 

Director, Homeland Security and Justice Issues, at (415) 904-2200, or 

wrightsonm@gao.gov. Other individuals making key contributions to this 

testimony include Steven Calvo, Jerry Clark, Christopher Conrad, Adam 

Couvillion, Michele Fejfar, Geoffrey Hamilton, Julie Leetch, Michele 

Mackin, Christopher Miller, Stan Stenersen, and Linda Kay Willard. 

(440375) 
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