United States General Accounting Office

GAO Report to the Subcommittee on

Transportation, Committee on

Appropriations, U.S. Senate

October 1998 COAST GUARD’S

ACQUISITION

MANAGEMENT

Deepwater Project’s

Justification and

Affordability Need to Be

Addressed More

Thoroughly

GAO/RCED-99-6

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-280862 

October 26, 1998

The Honorable Richard C. Shelby

Chairman

The Honorable Frank R. Lautenberg

Ranking Minority Member

Subcommittee on Transportation

Committee on Appropriations

United States Senate

In response to your request, this report discusses the extent to which the Coast Guard has

(1) accurately depicted the need to replace or modernize its deepwater ships and aircraft and

(2) aligned the estimated cost of its Deepwater Project with its overall budget for capital

projects. This report contains recommendations to the Secretary of Transportation to assist the

Coast Guard as it proceeds with the project.

As requested, unless you publicly announce its contents earlier, we plan no further distribution

of this report until 7 days after the date of this letter. We will then send copies to the Secretary

of Transportation; the Commandant of the Coast Guard; the Director, Office of Management

and Budget; and other interested parties. We will make copies available to others upon request.

If you or your staff have any questions, please call me at (202) 512-2834. Major contributors to

this report are listed in appendix IV.

John H. Anderson, Jr.

Director, Transportation Issues
Executive Summary

Purpose The U.S. Coast Guard is currently planning the potentially largest

acquisition project in its history. Called the Deepwater Capability

Replacement Project, this effort involves replacing or modernizing many

of the Coast Guard’s 92 ships and 209 airplanes and helicopters used in

search and rescue, drug interdiction, the interception of illegal immigrants,

fisheries regulation, defense operations, and other at-sea operations.

Teams of contractors are currently at work developing competing

proposals for the Coast Guard’s consideration. For initial planning

purposes, the Coast Guard estimates the cost of the project to be

$9.8 billion (in constant dollars) over a 20-year period.

Because of the project’s potential size, the Subcommittee on

Transportation, Senate Committee on Appropriations, asked GAO to review

the project’s justification and the planning process being followed by the

Coast Guard and to focus on the following questions:

• To what extent does the current justification for the Deepwater Project

accurately depict the Coast Guard’s need to modernize or replace ships

and aircraft?

• To what extent are projected costs for the Deepwater Project consistent

with the Coast Guard’s overall budget for its capital projects?

Background The Coast Guard’s deepwater operations involve missions that cannot be

carried out by shore-based small boats. These missions include search and

rescue far out at sea, drug interdiction, the interception of illegal

immigrants, and protection against illegal fishing operations. The Coast

Guard currently has 43 cutters, 49 patrol boats, 71 surveillance aircraft,

and 138 recovery helicopters for meeting these missions. In total, the

Coast Guard estimates that it spent about $1.3 billion in fiscal year 1997 in

personnel, maintenance, and other costs related to these operations.

The Coast Guard began the Deepwater Project in 1996, following an

internal assessment indicating that most of these ships and aircraft were at

or near the end of their useful life. The agency hopes to replace or

modernize its existing ships and aircraft, as well as make the use of

innovative technology such as satellites and improved detection

capabilities. The project is still in the early stages, but by 2002, the Coast

Guard hopes to make final decisions about which ships and aircraft should

be included. Initial planning estimates call for spending $300 million

starting in fiscal year 2001 and $500 million a year over the next 19 years,

although the Coast Guard acknowledges that the actual funding amount

Page 2 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Executive Summary

depends largely on the funding priorities established by the administration

and the Congress.

The Coast Guard is using a “system of systems” approach to determine the

type and mix of ships and aircraft that will best accomplish its missions.

Rather than considering replacement of an individual class of ships or

aircraft, the agency is looking to develop a system that will integrate ships,

aircraft, sensors, and communications equipment so that they can better

operate with one another. The hoped-for result is a smaller number of

ships and aircraft that will require fewer staff to operate. Teams of private

contractors operating on a competitive basis will develop proposals for

the system. The Coast Guard plans its own series of checks and reviews of

these proposals to help ensure that the final result is the most effective

and economical system of systems.

