United States Government Accountability Office

GAO Report to the Subcommittees on 

Homeland Security, House and Senate 

Committees on Appropriations 

COAST GUARD 

Challenges Affecting 

Deepwater Asset 

Deployment and 

Management and 

Efforts to Address 

Them 

June 2007 

 

GAO-07-874 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

June 2007

COAST GUARD

Challenges Affecting Deepwater Asset 

Deployment and Management and Efforts 

to Address Them 

Highlights of GAO-07-874, a report to 

Subcommittees on Homeland Security, 

House and Senate Committees on

Appropriations 

The U.S. Coast Guard’s Deepwater 

program was designed to replace 

aging vessels and aircraft and 

information capabilities with new 

and upgraded assets and 

equipment. GAO’s prior work 

raised concerns about the Coast 

Guard’s efforts to upgrade or 

acquire assets on schedule and

manage the Deepwater prime 

contractor. 

This report responds to 

congressional direction contained

in a conference report 

accompanying the Department of

Homeland Security (DHS) fiscal

year 2007 appropriations bill. GAO 

addressed two objectives: (1) What

is the status of key Deepwater

assets and how is the Coast Guard 

addressing any asset-related 

challenges that have been

encountered? (2) What is the 

status of the Coast Guard’s overall 

management of the Deepwater 

contract? 

GAO’s work is based on reports, 

memorandums, and data on the 

plans and management of the 

Deepwater program and interviews

with key officials. GAO is not 

making any new recommendations. 

DHS and the Coast Guard reviewed 

a draft of this report and concurred 

with our findings. Their formal 

comments appear in appendix IV. 

Five years into the Deepwater contract, some assets have been delivered and 

are undergoing planned improvements or initial testing, but several other 

assets have encountered significant problems. For example, engine 

upgrades to the HH-65 helicopters are well under way; and the first two 

Maritime Patrol Aircraft and the first eight Short Range Prosecutor cutterbased small patrol boats have been delivered according to schedule. In 

contrast, other Deepwater assets have experienced problems, which have 

created a number of challenges for the Coast Guard in terms of delivery 

delays and loss of operational capabilities. For example, the Vertical

Takeoff and Landing Unmanned Aerial Vehicle has experienced delays as the 

Coast Guard assesses alternatives; the Fast Response Cutter, which was to 

replace the Coast Guard’s legacy patrol boat fleet, experienced design 

problems and the Coast Guard suspended all work, and the first two hulls of 

the National Security Cutter have structural design issues that, if not 

corrected, will reduce the fatigue lives of these vessels. To address these 

and other challenges, the Coast Guard is taking a variety of actions, such as

relying more heavily on legacy assets to help address patrol hour shortages, 

making plans to purchase off-the-shelf assets to expedite delivery, and 

planning corrective structural modifications. 

Over the past several years, GAO has expressed concerns about the Coast 

Guard’s ability to manage and oversee the Deepwater program. Specifically,

the program has faced challenges in terms of management, contractor 

accountability, and cost control. While the Coast Guard has taken actions 

since 2004 in response to these concerns, challenges remain. As a result, the 

Coast Guard recently decided to become more directly involved in program 

management and has chosen to (1) take over the leadership of the integrated

product teams—a key program management tool; (2) acquire certain 

Deepwater assets outside of the existing Deepwater contract; (3) use 

independent, third-party reviews for asset development; and (4) reorganize 

the Deepwater acquisition functions within the Coast Guard organization. 

Given the Coast Guard’s increased role, having sufficient staff with the 

requisite skills and abilities to execute new and expanding responsibilities 

will be important to getting what is needed, on time, and at a fair price. 

Deepwater Vessel and Aircraft Classes 

National Security

Cutter (NSC)

Offshore Patrol 

Cutter (OPC)

Fast Response

Cutter (FRC)

Short-Range 

Prosecutor (SRP)

Long-Range 

Interceptor (LRI)

HH-65 Multi-Mission 

Cutter Helicopter

(MCH)

HH-60 MediumRange Recovery 

Helicopter (MRR)

Maritime Patrol 

Aircraft (MPA)

Vertical Takeoff and 

Landing Unmanned

Aerial Vehicle (VUAV)

Long-Range 

Surveillance 

Aircraft (LRS)

Source: Photos used by permission of the U.S. Coast Guard.

www.gao.gov/cgi-bin/getrpt?GAO-07-874.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Stephen L. 

Caldwell at (202) 512-9610 or 

caldwells@gao.gov; or John P. Hutton at 

(202) 512-7773 or huttonj@gao.gov. 
Contents 

Letter 1

Summary 3

Concluding Observations 4 

Agency Comments 5 

Appendix I Briefing Slides 6 

Appendix II Status of Deepwater Vessel and Aircraft Assets 59 

Appendix III Status of Prior GAO Recommendations 69 

Appendix IV Comments from the Department of Homeland 

Security 71 

Appendix V GAO Contacts and Acknowledgments 75 

Related GAO Products 76 

Page i GAO-07-874 Coast Guard Deepwater Program
Abbreviations 

DHS Department of Homeland Security 

FRC Fast Response Cutter 

GAO Government Accountability Office 

ICGS Integrated Coast Guard Systems 

IPT Integrated product team 

LRI Long-Range Interceptor 

LRS Long-Range Surveillance Aircraft 

MCH Multi-Mission Cutter Helicopter 

MPA Maritime Patrol Aircraft 

MRR Medium-Range Recovery Helicopter 

NSC National Security Cutter 

OPC Offshore Patrol Cutter 

SRP Short-Range Prosecutor 

TOC Total ownership cost 

VUAV Vertical Takeoff and Landing Unmanned Aerial Vehicle 

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

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

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

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

reproduce this material separately. 

Page ii GAO-07-874 Coast Guard Deepwater Program
United States Government Accountability Office

Washington, DC 20548 

June 18, 2007 

The Honorable David E. Price, Chair

Subcommittee on Homeland Security 

House Committee on Appropriations 

The Honorable David E. Price, Chair

Subcommittee on Homeland Security 

House Committee on Appropriations 

The Honorable Harold Rogers, Ranking Member 

Subcommittee on Homeland Security 

House Committee on Appropriations 

The Honorable Harold Rogers, Ranking Member 

Subcommittee on Homeland Security 

House Committee on Appropriations 

The Honorable Robert C. Byrd, Chair 

Subcommittee on Homeland Security 

Senate Committee on Appropriations 

The Honorable Thad Cochran, Ranking Member 

Subcommittee on Homeland Security 

Senate Committee on Appropriations 

The Coast Guard is in the midst of the largest acquisition program in its 

history—one that has experienced serious performance and management 

problems. The Deepwater program is a 25-year, $24 billion plan to replace 

or modernize the Coast Guard’s fleet of vessels and aircraft (assets), and 

information management capabilities. The Coast Guard chose a lead

system integrator to manage a “system-of-systems” approach intended to 

integrate the delivery of assets, sensors, and communications links to 

accomplish missions more effectively. Now in the final year of its first 5-

year Deepwater contract period, the Coast Guard is currently negotiating 

contract modifications for the next performance period with the system 

integrator, Integrated Coast Guard Systems (ICGS). These negotiations

are to be completed by June 25, 2007. Our work reflects the status of the 

program before such negotiations were finalized.

The Coast Guard is in the midst of the largest acquisition program in its 

history—one that has experienced serious performance and management 

problems. The Deepwater program is a 25-year, $24 billion plan to replace 

or modernize the Coast Guard’s fleet of vessels and aircraft (assets), and 

information management capabilities. The Coast Guard chose a lead

system integrator to manage a “system-of-systems” approach intended to 

integrate the delivery of assets, sensors, and communications links to 

accomplish missions more effectively. Now in the final year of its first 5-

year Deepwater contract period, the Coast Guard is currently negotiating 

contract modifications for the next performance period with the system 

integrator, Integrated Coast Guard Systems (ICGS). These negotiations

are to be completed by June 25, 2007. Our work reflects the status of the 

program before such negotiations were finalized.