Results in Brief Although the Coast Guard is correct in starting now to explore how best to

modernize or replace its deepwater ships and aircraft, the Deepwater

Project’s only formal justification developed to date does not accurately or

fully depict the need for replacement or modernization. This justification

concluded that most deepwater ships and aircraft would need to be

phased out starting in the next 2 to 9 years. However, subsequent analyses

by the Coast Guard and others have shown that deepwater aircraft—and

perhaps many ships—likely have a much longer life, assuming that

maintenance and upgrades are carried out. The justification also asserted

that these ships and aircraft were incapable of performing future missions

or meeting future demand, but GAO was unable to validate these assertions

from the information available. The Coast Guard withdrew the

justification on the basis of concerns expressed by the Office of

Management and Budget and is now developing more accurate and

updated information. Several of these studies are still under way, even as

contracting teams have already begun work on developing their initial

deepwater proposals. Any delays in communicating this updated

information to the contractors could adversely affect the quality of the

proposals submitted.

While the Coast Guard’s acquisition approach seems an appropriate way

to avoid a costly one-for-one replacement of ships and aircraft, the agency

could face major financial obstacles in proceeding with a Deepwater

Project costing as much as initially proposed for planning purposes. At a

projected $500 million a year, expenditures for the project would take

virtually all of the Coast Guard’s projected spending for all capital

Page 3 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Executive Summary

projects, which currently include the construction of new buoy tenders

and motorized lifeboats. The Coast Guard expects more than $165 million

of the annual funding to come from new user fees for domestic

ice-breaking and navigational services that the Coast Guard currently

provides. However, the congressional subcommittees with jurisdiction

over the Coast Guard’s budget have expressed opposition to such fees,

and the House and Senate have prohibited the Coast Guard from planning

or implementing any new user fees. If hoped-for funding does not occur,

the Coast Guard may be left having either to reduce the scope of the

project or to stretch out the procurement period—that is, to buy items in

smaller quantities over longer periods of time. However, many other

government procurement projects have demonstrated that when agencies

attempt to address a problem by stretching out the procurement period,

administrative and other costs increase, resulting in lower value for the

amount of money spent.

Principal Findings

Justification Did Not

Accurately or Fully Depict

Modernization or

Replacement Needs

The Coast Guard’s justification for the Deepwater Project, issued in 1995,

underestimated the useful life of many ships and aircraft in the deepwater

fleet. The projections of remaining useful life were based on estimates

developed when these ships and aircraft were originally built. At that time,

estimated service lives were generally 20 years for aircraft and 30 years for

ships unless substantial modifications were subsequently made. However,

reviews done since 1995 by the Coast Guard and others have shown that

with proper maintenance and ongoing upgrades, many ships and aircraft

can be used for a much longer period. A number of these upgrades are

already under way or planned. For example, beginning with a $4 million

request in fiscal year 1999, the Coast Guard plans to begin improving

communications and information flow for all aircraft. Similarly, the agency

has requested about $12.9 million in fiscal year 1999 for replacing surface

search radars on many of its cutters. With upgrades like these, the useful

service life of many of these assets, particularly aircraft, is extended 10 or

more years beyond original estimates, according to the Coast Guard’s

evaluations.

Being able to use existing ships and aircraft for a longer time is of limited

help if these assets cannot meet new capability needs or are too few in

number to do the job. The Coast Guard’s 1995 justification asserted that

Page 4 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Executive Summary

current ships and aircraft lacked capabilities needed for future missions

and could not satisfy the likely demand for services. However, the Coast

Guard did not conduct a thorough analysis of the capabilities of current

assets as required by the Department of Transportation’s and the Coast

Guard’s acquisition guidelines, and GAO was unable to validate the

information on which the estimated future demand for services had been

based.

The Coast Guard and its parent agency, the Department of Transportation,

now recognize that the 1995 justification did not do an adequate job of

reflecting the condition of, capability deficiencies of, and future demand

for ships and aircraft. Recognizing some of these same points, the Office of

Management and Budget told the Coast Guard and the Department in

January 1998 to withdraw the original justification. The administration

plans to create a Presidential Roles and Missions Commission to review

and validate the Coast Guard’s roles and missions and issue a report in

October 1999. The results of the Commission’s work, coupled with the

results of ongoing assessments of the condition and capabilities of existing

deepwater ships and aircraft, will be used to prepare a revised

justification, which the Coast Guard expects to issue in January 2000.

Even though the project’s justification has been withdrawn, the Coast

Guard is proceeding with the next phase of the acquisition process, in

which three contractor teams will submit their competing versions of a

proposed “blueprint” for the future deepwater system. GAO expressed

concerns to senior Coast Guard and Department of Transportation

officials about proceeding without a clear understanding of the condition

and capabilities of ships and aircraft and of service demands envisioned in

a well-substantiated justification. GAO noted that when the Coast Guard

awarded contracts in August 1998 to three contractors to develop the

proposal for the Deepwater Project, a number of key internal studies and

assessments on the condition and capabilities of ships and aircraft were

still being developed by the Coast Guard. For example, internal

engineering evaluations of the condition of two classes of deepwater ships

were under way and are scheduled for completion in mid-1999. Also, a

study of the capabilities of the agency’s deepwater ships and aircraft and a

comparison with future requirements was under way; it is scheduled for

completion in November 1998 at the earliest.

Without clear knowledge of whether current ships and aircraft are clearly

deficient in their capabilities or when they are likely to reach the end of

their useful life, contractors may develop proposals that call for a system

Page 5 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Executive Summary

of ships and aircraft that is unnecessary or, if necessary, is brought into

service too early or too late. This is of particular concern when the

potential cost of new aircraft and ships is considered. Even if contractors

receive this updated information, receiving it too late could mean that they

would be disadvantaged in developing their “blueprint” proposals. For

example, they may already have eliminated alternatives that, in the context

of the additional information, are more cost-effective. While the Coast

Guard recognizes that it is essential to provide contractors with updated

information on the condition of ships and aircraft as soon as possible, it

believes that it was also important to move forward with the contract

awards because the contractors had already formed their teams and were

ready to begin work and that long procurement lead times require the

agency to initiate actions now without delay.

Some lessons learned from the development of the initial justification have

applicability for future procurement efforts. The development of the initial

justification for the Deepwater Project was the most complex mission

analysis that the Coast Guard had ever undertaken, according to Coast

Guard officials. They said that in many respects, the agency was learning

as it went through the process. GAO identified three key factors that

contributed to the Coast Guard’s difficulty in dealing with this complex

task. First, the agency had not yet developed ways to collect and analyze

data essential for justifying such a large procurement project. For

example, the agency had no systematic way to collect true operating and

maintenance costs for its ships; such data would have been useful in

comparing costs over time and demonstrating the agency’s assertion that

ships’ maintenance and operating costs were rising significantly. Even

when systems were in place to collect data on ships and aircraft, the

analyses were sometimes not completed when scheduled because of

budget constraints. Second, the Coast Guard’s and the Department of

Transportation’s guidance for preparing mission analysis studies is limited

for specifying acceptable methods to assess the condition of current ships

and aircraft and for disclosing methodologies and data sources so that

decisionmakers can consider any data limitations and minimize erroneous

conclusions. Third, formal review mechanisms within the Coast Guard and

the Department of Transportation did not recognize the data shortcomings

of the justification. Little if any data verification was done; rather,

reviewers presumed that the underlying data were accurate and complete.

Taken together, these shortcomings raise questions about the accuracy

and completeness of the data used to justify the Deepwater Project as well

as the efficacy of the process for justifying future projects.

Page 6 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Executive Summary

Fiscal Constraints Could

Limit Deepwater Project’s

Funding

The Coast Guard’s “system of systems” approach to the Deepwater Project

seems logical as a way to avoid the costly one-for-one replacement of

ships and aircraft, and its use of multiple contractors is an attempt to

leverage technology and identify cost-effective alternatives. Nevertheless,

finding funds for a project as costly as the one that the Coast Guard has

initially proposed may be difficult for several reasons. One reason is that

when full acquisition begins, the annual amount needed would be about

equal to the Coast Guard’s entire annual budget for capital projects as

projected by the Office of Management and Budget. The Coast Guard has

other capital projects under way or planned, such as replacing ships that

maintain navigational aids and upgrading the capabilities of existing

aircraft. Unless the Congress were to grant additional funds, which under

existing budget laws, could mean reducing the funding for some other

agency or program, these other capital projects could be affected.

Another reason why funding could be difficult is that about one-third of

the Coast Guard’s future budget for its capital projects is predicated on a

proposed user fee for navigational and domestic ice-breaking services.

These fees would be charged to ships, barges, and other vessels that rely

on the Coast Guard’s navigational aids and traffic systems in busy ports or

that need ice-breaking services in the Great Lakes in order to operate

during cold months. Such fees have proven controversial when proposed

in the past, and the Subcommittees of the Senate and House Committees

on Appropriations with jurisdiction over the Coast Guard’s budget have

cited their opposition to the new user fees. If user fees are not approved,

the money would most likely need to come from additional appropriations.

This would place the Deepwater Project in competition with other budget

priorities, both inside and outside the Coast Guard.