Since the Deepwater program’s inception, we have expressed concerns 

that the system-of-systems acquisition strategy was risky for a project of

this magnitude within the Coast Guard. In particular, our work raised 

concerns about the Coast Guard’s efforts to upgrade or acquire Deepwater 

assets on schedule, and manage and effectively monitor the lead system 

integrator, and we made several recommendations to the Coast Guard to 

address these concerns. More recently, the Coast Guard announced a

number of changes that are aimed at addressing these recommendations 

and other related program concerns. In addition, the Coast Guard has 

Since the Deepwater program’s inception, we have expressed concerns 

that the system-of-systems acquisition strategy was risky for a project of

this magnitude within the Coast Guard. In particular, our work raised 

concerns about the Coast Guard’s efforts to upgrade or acquire Deepwater 

assets on schedule, and manage and effectively monitor the lead system 

integrator, and we made several recommendations to the Coast Guard to 

address these concerns. More recently, the Coast Guard announced a

number of changes that are aimed at addressing these recommendations 

and other related program concerns. In addition, the Coast Guard has 

Page 1 GAO-07-874 Coast Guard Deepwater Program
begun to take actions to hold the system integrator accountable for 

problems that have arisen with the design and construction of certain 

Deepwater assets that will affect the lead system integrator’s roles and 

responsibilities in executing the program moving forward. 

On May 15 and May 17, 2007, in response to congressional direction 

contained in a conference report accompanying the Department of 

Homeland Security’s Fiscal Year 2007 Appropriations bill,1

 we briefed your

committees on two key objectives: 

(1) What is the status of key Deepwater assets and how is the Coast Guard 

addressing any asset-related challenges that have been encountered? 

(2) What is the status of the Coast Guard’s overall management of the 

Deepwater contract? 

The content of our briefing, which provided examples of selected 

Deepwater vessels and aircraft that illustrate progress made with certain 

assets, as well as particular operational or management challenges, is 

contained in appendix I. Details on the status of all 10 Deepwater asset 

classes are contained in appendix II. Information on the status of prior 

GAO recommendations related to this work is in appendix III. In addition, 

a list of related GAO products is provided at the end of the report. 

In conducting our work, we analyzed reports, memorandums, and data on

the Coast Guard’s plans and management of the Deepwater program; 

obtained information from multiple sources, including the Department of 

Homeland Security (DHS); U.S. Coast Guard; Coast Guard Deepwater 

System Integration Program Office; the Deepwater system integrator and

its subcontractors; and private engineering firms. We also interviewed 

officials responsible for management of the Deepwater program during 

site visits to Coast Guard headquarters, Coast Guard Deepwater Program 

Office, Deepwater System Integration Program Office, Coast Guard 

Aircraft and Supply Center, and Coast Guard Atlantic and Pacific Area 

Commands and their associated Maintenance and Logistics Commands. 

To assess the reliability of the data obtained from the Coast Guard and 

from ICGS—including but not limited to cost, schedule, and staffing 

 1

H.R. Conf. Rep. No. 109-699 (2006), incorporating GAO reporting provisions contained in 

H.R. Rep. No. 109-476 (2006). 

Page 2 GAO-07-874 Coast Guard Deepwater Program
data—we analyzed the data for errors in accuracy and completeness and 

interviewed agency officials knowledgeable about these data. We 

determined that the data were sufficiently reliable for the purposes of this 

report. Our work was conducted between July 2006 and May 2007 in 

accordance with generally accepted government auditing standards. 

Five years into the Deepwater contract, some assets have been delivered2

and are undergoing planned improvements or initial testing, but several 

other assets have encountered significant problems. For example, engine

upgrades to the HH-65 helicopters are well underway, the first two 

Maritime Patrol Aircraft have been delivered, and eight Short-Range 

Prosecutor cutter-based small patrol boats have been delivered according 

to schedule. In contrast, other Deepwater assets have experienced 

problems, which have created a number of challenges for the Coast Guard 

in terms of delivery delays and loss of operational capabilities. The 

Vertical Takeoff and Landing Unmanned Aerial Vehicle (VUAV) has 

experienced delays as the Coast Guard assesses alternatives; the 123-foot

patrol boats experienced structural problems and were eventually 

removed from service; and the Fast Response Cutter (FRC), which was to 

replace the Coast Guard’s legacy patrol boat fleet, experienced design 

problems and the Coast Guard suspended all work. Further, the National 

Security Cutter (NSC) has structural problems with the first two hulls that, 

if not corrected, will reduce the fatigue lives of these vessels. To address 

these and other challenges, the Coast Guard is taking a variety of actions, 

such as relying more heavily on legacy assets to help address patrol hour 

shortages, making plans to purchase off-the-shelf assets to expedite 

delivery, and planning corrective structural modifications. 

Summary 

Over the past several years, we have expressed concerns and made 

recommendations regarding the Coast Guard’s ability to manage and 

oversee the Deepwater program. Our concerns have centered on three 

main areas: 

 2

For purposes of this report, we are using the term “delivery” to refer to the date when the

Coast Guard takes possession of the asset from the contractor. This does not correspond to

the date the asset is operational, because the asset will generally still require further 

evaluation and testing before it is deployed. 

Page 3 GAO-07-874 Coast Guard Deepwater Program
• Program management: The Coast Guard had not effectively 

implemented key components (e.g., integrated product teams)3

 needed 

to manage the program and oversee the system integrator. 

• Contractor accountability: The Coast Guard had not effectively 

measured contractor performance against Deepwater program goals. 

• Cost control: Control of future costs through competition remained a 

risk because of weak oversight of subcontractor decisions related to 

competition. 

These concerns were exacerbated by staffing shortfalls and poor 

communication and collaboration between Deepwater and contractor 

personnel. Since 2004, the Coast Guard has taken some actions in 

response to these concerns and recommendations. However, challenges, 

such as inadequate staffing levels and undefined roles between the Coast

Guard and contractor regarding maintenance and logistics support, 

remain. The Coast Guard recently decided to become more involved in

program management. It plans to assume the lead role as system 

integrator while continuing to use the prime contractor to perform certain 

functions. Furthermore, it has decided to take other steps, including (1) 

changing the leadership and decision-making authority of integrated 

product teams, (2) using third parties to independently review asset 

development and major modifications, (3) reaffirming the role of the Coast 

Guard’s chief engineer as the technical authority for all acquisition 

projects, and (4) reorganizing Deepwater program acquisition functions 

within the Coast Guard organization to ensure sufficient staff with the 

requisite acquisition skills and abilities are in place. 

While there has been progress with the design, acquisition, and delivery of 

some Deepwater assets, problems with other assets raise questions about 

the Coast Guard’s ability to maintain an approach that fully integrates and 

synchronizes the retirement of legacy assets with the introduction of new 

assets. As problems are encountered and asset delivery schedules slip, the 

overall operational capabilities of new Deepwater assets and the system as 

a whole could be reduced, particularly in the shortterm. 

Concluding 

Observations 

The proactive program management actions the Coast Guard recently

announced could help get the Deepwater program on track. However, 

 3

Integrated product teams are composed of members representing the Coast Guard, the 

contractor, and subcontractors. 

Page 4 GAO-07-874 Coast Guard Deepwater Program
how the planned actions are implemented is important. Further, while the 

Coast Guard plans to assume more direct responsibility for Deepwater 

management, until it has sufficient staff with the requisite skills and 

abilities to execute new and expanding responsibilities, the Deepwater 

program will remain at risk in terms of getting what is needed, on time, 

and at a fair price. 

We requested comments on a draft of this report from the Department of 

Homeland Security and the U.S. Coast Guard. The department referred 

the draft to the U.S. Coast Guard, which concurred with our findings. The 

agency’s formal comments appear in appendix IV. 

If you or your staff have any questions concerning this report, please 

contact Stephen L. Caldwell at (202) 512-9610 or by e-mail at 

caldwells@gao.gov; or John P. Hutton at (202) 512-7773 or by e-mail at 

huttonj@gao.gov. Key contributors to this report were Penny Augustine, 

Amy Bernstein, Virginia Chanley, Christopher Conrad, Adam Couvillion, 

Kathryn Edelman, Geoffrey Hamilton, Melissa Jaynes, Crystal Jones, 

Raffaele Roffo, Sylvia Schatz, and Jonathan R. Tumin. 