Now that the Coast Guard has found that many of its ships and aircraft will

have a longer useful life, funding needs for the Deepwater Project could

lessen. If many ships and aircraft can be upgraded and used for a longer

period of time, the project’s needs—particularly in the short term—could

be considerably less than the $500 million a year that the Coast Guard has

asked contractor teams to design their proposals around.

Recommendations GAO recommends that the Secretary of Transportation direct the Office of

the Assistant Secretary for Administration and the Coast Guard to

expedite the issuance of information that the Coast Guard has developed

or is developing on the condition and capabilities of ships and aircraft. To

help ensure that future mission analysis studies on the Deepwater Project

Page 7 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Executive Summary

or other major acquisitions are more accurate and complete, GAO

recommends improvements in the Coast Guard’s and the Department of

Transportation’s acquisition guidelines for evaluating the condition of

assets, disclosing how information supporting acquisitions is developed,

and reviewing acquisition proposals. Finally, to help ensure that planning

for the Deepwater Project is conducted with the realities of competing

projects and limited budgets, GAO also recommends that the Secretary

direct the Commandant of the Coast Guard to evaluate whether

contracting teams should be instructed to base their proposals on the

assumption of a lower, more realistic funding level than $500 million a

year and submit the decision to the Department for review.

Agency Comments GAO provided the Department of Transportation and the Coast Guard with

a draft of this report for review and comment. The Department and the

Coast Guard generally concurred with the information in the report, and

the Department indicated that it would consider the report’s

recommendations. The Coast Guard generally concurred with the

recommendations and said it will strive to improve the acquisition

process. In addition, the Department and the Coast Guard provided

several comments that clarified information on the Department’s

acquisition process, the cost of operating deepwater ships and aircraft,

and the goals of the Deepwater Project, which we have incorporated into

the report as appropriate.

Page 8 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Page 9 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Contents