Agency Comments 

Stephen L. Caldwell, Director 

Homeland Security and Justice 

John P. Hutton, Director 

Acquisition and Sourcing Management 

Page 5 GAO-07-874 Coast Guard Deepwater Program
Appendix I: Briefing Slides Appendix I: Briefing Slides 

1

COAST GUARD: Challenges Affecting 

Deepwater Asset Deployment and 

Management and Efforts to Address Them

GAO briefing provided to the

Subcommittees on Homeland Security

of the

House and Senate Committees on Appropriation

May 2007

Page 6 GAO-07-874 Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 7 GAO-07-874

2

BRIEFING OVERVIEW

• Introduction

• Objectives, Scope, and Methodology

• Results in Brief

• Status of Deepwater Assets

• Deepwater Management Structure and Organization

• Program Management

• Contractor Accountability

• Cost Control

• Concluding Observations

• Enclosure I: Quick Look Information on Key Deepwater Assetsa

• Enclosure II: Status of GAO Recommendations to Coast Guard

a Note: Enclosure I is appendix II in this product. Enclosure II is appendix III in this product. This note was not in the mid-May 2007

briefing provided to congressional requesters.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 8 GAO-07-874

3

INTRODUCTION

Deepwater Program Overview

• The Coast Guard Deepwater Program is a 25-year, $24 billion plan

to replace or modernize its fleet of vessels, aircraft, and information 

management capabilities.

• Rather than use a traditional acquisition approach to replace 

classes of vessels or aircraft, the Coast Guard chose a lead system 

integrator to manage the acquisition process, including identifying 

assets and selecting subcontractors to design, build, and integrate 

the assets and information management capabilities. The Coast 

Guard adopted this approach at that time because it did not believe 

it had the technical expertise or resources to be a systems

integrator. 

• This “system-of-systems” approach was intended to create a 

system that integrates common sensors and communication links

on vessels and aircraft to accomplish missions more effectively.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 9 GAO-07-874

4

INTRODUCTION

Deepwater Program Overview (cont.)

• After the terrorist attacks of September 11, 2001, the Coast

Guard began taking on additional homeland security

missions, and so it revised the Deepwater implementation 

plan to provide a mix of assets that could better meet these 

new responsibilities.

• Deepwater is to include acquisition of 10 new or upgraded 

classes of assets—5 major classes each of vessels and 

aircraft (see tables 1 and 2).

• The Deepwater program also consists of 5 other projects,

including new or upgraded Command, Control,

Communications, Computers, Intelligence, Surveillance and 

Reconnaissance systems.1

1Based on an agreement with the committees’ staff, our work focused on the 10 classes of vessels and aircraft within the Deepwater program.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 10 GAO-07-874

5

INTRODUCTION

Deepwater Vessels to be Acquired

Table 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 11 GAO-07-874

6

INTRODUCTION

Deepwater Aircraft to be Upgraded or Acquired

Table 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 12 GAO-07-874

7

INTRODUCTION

GAO’s Prior and Current Deepwater Work

• GAO’s prior work raised concerns about Coast Guard’s efforts to 

upgrade or acquire Deepwater assets on schedule, and manage 

and effectively monitor the system integrator.

2

• This briefing responds to congressional direction contained in a 

conference report accompanying the Department of Homeland 

Security’s Fiscal Year 2007 Appropriations bill.

3

2 GAO, Contract Management: Coast Guard’s Deepwater Program Needs Increased Attention to Management and Contractor Oversight , GAO-04-380 (Washington, D.C.: Mar. 9,

2004); Coast Guard: Deepwater Program Acquisition Schedule Update Needed, GAO-04-695 (Washington, D.C.: June 2004); Coast Guard: Status of Efforts to Improve Deepwater

Program Management and Address Operational Challenges, GAO-07-575T (Washington, D.C.: Mar. 8, 2007); Coast Guard: Preliminary Observations on Deepwater Program

Assets and Management Challenges, GAO-07-446T (Washington, D.C.: Feb. 15, 2007).

3 H.R. Conf. Rep. No. 109-699 (2006), incorporating GAO reporting provisions contained in H.R. Rep. No. 109-476 (2006).

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 13 GAO-07-874

8

INTRODUCTION

Status of the Deepwater Program

• While the Deepwater program is a 25-year plan, it is in the final 

year of the original 5-year contract period. The Coast Guard is

currently negotiating contract modifications for the next

performance period with the prime contractor, Integrated Coast 

Guard Systems (ICGS). These negotiations are to be completed by

June 25, 2007. 

• The Deepwater program has experienced performance and 

management problems, and the Coast Guard recently announced a 

number of changes to address these problems.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 14 GAO-07-874

9

OBJECTIVES, SCOPE, AND METHODOLOGY

Objectives

This briefing addresses two key objectives:

• (1) What is the status of key Deepwater assets and how is 

the Coast Guard addressing any asset-related challenges

that have been encountered? 

• (2) What is the status of the Coast Guard’s overall 

management of the Deepwater contract?

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 15 GAO-07-874

10

OBJECTIVES, SCOPE, AND METHODOLOGY

Scope and Methodology

• To address our objectives we:

• analyzed reports, memorandums, and data on the plans, planning and management of the

Deepwater program;

• obtained information from multiple sources, including the Department of Homeland Security

(DHS); U.S. Coast Guard; Coast Guard Deepwater System Integration Program Office; 

Deepwater system integrator and its subcontractors; and private engineering firms;

• interviewed officials responsible for the management of the Deepwater program during site

visits to: Coast Guard headquarters, Coast Guard Deepwater Program Office, Deepwater 

System Integration Program Office, Coast Guard Aircraft and Supply Center, and Coast 

Guard Atlantic and Pacific Area Commands and their associated Maintenance and

Logistics Commands.

• This briefing provides examples of selected Deepwater vessels and aircraft that illustrate

progress made with certain assets as well as particular operational or management challenges. 

• Details on the status of all 10 Deepwater asset classes—including those not cited as examples— are contained in enclosure I. 

• Information on the status of prior GAO recommendations related to this work is in enclosure II. 

• We conducted our work between July 2006 and May 2007 in accordance with generally accepted

government auditing standards.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 16 GAO-07-874

11

RESULTS IN BRIEF

Status of Deepwater Assets—Examples of Progress and Setbacks

Five years into the Deepwater contract, some assets have been delivered,4

and others are undergoing planned improvements or initial testing, but

several other assets have encountered significant problems.

• Engine upgrades to the HH-65 helicopters are well under way; the first two

Maritime Patrol Aircraft have been delivered; and 8 of 91 Short Range 

Prosecutors (SRP) have been delivered according to schedule.

• In contrast, other Deepwater assets, have experienced delays, which have

created a number of challenges for the Coast Guard in terms of delivery delays

and loss of operational capabilities. For example,

• The Vertical Takeoff and Landing Unmanned Aerial Vehicle (VUAV) has

experienced delays as the Coast Guard assesses alternatives.

4 For purposes of this report, we are using the term "delivery" to refer to the date when the Coast Guard takes possession of the asset from the

contractor. This does not correspond to the date the asset is operational, because the asset will generally still require further evaluation and 

testing before it is deployed.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 17 GAO-07-874

12

RESULTS IN BRIEF 

Status of Deepwater Assets—Examples of Progress and Setbacks continued

• The 123-foot patrol boats experienced structural problems and were 

eventually removed from service. The Fast Response Cutter (FRC), which

was to replace the Coast Guard’s legacy patrol boat fleet, experienced 

design problems and the Coast Guard suspended all work.

• The delivery date for the first FRC was advanced from 2018 to 2007, but 

has now slipped to 2010 at the earliest. 

• The National Security Cutter (NSC) has structural problems with the first 

two hulls that, if not corrected, will reduce the fatigue lives of these vessels. 