Executive Summary 2

Chapter 1 

Background

12

Current Deepwater Ships and Aircraft and Missions 12

Deepwater Capability Replacement Project 15

Objectives, Scope, and Methodology 19

Chapter 2 

The Coast Guard’s

Formal Justification

Did Not Accurately or

Fully Depict

Modernization or

Replacement Needs

21

Most Deepwater Ships and Aircraft Can Be Used Beyond

Originally Estimated Service Life

22

Acquisition Requirements for Demonstrating a Capability Gap

Not Met

28

Shortfalls in Meeting Demand for Services Could Not Be Verified 29

Many Data Issues Remain Unresolved 32

Better Acquisition Guidance and Review Could Help Avoid

Similar Problems in the Future

36

Conclusions 39

Recommendations 39

Chapter 3 

Estimated Funding

Level for the

Deepwater Project

May Not Be Attainable

in the Current Budget

Environment

41

Coast Guard’s Capital-Spending Target Is Expected to Grow 42

Estimated Cost of Deepwater Project Leaves Little Room for

Other Capital Projects

42

User Fee Proposal Creates Greater Funding Uncertainty 44

Reassessing the Acquisition and Funding Plan for the Deepwater

Project Could Reduce the Risk of Cost Increases Later

45

Conclusions 47

Recommendations 47

Agency Comments 47

Appendixes Appendix I: Primary Uses of Deepwater Ships and Aircraft, Fiscal

Year 1997

50

Appendix II: Operational Costs for Deepwater Ships and Aircraft,

Fiscal Year 1997

51

Appendix III: Upgrades to the Coast Guard’s Aircraft 52

Appendix IV: Major Contributors to This Report 54

Tables Table 1.1: Description of Deepwater Ships and Aircraft 13

Table 1.2: Projected Funding for the Deepwater Project 19

Table 2.1: Phaseout of Aircraft and Ships as Shown in the DMAR 23

Page 10 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Contents

Table III.1: Projects That Can Prolong the Life of the Coast

Guard’s Aircraft

53

Figures Figure 1.1: Primary Uses of Deepwater Ships and Aircraft, Fiscal

Year 1997

14

Figure 1.2: Operational Costs for Deepwater Ships and Aircraft,

Fiscal Year 1997

15

Figure 2.1: Comparison of Phaseout Periods Shown in the DMAR

and Projected by Subsequent Reevaluations

24

Figure 2.2: Demand Gap Presented in Initial Deepwater Project’s

Justification

30

Figure 3.1: Comparison of OMB’s Budget Target and Actual and

Proposed Coast Guard Capital Projects, Fiscal Years 1999-2003

43

Abbreviations

AC&I acquisition, construction, and improvements

ARSC Aircraft Repair and Supply Center

DMAR Deepwater Mission and Analysis Report

DOD Department of Defense

DOT Department of Transportation

GAO General Accounting Office

OMB Office of Management and Budget

SSMEB Ship Structure and Machinery Evaluation Board

Page 11 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Chapter 1 

Background

Started in 1996, the Coast Guard’s Deepwater Capability Replacement

Project is potentially the most significant and largest acquisition project in

the agency’s history. The Coast Guard’s deepwater missions—that is,

those missions beyond the normal operating range of shore-based small

boats—include such actions as enforcing fisheries laws, intercepting drug

smugglers, and conducting search and rescue operations far out at sea.

Cutters, patrol boats, airplanes, and helicopters are all critical to meeting

these responsibilities. Through the Deepwater Project, the Coast Guard is

considering how to best meet these missions in the future—and in the

process, how to replace or modernize this fleet of ships and aircraft. The

Coast Guard’s preliminary estimates put the Deepwater Project’s cost at

$9.8 billion over a 20-year period.1

Current Deepwater

Ships and Aircraft and

Missions

What Are the Coast

Guard’s Primary

Deepwater Ships and

Aircraft?

The Coast Guard’s deepwater missions are met by four classes of ships

and four classes of aircraft, including the Coast Guard’s largest cutters,

airplanes, and helicopters. (See table 1.1.) The ships and aircraft are

spread throughout the maritime areas of the nation, including the Pacific

and Atlantic coasts, Alaska, Guam, and Hawaii.

1

The Coast Guard’s projection is in constant 1998 dollars.

Page 12 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Chapter 1 

Background

Table 1.1: Description of Deepwater Ships and Aircraft

Type of asset Number Description

Ship

378-foot high endurance

cutter

12 This is the largest multipurpose cutter in the fleet. It has a planned crew size of 167, a speed

of 29 knots, and a cruising range of 14,000 nautical miles. The Coast Guard operates it for

about 185 days a year, and it can support helicopter operations.

270-foot medium

endurance cutter

13 This cutter has a planned crew size of 100, a speed of 19.5 knots, and a cruising range of

10,250 nautical miles. The Coast Guard operates it for about 185 days a year, and it can

support helicopter operations.

210-foot medium

endurance cutter

16 This cutter has a planned crew size of 75, a speed of 18 knots, and a cruising range of

6,100 nautical miles. The Coast Guard operates it for about 185 days a year, and it can

support operations of short-range recovery helicopters.

110-foot patrol boat 49 This patrol boat has a planned crew size of 16, a speed of 29 knots, and a cruising range of

3,928 nautical miles. The Coast Guard operates most for about 1,800 hours a year.

Total 92a

Aircraft

HC-130 long-range

surveillance airplane

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

speed of 290 knots, and an operating range of about 2,600 nautical miles. The Coast Guard

operates most of these aircraft for about 800 hours every year.

HU-25 medium-range

surveillance airplane

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

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

generally operates it for about 800 hours a year.

HH-60J medium-range

recovery helicopter

42 This helicopter is capable of flying 300 miles off shore, remaining on scene for 45 minutes,

hoisting six people on board, and returning to its point of origin. The Coast Guard operates

most for about 700 hours a year. It has a planned crew size of four, a maximum speed of

160 knots, and a maximum range of 700 nautical miles.

HH-65 short-range recovery

helicopter

96 This helicopter is capable of flying 150 miles off shore. It has a crew allowance of three, a

maximum speed of 165 knots, a maximum range of 400 nautical miles, and a maximum

endurance of 3.5 hours. The Coast Guard operates most for about 645 hours a year.

Total 209

aTotal also includes a 213-foot medium-endurance cutter that was commissioned in 1944 and a

230-foot medium-endurance cutter that was commissioned in 1942. The 213-foot cutter has a

planned crew size of 64, and the 230-foot cutter has a planned crew size of 106.

How Are These Ships and

Aircraft Used?

The Coast Guard uses its deepwater ships and aircraft to carry out a

number of maritime missions and responsibilities. On the basis of data for

fiscal year 1997, the primary missions are in search and rescue operations

and three categories of law enforcement: protecting fisheries, interdicting

illegal migrants at sea, and controlling the flow of drugs. Together, these

activities account for about 80 percent of the operational hours of

deepwater ships and 50 percent of the operational hours of aircraft. (See

fig. 1.1.)