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 18 GAO-07-874

13

RESULTS IN BRIEF

Status of Deepwater Assets—Coast Guard Challenges and Actions

• To address these and other challenges, the Coast Guard is taking a 

variety of actions, such as relying more heavily on legacy assets to 

help address patrol hour shortages, purchasing off-the-shelf assets

to expedite delivery, and planning corrective structural 

modifications.

• These challenges are compounded, in part, due to uncertainties

with delivery dates that stem from the long-term nature of the 

program, on-going technological advances, funding level changes, and changes to the Coast Guard’s management of the Deepwater

program. These present additional challenges to the Department of 

Homeland Security (DHS) and Congress as they oversee the 

program and consider appropriate funding levels. 

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 19 GAO-07-874

14

RESULTS IN BRIEF

Coast Guard Management of Deepwater Program is Evolving

• The Deepwater program has faced challenges in terms of program 

management, contractor accountability, and cost control. In some

cases, these challenges have affected the acquisition and delivery

of Deepwater assets. To mitigate these challenges, the Coast 

Guard has become more directly involved in program management. 

For example, the Coast Guard has decided to acquire certain 

Deepwater assets outside of the existing Deepwater contract. The

Coast Guard also has taken over the leadership of the integrated 

product teams (IPT)5—a key program management tool—and has 

incorporated new award fee criteria to provide an incentive for

better contractor performance. Further, the Coast Guard plans to 

use independent, third-party reviews for asset development and 

major modifications. 5 IPTs are composed of members representing the Coast Guard, ICGS, and subcontractors.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 20 GAO-07-874

15

STATUS OF DEEPWATER ASSETS

Examples of Assets Making Progress

• There has been progress in terms of design, acquisition, and 

delivery for some Deepwater assets, including, for example: 

• HH-65 helicopter 

• Maritime Patrol Aircraft (MPA)

• Short-Range Prosecutor (SRP) cutter-based small patrol 

boats

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 21 GAO-07-874

16

STATUS OF DEEPWATER ASSETS

HH-65 Upgrades Proceeding as Planned

• The current HH-65 fleet will ultimately be upgraded to a fleet of 

Multi-Mission Cutter Helicopters (MCHs) in three separate phases.

• Phase 1 involves installation of new engines and engine control systems,

intended to provide a 40 percent power increase.

• According to the Coast Guard, as of April 3, 2007, 75 of the 95 HH-65s

have been re-engined; an additional 9 are to be completed by June 2007,

and the remainder are to be completed by October 2007.

a

• The first-in-class Multi-Mission Cutter Helicopter is currently scheduled for

delivery in 2012.

• Phase 2, a service-life extension program, runs from fiscal years 2007 through 

2014.

• Phase 3, which is to include communications upgrades, runs from fiscal years 

2008 through 2014.

Objective 1

aNote: In its June 2007 response to the draft of this product, the Coast Guard stated that it had met these deadlines and that 84

of the HH-65s had been re-engined. This note was not in the version of the slides briefed in mid-May to congressional 

requesters.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 22 GAO-07-874

17

STATUS OF DEEPWATER ASSETS

Delivery of MPAs and SRPs Has Begun

MPA

• The first two MPAs were delivered to the Coast Guard in December 2006

and February 2007, with a third scheduled to be delivered by the end of 

August 2007. Five more MPAs are on contract. 

• Pilots and air crew have participated in training, and the first aircraft 

delivered to the Coast Guard is undergoing integration of the Missions

System pallet at the Coast Guard’s Aircraft Repair and Supply Center in

Elizabeth City, N.C.

SRP

• The Coast Guard has procured 8 of 91 planned SRPs to date and is

pursuing more cost-effective means of acquiring the remaining SRPs.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 23 GAO-07-874

18

STATUS OF DEEPWATER ASSETS

Other Aircraft and Vessels Face Problems

• Some Deepwater asset classes have experienced design or

technology problems that have limited their performance or 

delayed production, including, for example:

• VUAV

• 123-foot patrol boats

• FRC

• NSC

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 24 GAO-07-874

19

STATUS OF DEEPWATER ASSETS

VUAV—Acquisition Has Been Delayed

• Acquisition of the first-in-class VUAV, originally scheduled for delivery in

2006, has been delayed, in part, because of technological issues and the 

Coast Guard is reconsidering the capabilities by which to meet its aerial

surveillance requirements.

• The Eagle Eye was the original VUAV option, but there are 

technological challenges:

• Some elements of the VUAV technology are unproven and the 

Coast Guard considers it a “developmental program.” 

• The Coast Guard does not plan to request funding for the VUAV

before fiscal year 2013. The Coast Guard has stated that

technological advances between now and then could affect

decisions about what kind of surveillance system to acquire. Thus,

the revised delivery date of 2013 for the first-in-class asset will 

likely be revisited. 

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 25 GAO-07-874

20

STATUS OF DEEPWATER ASSETS

VUAV—Delays Could Affect Operational Capabilities

• Delayed development of the VUAVs could affect operational capabilities of 

the NSC:

• The first VUAV was to be delivered concurrent with the first NSC, 

enabling the VUAV to launch from the NSC to provide surveillance

capabilities beyond the range of the NSC alone.

• Delays to the VUAV acquisition means this asset no longer aligns with

the NSC’s planned deployment, thus diminishing planned operational

capabilities.

• Any further delays could also affect the operational capabilities of future 

planned Deepwater assets, including the Offshore Patrol Cutter, from

which the VUAV is also planned to launch, unless the maritime

surveillance capability is provided by alternate means.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 26 GAO-07-874

21

STATUS OF DEEPWATER ASSETS

VUAV—Coast Guard Actions

• The Coast Guard is considering alternative ways to address the 

operational impact of delays in VUAV acquisition, to include: 

• Increasing the use of other Deepwater assets—such as the 

HH-65, SRP, and the Long-Range Interceptor—to expand the 

surveillance capabilities of its large vessels.

• Developing a list of other potential unmanned aerial systems to 

launch from its large vessels.

• The Coast Guard has directed an independent third party to 

compare the capabilities of Fire Scout—an alternative 

solution under development by the Department of 

Defense—with the original VUAV.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 27 GAO-07-874

22

STATUS OF DEEPWATER ASSETS

123-foot Patrol Boats Removed From Service

• The Coast Guard originally intended to convert all 49 of its 110-foot patrol boats to 123-

foot patrol boats to provide additional capabilities.

• However, hull buckling and other structural problems among the 8 converted patrol boats

led the Coast Guard to impose operating restrictions on the converted patrol boats in April

2005.

• In June 2005, all further conversions were halted by the Coast Guard.

• A number of the converted 123-foot patrol boats continued to experience hull and deck

buckling, shaft alignment problems, and other issues affecting operational capabilities.

• Effective November 2006, all 8 of the Coast Guard’s 123-foot patrol boats were removed

from service due to operational and safety concerns.

• In April 2007, the Coast Guard announced that this removal from service would be

permanent. 

• The Coast Guard Commandant announced that he has established a group of legal, contracting, and engineering experts to examine problems encountered in this program

and that he will pursue all available options for recouping any funds that may be owed to

the government as a result of the loss of these boats.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 28 GAO-07-874

23

STATUS OF DEEPWATER ASSETS

123-foot Patrol Boats—Coast Guard Actions

• To help mitigate the operational impacts resulting from removal of the 123-foot patrol boats from 

service, the Coast Guard has stated that it: 

• Implemented multi-crewing on 8 Florida-based 110-foot patrol boats with crews from

the 123-foot patrol boats that had been removed from service to increase patrol hours.

• This decreased annual personnel tempo for 110-foot crews by 18 percent, but

increased the annual tempo for the 8 patrol boats by 64 percent (3,600 hours per 

boat per year versus 2,200 hours previously).

• Because increasing the operational tempo of these aging 110-foot patrol boats 

raises some concerns about increased maintenance needs, the Coast Guard

deployed additional logistics and support personnel and spare parts to Key West 

in an effort to reduce repair time. 