Page 13 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Chapter 1 

Background

Figure 1.1: Primary Uses of Deepwater Ships and Aircraft, Fiscal Year 1997

Law enforcement: 

fisheries, drugs, 

immigration

64.7% 35.3%

Search and 

rescue

15.3% 17.2%

Training 8.0% 31.5%

Other 12.0% 16.0%

Ships Percent of Aircraft

operational 

hours

Source: GAO’s analysis of the Coast Guard’s data.

Usage varies considerably by the type of ship or aircraft. For example,

378-foot cutters are used mainly in fisheries enforcement, while 110-foot

patrol boats are used mainly in search and rescue activities and drug

control efforts. HC-130 aircraft have their greatest usage in fisheries

enforcement, and helicopters spend much of their time in search and

rescue activities and drug control activities. Appendix I provides a more

detailed breakout for the usage of each type of ship and aircraft.

How Much Does It Cost to

Operate and Maintain the

Coast Guard’s Deepwater

Ships and Aircraft?

The Coast Guard estimates that it spent about $589 million to operate its

deepwater ships and about $662 million to operate its deepwater aircraft

in fiscal year 1997. The costs are broken out into three major areas: direct

expenditures (e.g., the personnel costs of ship and aircraft operators),

direct support expenditures (e.g., the cost of maintenance), and overhead

(e.g., the cost of training). Direct expenditures account for the largest

portion of operating costs. (See fig. 1.2.) Appendix II provides more

Page 14 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Chapter 1 

Background

detailed information on the cost to operate and maintain each type of ship

and aircraft.

Figure 1.2: Operational Costs for Deepwater Ships and Aircraft, Fiscal Year 1997

Direct

$290.5 

million

$471.5

million

Direct support

$191.3 

million

$96.1 

million

Overhead

$107.5

million

$94.7

million

Ships Cost Aircraft

Source: The Coast Guard’s Cost Accounting Model.

Deepwater Capability

Replacement Project

The Deepwater Capability Replacement Project is intended as an

integrated system of ships, aircraft, command, control, communications,

intelligence, surveillance, and reconnaissance equipment to replace or

modernize the Coast Guard’s current assets. According to the Coast

Guard’s justification for the project, the existing deepwater ships and

aircraft are at or approaching the end of their service life. The agency

hopes to replace or upgrade them and end up—through the use of

innovative technology, such as satellites—with a smaller number of ships

and aircraft. By doing so, the Coast Guard hopes to lower total ownership

costs2

 by acquiring a system of assets that requires fewer staff to operate

and maintain. As presented, the project will potentially be the largest

procurement effort in the Coast Guard’s history.

2

Total ownership costs include acquisition, operating, and support costs.

Page 15 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Chapter 1 

Background

What Acquisition Process

Does the Coast Guard

Need to Follow?

As it proceeds with the Deepwater Project, the Coast Guard will be

required to follow the acquisition process outlined in Office of

Management and Budget (OMB) Circular A-109, which is the principal

guidance for acquiring major systems in the federal government. To avoid

the problems commonly experienced in acquiring major systems, such as

cost overruns and delays, OMB Circular A-109 specifies five major phases

that agencies must complete when making large acquisitions:

(1) determine mission needs, (2) identify and explore alternative design

concepts, (3) demonstrate alternative design concepts, (4) undertake

full-scale development and limited production, and (5) commit to full

production. To secure the involvement of the agency’s top management in

reviewing a project’s progress, problems, and risks, Circular A-109

establishes a key decision point between each phase.3

The Coast Guard has already moved beyond the first phase of the A-109

process: it has examined mission needs as they relate to the need to

replace or modernize its fleet of deepwater ships and aircraft. This first

phase is critical because it justifies the project and identifies the

deficiencies that need to be resolved. The Department of Transportation

(DOT), the Coast Guard’s parent agency, does not allow its agencies to

request funds for a project unless DOT has reviewed and approved a

well-documented statement of mission needs.

In the first phase of the Circular A-109 process, the Coast Guard

assembled and obtained DOT’s approval of a Mission Needs Statement. This

statement is based on the Coast Guard’s Deepwater Mission Analysis

Report (DMAR), which was issued in November 1995.4

 The DMAR determined

that the Coast Guard’s ships and aircraft were aging and that future

demand exceeded the number of operational hours provided by the ships

and aircraft. The DMAR also determined that capability improvements were

needed in such matters as speed, boarding capacity, and the ability to

classify targets. The DMAR concluded that as a result of these findings,

there was a need to begin a project for acquiring new ships and aircraft.