• Deployed Coast Guard vessels from other locations to assist in missions formerly 

performed by the123-foot patrol boats;

• Secured permission from the U.S. Navy to continue using three 179-foot Navy cutters

on loan for an additional 5 years;

• Is examining the purchase of four additional 87-foot patrol boats; and

• Is examining whether to compress the schedule of maintenance and upgrades of the

110-foot patrol boats.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 29 GAO-07-874

24

STATUS OF DEEPWATER ASSETS

FRC—Delayed Due to Suspension of Design Work

• The delivery of the FRCs was accelerated to offset the failed strategy of 

converting 110-foot patrol boats into more capable 123-foot patrol boats.

• In February 2006, design work on a composite-hulled FRC was suspended 

due to design risks, including excessive weight and horsepower 

requirements compared with standard patrol boats. 

• Also in February 2006, an independent design review confirmed the design 

risks previously raised by Coast Guard technical experts.

• As a result of the suspension of work, delivery of the first-in-class FRC has

been delayed from 2007 until 2010, at the earliest.

• Additional delays in FRC deployment could further exacerbate the patrol 

hour shortage brought about by the removal of the 123-foot patrol boats 

from service.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 30 GAO-07-874

25

STATUS OF DEEPWATER ASSETS

FRC—Coast Guard Actions

• To address FRC delays, the Coast Guard is moving ahead with a 

dual-path approach:

• First, acquire a commercial “off-the-shelf” patrol boat design (FRC-B)

that it can modify to meet most of the Coast Guard’s requirements.

• The Coast Guard issued a Request for Proposals for the FRC-B

design to the system integrator in November 2006.

• On March 14, 2007, the Coast Guard terminated the FRC-B

acquisition through the system integrator and reassigned it to the 

Coast Guard Acquisition Directorate, which will issue a Request 

for Proposals to acquire a high-performing patrol boat at less cost

and in less time, and to ensure full and open competition.

• The Coast Guard projects delivery of the first of 12 FRC-Bs by 

spring 2010.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 31 GAO-07-874

26

STATUS OF DEEPWATER ASSETS

FRC—Coast Guard Actions (cont.)

• Second, acquire a redesigned FRC (FRC-A) that will meet all of the Coast Guard’s

requirements

• According to the Coast Guard, design and procurement decisions for the FRC-A

depend upon its eventual assessment of results from:

• a completed third-party business case analysis of steel versus

composite hulls;

• completion of a composite patrol boat technology readiness

assessment; and 

• planned future technical testing in fiscal years 2010-2011 of

composite hull technology involving building and testing a 150-foot

prototype vessel by DHS’s Science and Technology Directorate 

(funding has not yet been provided, however).

• If funded, DHS estimates that results from these tests may be available in

December 2010.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 32 GAO-07-874

27

STATUS OF DEEPWATER ASSETS

NSC—First Hulls Have Design Deficiencies

• The first two NSC hulls are known to have structural design 

deficiencies requiring retrofitting, which the Coast Guard intends to 

address as part of dry dock maintenance after the NSCs are 

delivered.

• According to the DHS Inspector General:

• The current NSC design will not meet its expected 

30-year service life.

• NSC design deficiencies will likely lead to increased

maintenance costs and reduced service life. 

• NSC’s design and performance deficiencies are the result of 

Coast Guard’s failure to exercise its technical and 

management oversight authority over design and 

construction.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 33 GAO-07-874

28

STATUS OF DEEPWATER ASSETS

NSC—Coast Guard Actions

• The Coast Guard plans to address these challenges by:

• Correcting the structural deficiencies of the first two NSC 

hulls at scheduled dry docks in order to avoid the 

schedule and costs risks associated with stopping the 

production line; and 

• Incorporating structural enhancements into the design for 

NSC hulls 3 through 8 and incorporating the 

enhancements during production.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 34 GAO-07-874

29

STATUS OF DEEPWATER ASSETS

Delivery Schedule, Summary by Key Assets

Comparing the asset delivery dates

between the 2005 and 2006 Coast 

Guard Asset Introduction

Schedules, figure 1 shows that:

• 1) Five Deepwater assets—NSC,

SRP, LRI, MPA, and LRS—are on

schedule (bars are same height for

2005 and 2006);

• 2) Four assets—OPC, FRC, MRR,

and VUAV—are behind schedule

(2006 bar is higher than for 2005);

and

• 3) One asset—the MCH—is ahead

of schedule (2006 bar is lower than

for 2005)

Note: DHS is reviewing the 2006

data, so the dates shown are

subject to change.

Objective 1

Figure 1: Comparison of 2005 and 2006 Estimated 

Delivery Dates for the First-in-Class Deepwater Assets

a The dates shown for the FRC refer to the FRC-A, which will meet Coast Guard requirements. The Coast

Guard is also pursuing procurement of a commercially available patrol boat design (FRC-B), which is

anticipated sooner but will not meet all requirements.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 35 GAO-07-874

30

STATUS OF DEEPWATER ASSETS

Uncertainties Over Asset Delivery Dates Add to Oversight Challenges

• In addition to the problems with assets already cited, several factors add to the

uncertainty about the delivery schedule of Deepwater assets.

• First, the Coast Guard is still in the early phases of the 25-year Deepwater 

acquisition program and the potential for changes in the program over such a 

lengthy period of time make it difficult to forecast the ability of the Coast Guard

to acquire future Deepwater assets according to its published schedule. 

• Second, advances in technology for some assets are still being evaluated.

• Third, changes to funding levels can affect the future delivery of Deepwater

assets. 

• Finally, the Coast Guard has recently made a number of program management

changes that could affect the delivery schedules (positively or negatively) for its 

Deepwater assets. Examples include the Coast Guard’s decision to bring all 

acquisition efforts under one organization, its intent to serve as the lead 

Deepwater integrator, and its use of third-party reviews.

• These uncertainties in asset delivery dates present additional challenges to 

DHS and Congress as they oversee the Deepwater program and consider 

appropriate funding levels.

Objective 1

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 36 GAO-07-874

31

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Prior GAO Findings

• The complexity of the Deepwater contract requires effective government

management and oversight to ensure that the intended results are

achieved and that taxpayer dollars are not wasted.

• GAO has previously reviewed the Deepwater program and made 

recommendations (see enclosure II) on issues specifically related to:

• Program management: The Coast Guard had not effectively implemented key components needed to manage the program and 

oversee the system integrator including IPTs, adequate staffing, and 

defined maintenance and logistics roles and responsibilities.

• Contractor accountability: The Coast Guard had not effectively

measured contractor performance against Deepwater program goals.

• Cost control: Control of future costs through competition remained a 

risk because of weak oversight of subcontractor decisions related to

competition.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 37 GAO-07-874

32

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Program Management—IPT Responsibilities

Integrated Product Teams

• IPTs were designated as the Coast Guard’s primary tool for managing the 

Deepwater program and overseeing the contractor in the program

management plan.6

• IPT responsibilities included such things as guiding development; 

allocating resources and budgets, measuring performance, performing 

product level design/performance cost trade-offs, and delivering and 

fielding tangible products and processes in accordance with the overall 

Deepwater program.

6 Within Deepwater, 14 chartered IPTs are responsible for managing different groups of assets.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 38 GAO-07-874

33

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Program Management—IPT Ineffectiveness

• GAO previously reported that IPTs had not been effective due to changing 

membership, understaffing, insufficient training, lack of authority for 

decision making, and inadequate communication. Also, IPT decision 

making was to a large extent stovepiped, and some teams lacked

adequate authority to make decisions within their area of responsibility.

• Our work revealed that IPTs continue to be ineffective at guiding the 

development and delivery of products in accordance with the overall 

Deepwater program. For example: 

• IPTs failed to help resolve problems with the FRC, VUAV, and NSC.

• The Coast Guard established working groups outside the IPT structure 

to identify and deliver solutions to problems not resolved by the IPTs to

help ensure the delivery of quality products.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 39 GAO-07-874

34

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Program Management—IPT Ineffectiveness (cont.)