3

Key Decision Point 1 involves a review of the agency’s Mission Needs Statement, which is an

executive summary of the Mission Analysis Report. This decision point authorizes the agency to

proceed into Concept Exploration, or an analysis of different concepts. Key Decision Point 2 validates

the alternative concept(s) that the agency is proposing and authorizes the agency to proceed into

demonstration and validation of the selected concept. Key Decision Point 3 validates the best design,

verifies the resolution of technical issues, and authorizes the agency to proceed into full-scale

development. After the agency builds and tests developmental models and prototypes, Key Decision

Point 4 reviews the test and evaluation of the prototype, and authorizes production and deployment.

DOT calls on its agencies to revalidate the mission’s needs at each key decision point.

4

In conducting the DMAR, the Coast Guard received assistance from the Naval Undersea Warfare

Center and a private contractor.

Page 16 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Chapter 1 

Background

The Coast Guard is now in the second phase, or concept exploration, of

the Circular A-109 process. During this phase, the Coast Guard or its

contractors will develop key program documents, such as project

baselines, requirements documents, acquisition plans, and evaluation

criteria. Alternative concepts for correcting the deficiencies identified in

the DMAR must also be explored as part of this step.

For this acquisition, the Coast Guard is using a novel systems approach to

examining its mission, its existing assets, and how best to accomplish its

mission. Rather than using the traditional approach of considering the

replacement of an individual class of ships or aircraft, the Coast Guard will

use a “system of systems” approach that integrates ships, aircraft, sensors,

and communication links together as a system to accomplish mission

objectives. Through this approach, the Coast Guard hopes to avoid

“stovepiping” the acquisition of ships and aircraft, which has led to a

situation where they could not operate optimally together.

According to the Coast Guard, the process incorporates multiple controls,

which will maximize existing resources in an efficient manner. These

controls include the use of multiple teams of contractors in a competitive

environment to identify the most cost-effective set of equipment. Also, the

Coast Guard has hired an independent contractor, who is prohibited from

gaining any potential production contracts, to provide a check on the

results from the industry teams.5

How Does the Coast Guard

Plan to Proceed?

From August 1998 through December 1999, the Coast Guard will pay three

teams of contractors to develop competing proposals for the Deepwater

Project. Their development contracts, costing about $7 million each, call

for the contractor teams to develop a proposal for maximizing the Coast

Guard’s ability to carry out its missions while minimizing total ownership

costs.6

 The proposals could include replacing existing ships, aircraft, and

other equipment; upgrading them; or some combination of the two.

Besides submitting their proposals, the contractors will be required to

provide other products such as cost estimates for implementing their

proposals, a schedule for acquiring or upgrading any new ships and

5

The Coast Guard has selected the Center for Naval Analysis to conduct the independent analysis.

According to the Coast Guard, the Center will consider the upgrade/modernization/replacement of

existing ships and aircraft as well as the range of potential commercial technologies viable for the

Deepwater Project. The Center will provide an objective perspective on deepwater concepts, a

function that is intended to be a safeguard for the government, according to the Coast Guard.

6

For fiscal year 1999, the Coast Guard requested $28 million for the Deepwater Project, most of which

was to be used to pay three teams of contractors to develop deepwater proposals.

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aircraft, and an implementation plan for integrating the new or upgraded

equipment into the Coast Guard.

Once the contractors submit their initial proposals, the Coast Guard will

go through a series of steps designed to refine its concept of the system of

systems. When the Coast Guard has selected a system that it wants from

the proposals submitted, it will ask the contractors to submit additional

final proposals for the system for the Coast Guard to evaluate. At the end

of this process, the Coast Guard intends to award a contract to one of the

contractor teams to build the system, which the Coast Guard calls the

Integrated Deepwater System. The initial procurement of ships and/or

aircraft is anticipated to begin in fiscal year 2002.

How Much Is the Project

Likely to Cost?

In August 1996, the Coast Guard estimated that the cost of the Deepwater

Project would range from $7.25 billion to as much as $15 billion. This

estimate was based on replacing the existing fleet of 92 ships and 209

aircraft currently involved in deepwater missions. The Coast Guard

cautioned that the estimate reflected a rough order of magnitude and that

future estimates would be more accurate as the types and numbers of

ships and aircraft are determined. The agency suggested that its estimate

may portray the worst-case scenario because, through the use of

technology, the Coast Guard intends to reduce the number of ships and

aircraft required.