• Some IPT’s have failed to help resolve design and delivery problems on a timely basis. For

example:

• Problems identified with FRC design issues were not resolved by the IPT and

subsequently the Coast Guard deactivated the IPT.

• Poor task order scoping related to asset requirements resulted in the temporary

suspension of the VUAV IPT.

• The NSC faced program management challenges for at least 11 months, from February 

to December 2006. The NSC IPT staffing was inadequate to address IPT workload,

including contract administration and technical issues, finalizing the engineering change

proposals, and awarding the delivery task order for the third NSC on time.

• In addition, according to the DHS Inspector General:

• The NSC IPT did not detect design deficiencies in the first two NSC hulls.

• Coast Guard officials stated that IPTs failed to resolve NSC structural design concerns

due, in part, to breakdowns in collaboration.

• The Coast Guard judged that the IPTs’ performance was “non-problematic” at the same 

time assets were experiencing cost and schedule problems—see figures 1 and 2.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 40 GAO-07-874

35

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Program Management—IPT Performance Versus Program Outcomes

Figures 1 and 2 below demonstrate the misalignment between Coast Guard’s assessment of IPT performance and associated

program outcomes at the asset (vessel) and, to a lesser extent, Deepwater program level.

Objective 2

Figure 1: Vessel Classes Cost, Schedule,

and IPT Performance Evaluation

Figure 2: Deepwater Program Cost, Schedule,

and IPT Performance Evaluation

Source: GAO analysis of Coast Guard data.

Note: The cost and schedule performance improvements in September 2006 for vessel classes were the result of rebaselining these measurements.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 41 GAO-07-874

36

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Program Management—Coast Guard Actions

The Coast Guard is restructuring IPTs and redefining roles and responsibilities:

• The Coast Guard has taken over the leadership of the IPTs and plans to update the

IPT charters and the program management plan to reflect new roles. For example:

• IPTs will no longer serve as the primary decision-making or problem resolution

tool for asset design and development.

• IPTs will be involved in decisions that will not affect the overall cost or schedule 

for the asset.

• The Coast Guard has reaffirmed the role of the Coast Guard’s Chief Engineer as the 

technical authority for all acquisition projects. Therefore, the Coast Guard will be 

responsible for deciding how to resolve design issues and technical problems.

• The Coast Guard plans to obtain technical assistance from outside experts. 

• The Coast Guard also plans to direct independent, third-party design reviews

for new assets as the assets are designed and as major modifications to assets

are contemplated. 

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 42 GAO-07-874

37

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Program Management—Human Capital Shortages

HUMAN CAPITAL

• In 2004, we noted a gap between the staffing needs in 

the Deepwater Human Capital plan and positions 

filled.

• The Coast Guard had identified a need of 264 

staff for 2004, but only 224 positions were

funded, and only 209 positions were assigned to

the Deepwater program.

• This staffing level fell short of the Coast Guard’s 

goal, identified in the Human Capital Plan, of a 

95 percent “fill-rate.”

• For FY 2005-2007, the Deepwater program staffing

information indicates a 20 percent staffing vacancy 

rate compared to actual billets.

• Based on independent analysis by Booz Allen 

Hamilton, under contract to the Coast Guard, there is

a need for 371 Deepwater program management staff 

in fiscal 2007.

Objective 2

Figure 3: Reported Coast Guard Deepwater

Government Staff Levels, Fiscal Year 2005–

2007, as of February 2007

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 43 GAO-07-874

38

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Program Management—Human Capital Plan Revisions

• The Coast Guard has acknowledged that Deepwater program personnel

lack adequate systems acquisition experience.

• Two independent studies directed and accepted by the Coast

Guard—including one by the Defense Acquisition University—also

identified inadequate acquisition experience within the program.

• The Coast Guard revised its Deepwater human capital plan in February

2005 to emphasize workforce planning in terms of training, leadership, 

knowledge management, recruiting, and retention. 

• The revised plan included annual reporting updates of key human 

capital management actions.

• The majority of the objectives identified in the 2005 revised

Deepwater human capital plan have not been achieved or updated

annually as required. 

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 44 GAO-07-874

39

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Program Management—Coast Guard Actions

• The Coast Guard is restructuring and realigning Deepwater Human Capital. For 

example it has: 

• Requested 43 additional Deepwater program staff for fiscal year 2007. Subsequent to this request, the Coast Guard has decided to have increased 

involvement in Deepwater program management.

• The Coast Guard announced plans for a “Blueprint for Acquisition Reform,” 

which more broadly addresses human capital issues in the context of acquisition

reform. The Blueprint includes four sub-component plans scheduled to occur 

through fiscal year 2009:

• Organizational Alignment and Leadership: Realigning acquisition functions and 

leadership within the Coast Guard organization;

• Human Capital: Ensuring that the Coast Guard has the appropriate staff to accomplish

the mission effectively;

• Policies and Processes: Focusing on policies and processes to improve acquisition

outcomes; and

• Knowledge and Information Management: Identifying opportunities to reduce cost, 

improve service, measure compliance, and improve management of service providers.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 45 GAO-07-874

40

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Program Management—Maintenance and Logistics Responsibilities

Maintenance and Logistics–Roles and Responsibilities

• According to the Deepwater Program Management Plan, ICGS is

responsible for developing maintenance and logistics support plans.

• In previous reports, GAO found that the Coast Guard had not adequately

communicated maintenance and logistics responsibilities within the Coast 

Guard.

• During our current work, Coast Guard officials acknowledged the lack of 

clarity in defining roles and responsibilities between the Coast Guard and 

ICGS for maintenance and logistics support plans.

• Although ICGS is contractually responsible for developing key documents 

related to maintenance and logistics, the support plans for the first-in-class

NSC and MPA that ICGS submitted lacked the specificity anticipated by the 

Coast Guard.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 46 GAO-07-874

41

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Program Management—Coast Guard Actions

• The Coast Guard is redefining logistics and maintenance roles:

• The Coast Guard is developing NSC and MPA interim 

maintenance and logistics support plans in place of the plans

submitted by ICGS.

• The Coast Guard has declared that it will have one logistics

system and that the government (Coast Guard) is now the 

default provider of maintenance and logistics, supplemented by

contractors, when necessary.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 47 GAO-07-874

42

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Contractor Accountability—Performance Standards and Incentives

• According to Office of Federal Procurement Policy guidance and Federal 

Acquisition Regulation 37.602 (b), a performance-based contract such as

Deepwater should have measurable performance standards and incentives

to motivate contractor performance.

• Coast Guard used award fee and award term incentives with the goal of 

encouraging and rewarding contractor performance, including achieving 

the goals of maximizing operational effectiveness and minimizing total 

ownership cost.

• In 2004, we reported concerns and made recommendations about how the 

Coast Guard held the system integrator accountable for its performance 

including:

(1) the award fee rating factors lacked objective measures, and 

(2) not establishing a solid baseline, critical to holding the system integrator

accountable, to measure progress in lowering total ownership cost.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 48 GAO-07-874

43

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Contractor Accountability—Award Fee

Award Fee (a fee to motivate a contractor for excellent performance)

• To date, the award fee determination has not been related to asset performance.

• Despite concerns expressed in award letters regarding cost controls and 

schedule performance, ICGS has received award fees ranging from 82 to 92 

percent of the total it could have received.

• Contractor earned about $18 million (88 percent of about $20 million available 

award fees) related to system integrator role.

• Over the six performance periods, the award fee results correspond to a “very 

good” rating overall.

• The contractor earned an additional $3.5 million for its Command, Control,

Communications, Computers, Intelligence, Surveillance, and Reconnaissance efforts

and for leasing 8 helicopters.

• The current award fee criteria do not include measures of IPT effectiveness or 

competition.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 49 GAO-07-874

44

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Contractor Accountability—Coast Guard Actions to Address Award Fee Criteria

The Coast Guard revised the award fee criteria to:

• Provide an incentive for better performance

• Ensure the contractor is responsive to criteria

• Incorporate 24 specific milestones in the criteria for the next

evaluation period to measure the contractor’s ability to maintain 

schedule

• Coast Guard is considering alternative incentive structures—such 

as fixed fees—for the future. 

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 50 GAO-07-874

45

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Contractor Accountability—Award Term Evaluation

Award Term (contract performance period extension earned by a contractor for performance)

• The first award term evaluation resulted in an award to the 

contractor of an additional 43 of a possible 60 months.

• The Coast Guard and ICGS are negotiating the contract

modification for the first award term planned for June 25, 2007.

• The award term evaluation was subjective and based on criteria for 

overall program goals:

• operational effectiveness,

• total ownership cost, and 

• customer satisfaction (e.g., satisfaction of the personnel in the 

Coast Guard who are to use the Deepwater assets).

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

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DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Contractor Accountability—Operational Effectiveness and Total Ownership Cost

• Operational effectiveness was measured using modeling.

• The models measured planned asset capabilities and presence, not

actual asset performance because most assets were not available at 

the time of the evaluation.

• Total ownership cost (TOC) increased to $304 billion from the original

$78 billion.

• The Coast Guard attributed this increase to the addition of post 9/11 

mission requirements and adjustments for inflation.

• In evaluating TOC performance, the Coast Guard made allowances for

factors beyond contractor control, such as additional mission 

requirements.

• Also, the Coast Guard evaluation of TOC indicated that ICGS cost

control measures did not appear to be in place.

• While the Coast Guard had difficulty in measuring the contractor’s

impact on TOC, the contractor received a “good” rating.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 52 GAO-07-874

47

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Contractor Accountability—Coast Guard Actions to Address Award Term Evaluation

The Coast Guard has revised the award term plan for evaluating contractor 

performance during the next award term. For example:

• More objective criteria have been added—including asset-specific Key 

Performance Parameters, however, they cannot be evaluated until 

assets are delivered.

• The emphasis has shifted from total ownership cost to cost control.

• Operational effectiveness will continue to be measured with the same

models.

• The effectiveness of the revised criteria cannot be evaluated until at least

mid-2010.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 53 GAO-07-874

48

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Cost Control—Competition Is Key for Controlling Costs

• Competition is a key component for controlling costs in the 

Deepwater program. 

• In 2004, we reported that although competition among 

subcontracts was a key mechanism for controlling costs, the 

Coast Guard had neither measured the extent of competition 

among the suppliers of Deepwater assets nor held ICGS

accountable for taking steps to achieve competition.

• The two first-tier subcontractors, Lockheed Martin and 

Northrop Grumman, had sole responsibility for determining 

whether to compete assets or to provide the assets 

themselves.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 54 GAO-07-874

49

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Cost Control—Information on Competition Obtained

• The Coast Guard requested additional information from ICGS on

competition, but in December 2006, the Coast Guard reported 

that ICGS data on Deepwater competition did not provide the 

minimum information needed to determine whether an

appropriate level of competition had been achieved.

• Based on ICGS information, first-tier subcontractors have

performed about half of all work in-house (see table 3).

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 55 GAO-07-874

50

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Cost Control—ICGS Affiliates Awarded Large Portion of Deepwater Contracts

Objective 2

During September 2003-December 2006, about half of the $1.6 billion funds obligated to Lockheed 

Martin and Northrop Grumman (LM and NGSS) have either remained with those companies or been

awarded to their affiliates. While the Coast Guard has not established a goal for in-house work, the 

first-tier subcontractors retained higher percentages of in-house work than we reported in 2004 (50 

percent compared to 45 percent). 

Table 3: Breakdown of the Percentage of ICGS Obligations to First-Tier Subcontractors (Includes Planned Subcontracts)

aGAO, Contract Management: Coast Guard’s Deepwater Program Needs Increased Attention to Management and Contractor Oversight, GAO-04-380

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

64% 51% Northrop Grumman Ship

Systems

Previously reported percentage

of in-house work, as of 

September 30, 2003a

In-house work (including affiliates) 

First-tier subcontractors for September 2003-December 2006

50% 45%

Lockheed Martin and

Northrop Grumman Ship

Systems

Lockheed Martin 42% 42%

Source: GAO analysis of ICGS data

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

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51

DEEPWATER MANAGEMENT STRUCTURE AND ORGANIZATION

Cost Control—Coast Guard Actions

• To ensure the best value to the government, the Coast Guard is seeking competition 

and is acquiring some assets directly rather than through ICGS.

• A July 2006 Coast Guard-directed business case analysis of the SRP showed a

cost savings of between $78,000 and $108,000 per SRP if the Coast Guard were 

to procure the remaining 82 SRPs directly—a total program savings of about $6.4

million to $8.9 million.

• On March 14, 2007, the Coast Guard terminated the FRC-B acquisition through 

ICGS and will issue a request for proposals to:

• acquire a high-performing patrol boat at less cost and in less time than an

ICGS-led acquisition, and 

• ensure full and open competition.

• The Coast Guard recently articulated a new strategy to conduct similar business

case analyses in the future. 

• The Coast Guard has included competition among the integrator’s subcontractors as

one of the criteria under the next award term plan.

Objective 2

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 57 GAO-07-874

52

CONCLUDING OBSERVATIONS:

Status of Deepwater Assets

• While the Coast Guard has made progress with the design,

acquisition, and delivery of some Deepwater assets, ongoing 

problems with other assets raise questions about the 

execution of the Coast Guard’s original approach. As a 

result, the ability to maintain a system-of-systems approach 

that is fully integrated and synchronized with the retirement of

legacy assets and the introduction of new assets is at risk. 

As problems are encountered and schedules slip on 

individual aircraft or vessels, the overall operational 

capabilities of assets and the system as a whole could be 

reduced, particularly in the shortterm.

Coast Guard Deepwater Program
Appendix I: Briefing Slides 

Page 58 GAO-07-874

53

CONCLUDING OBSERVATIONS:

Deepwater Management Structure and Organization

• The Deepwater program is at a crossroads. Because of

problems with program management, contractor

accountability, and cost controls, the Coast Guard has 

decided to take on more direct responsibility for the 

acquisition management and support of key Deepwater

assets. However, until the Coast Guard has sufficient staff 

with the requisite skills and abilities and the contract

management tools to carry out these new and expanding 

responsibilities, the Deepwater program will remain at risk in 

terms of getting what is needed, on time, and at a fair price. 

Coast Guard Deepwater Program
Appendix II: Status of Deepwater Vessel and Appendix II: Status of Deepwater V Aircraft Assets essel and 

Aircraft Assets 

Page 59 GAO-07-874 Coast Guard Deepwater Program
Appendix II: Status of Deepwater Vessel and 

Aircraft Assets 

Page 60 GAO-07-874 Coast Guard Deepwater Program
Appendix II: Status of Deepwater Vessel and 

Aircraft Assets 

Page 61 GAO-07-874 Coast Guard Deepwater Program
Appendix II: Status of Deepwater Vessel and 

Aircraft Assets 

Page 62 GAO-07-874 Coast Guard Deepwater Program
Appendix II: Status of Deepwater Vessel and 

Aircraft Assets 

Page 63 GAO-07-874 Coast Guard Deepwater Program
Appendix II: Status of Deepwater Vessel and 

Aircraft Assets 

Page 64 GAO-07-874 Coast Guard Deepwater Program
Appendix II: Status of Deepwater Vessel and 

Aircraft Assets 

Page 65 GAO-07-874 Coast Guard Deepwater Program
Appendix II: Status of Deepwater Vessel and 

Aircraft Assets 

Page 66 GAO-07-874 Coast Guard Deepwater Program
Appendix II: Status of Deepwater Vessel and 

Aircraft Assets 

Page 67 GAO-07-874 Coast Guard Deepwater Program
Appendix II: Status of Deepwater Vessel and 

Aircraft Assets 

Page 68 GAO-07-874 Coast Guard Deepwater Program
Appendix III: Status of Prior GAO

Recommendations 

GAO Recommendation 2004 GAO 2006 Status GAO 2007 Status

Program Management 

Follow the procedures outlined in the human capital 

plan to ensure that adequate staffing is in place and 

turnover among Deepwater personnel is proactively 

addressed. 

Implemented

In collaboration with the system integrator, take the 

necessary steps to make IPTs effective including: (1) 

training IPT members in a timely manner, (2) chartering

the sub-IPTs, (3) making improvements to the electronic 

information system that would result in better 

information sharing among IPT members who are 

geographically dispersed. 

Partially Implemented Partially Implemented: The Coast Guard has 

taken over IPT leadership and plans to update the 

program management plan to reflect changing 

roles and responsibilities between the Coast 

Guard and ICGS. It is too early to assess the 

impact of these planned changes at this time. 

As Deepwater assets begin to be delivered to 

operational units, ensure that field operators and 

maintenance personnel are provided with timely 

information and training on how the transition will occur 

and how maintenance responsibilities are to be divided

between system integrator and Coast Guard personnel. 

Partially Implemented Partially Implemented: The Coast Guard has 

announced they are reaffirming the role of the 

Coast Guard’s chief engineer as the technical

authority for all acquisition projects. In addition, 

the Coast Guard is now the default provider of

maintenance and logistics and is responsible for 

ensuring that logistics products are developed, 

implemented, and delivered. Given these recent 

decisions, time is needed to evaluate the 

implementation.

Contractor Accountability 

Develop and adhere to measurable award fee criteria 

consistent with the Office of Federal Procurement 

Policy’s guidance. 

Implemented

In all future award fee assessments, ensure that the 

input of contracting officers’ technical representatives 

COTR) are considered and set forth in a more rigorous 

manner. 

Implemented

Hold the system integrator accountable in future award 

fee determinations for improving the effectiveness of 

IPTs. 

Implementeda 

Establish a TOC baseline that can be used to measure 

whether the Deepwater acquisition approach is

providing the government with increased efficiencies 

compared to what it would have cost without this 

approach. 

USCG will not 

Implement 

Closed: Although set forth in its program 

management plan, the Coast Guard does not 

intend to establish a baseline cost for replacing 

the assets under a traditional approach which 

could be used as a comparison to the Deepwater 

system of systems acquisition approach. 

Based on the current schedule for delivery of

Deepwater assets, establish a time frame for when the 

models and metrics will be in place with the appropriate 

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

progress toward improving operational effectiveness. 

Partially Implemented Partially Implemented: Key performance 

parameters have been added to criteria for 

measuring operational effectiveness; however, 

the models still lack the fidelity to attribute 

improvements to the contractor or the Coast

Guard. 

Appendix III: Status of Prior GAO 

Recommendations 

Page 69 GAO-07-874 Coast Guard Deepwater Program
Appendix III: Status of Prior GAO

Recommendations 

GAO Recommendation 2004 GAO 2006 Status GAO 2007 Status

Establish criteria to determine when the TOC baseline 

should be adjusted and ensure that the reasons for any 

changes are documented. 

Partially Implemented Partially Implemented: DHS’s oversight 

requirements include an annual review of the 

Deepwater program baseline and submission of 

quarterly reports. The most recent baseline 

update (Nov. 2006) has yet to be approved by

DHS. The Coast Guard has provided DHS with 

quarterly program reports. Further, according to a 

Coast Guard official, DHS approval is pending on 

shifting the baseline against which the systems 

integrator is measured to an asset basis. 

Cost Control Through Competition 

For subcontracts over $5 million awarded by ICGS to 

Lockheed Martin and Northrop Grumman, require 

Lockheed Martin and Northrop Grumman to notify the 

Coast Guard of a decision to perform the work

themselves rather than contracting it out. The 

documentation should include an evaluation of the 

alternatives considered. 

Implemented

Develop a comprehensive plan for holding the system 

integrator accountable for ensuring an adequate degree 

of competition among second-tier suppliers in future 

program years. This plan should include metrics to 

measure outcomes and consideration of how these 

outcomes will be taken into account in future award fee 

decisions. 

Partially Implemented Partially Implemented: Although the Coast Guard 

had requested additional information from ICGS

on competition, it does not have the information to 

determine the level of competition achieved. 

Further, they have not included metrics to 

measure competition outcomes in the award fee 

decisions. In the mean time, the Coast Guard 

business case analyses demonstrated that ICGS

did not leverage competition to deliver the best 

value for certain Deepwater assets. The Coast 

Guard plans to gain insight into competition by

performing additional business case analyses and 

if necessary re-competing assets. 

Source: GAO-04-380, GAO-06-546, and GAO analysis of Coast Guard data. 

a

IPT performance was included in the award fee criteria for the February 2005-December 2006 

performance evaluation periods, but was removed from the award fee criteria for the January 2007-

June 2007 performance evaluation period. 

Page 70 GAO-07-874 Coast Guard Deepwater Program
Appendix IV: Comments from the Department Appendix IV of Homeland Security : Comments from the 

Department of Homeland Security 

Page 71 GAO-07-874 Coast Guard Deepwater Program
Appendix IV: Comments from the Department 

of Homeland Security

Page 72 GAO-07-874 Coast Guard Deepwater Program
Appendix IV: Comments from the Department 

of Homeland Security

Page 73 GAO-07-874 Coast Guard Deepwater Program
Appendix IV: Comments from the Department 

of Homeland Security

Page 74 GAO-07-874 Coast Guard Deepwater Program
A

A

ppendix V: GAO Contacts and

cknowledgments 

Page 75 GAO-07-874

Appendix V: GAO Contacts and 

Acknowledgments 

Stephen L. Caldwell at (202) 512-9610 or by e-mail at caldwells@gao.gov; 

or John P. Hutton at (202) 512-7773 or by e-mail at huttonj@gao.gov. 

In addition to the above, key contributors to this report were Penny 

Augustine, Amy Bernstein, Virginia Chanley, Christopher Conrad, Adam 

Couvillion, Kathryn Edelman, Geoffrey Hamilton, Melissa Jaynes, Crystal 

Jones, Raffaele Roffo, Sylvia Schatz, and Jonathan R. Tumin. 

GAO Contacts 

Acknowledgments 

Coast Guard Deepwater Program
Related GAO Products Related GAO Products 

Coast Guard: Status of Efforts to Improve Deepwater Program 

Management and Address Operational Challenges, GAO-07-575T 

(Washington, D.C.: Mar. 8, 2007). 

Coast Guard: Preliminary Observations on Deepwater Program Assets 

and Management Challenges, GAO-07-446T (Washington, D.C.: 

Feb. 15, 2007). 

Coast Guard: Coast Guard Efforts to Improve Management and Address 

Operational Challenges in the Deepwater Program, GAO-07-460T 

(Washington, D.C.: Feb. 14, 2007). 

Homeland Security: Observations on the Department of Homeland 

Security’s Acquisition Organization and on the Coast Guard’s 

Deepwater Program, GAO-07-453T (Washington, D.C.: Feb. 8, 2007). 

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

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

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

Management Has Improved, but Continued Monitoring Is Warranted, 

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

Coast Guard: Progress Being Made on Addressing Deepwater Legacy 

Asset Condition Issues and Program Management, but Acquisition 

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

Coast Guard: Preliminary Observations on the Condition of Deepwater

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

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

Coast Guard: Preliminary Observations on the Condition of Deepwater

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

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

Coast Guard: Deepwater Program Acquisition Schedule Update Needed, 

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

Contract Management: Coast Guard’s Deepwater Program Needs 

Increased Attention to Management and Contractor Oversight, 

GAO-04-380 (Washington, D.C.: Mar. 9, 2004). 

Page 76 GAO-07-874 Coast Guard Deepwater Program
Related GAO Products 

Coast Guard: Actions Needed to Mitigate Deepwater Project Risks, 

GAO-01-659T (Washington, D.C.: May 3, 2001). 

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

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

Coast Guard’s Acquisition Management: Deepwater Project’s 

Justification and Affordability Need to Be Addressed More Thoroughly, 

GAO/RCED-99-6 (Washington, D.C.: Oct. 26, 1998). 

(440533) Page 77 GAO-07-874 Coast Guard Deepwater Program
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