When the Coast Guard supplied guidance for contractors to use in

deciding how to develop proposals for the new system, it proposed a

budget target that was consistent with the August 1996 estimate. For

planning purposes, the Coast Guard told contractor teams to develop

proposals that assume a cost of $9.8 billion over a 20-year period, or

roughly $500 million a year starting in fiscal year 2002. The agency

cautioned, however, that funding levels are ultimately contingent upon

congressional approval.

The Coast Guard is planning for substantial funding increases for the

Deepwater Project over the next 4 years. In fiscal year 1998, the Coast

Guard spent $5 million on the Deepwater Project. The Coast Guard

estimates that this cost will grow to an estimated $500 million by fiscal

year 2002. (See table 1.2.)

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Table 1.2: Projected Funding for the

Deepwater Project Dollars in millions

Fiscal

year Main tasks

Projected

funding

1998 Concept exploration: Coast Guard issues request for

proposal and awards contract to three teams of

contractors. $5

1999 Concept exploration: Teams develop concepts and

submit initial proposals. Coast Guard develops

requirements documents, acquisition plans, and baseline. 28

2000 Concept exploration: Coast Guard determines final mix of

ships and aircraft and prepares a second request for

proposal. 19

2001 Concept exploration: Contractors prepare response to the

mix of ships and aircraft prescribed by the Coast Guard.

Coast Guard reviews proposals. 300

2002 Concept exploration: Coast Guard awards the contract for

the next phase of the deepwater system—the

demonstration and validation phase. 500

Objectives, Scope,

and Methodology

The Subcommittee on Transportation, Senate Committee on

Appropriations, asked us to review the Deepwater Project’s justification

and the planning process that the Coast Guard was following. We focused

our review on the following questions:

• To what extent does the current justification for the Deepwater Project

accurately depict the Coast Guard’s need to modernize or replace its ships

and aircraft?

• To what extent are projected costs for the Deepwater Project consistent

with the Coast Guard’s overall budget for its capital projects?

To answer the first question, we examined three main areas covered in the

Deepwater Project’s justification: the condition of current assets,

projected capability needs, and projected demand for services. We

analyzed the Coast Guard’s documents depicting this need, such as the

Deepwater Mission Analysis Report and the Mission Needs Statement, and

compared the information that these documents presented with other

Coast Guard data, such as engineering studies on the condition of Coast

Guard ships and aircraft, planned upgrades for extending the service life

of ships and aircraft, and records of actual usage. In those instances where

the Coast Guard had relied on contractors to develop data for the project’s

justification, we interviewed contractor officials and obtained information

on the procedures and methodology they used. We interviewed Coast

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Guard and DOT acquisition and planning officials in headquarters to

understand the process used by the Coast Guard to justify the Deepwater

Project. We also interviewed (1) staff in the Coast Guard’s Pacific Area

office in Alameda, California; Atlantic Area office in Norfolk, Virginia; and

the district office in Miami, Florida; (2) engineering and maintenance

managers at the Coast Guard’s headquarters; (3) Coast Guard staff in the

Maintenance and Logistics Command in Norfolk, Virginia, and Alameda,

California; (4) Coast Guard staff in the Engineering Logistics Center in

Baltimore, Maryland; and (5) staff in the Coast Guard’s Aircraft Repair and

Supply Center in Elizabeth City, North Carolina, to obtain information on

the agency’s deepwater missions, the condition of ships and aircraft, and

maintenance practices. We also reviewed OMB Circular A-109 and DOT’s and

the Coast Guard’s policies on and procedures for major acquisitions.

Finally, we judgmentally selected locations for site visits that gave us the

full mix of deepwater air and ship fleets and mission responsibilities. On

the basis of this selection, we visited and interviewed ship crews in

Seattle, Washington; Norfolk, Virginia; Miami, Florida; St. Petersburg,

Florida; and Alameda, California, and air crews in Elizabeth City, North

Carolina; Miami, Florida; Clearwater, Florida; and Kodiak, Alaska, to

obtain information on the condition, capability, and operations of

deepwater assets.

To answer the second question, we reviewed OMB’s budget targets for the

Coast Guard’s budget for its capital projects, budget reports issued by the

Congressional Budget Office, the Coast Guard’s Capital Investment Plan,

the Deepwater Project’s funding and acquisition strategy, and other Coast

Guard budget documents. We also interviewed Coast Guard, DOT, and OMB

officials on the affordability of the Deepwater Project.

We performed our work from October 1997 through September 1998 in

accordance with generally accepted government auditing standards.

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When it initially proposed the Deepwater Project in 1995, the Coast Guard

indicated that most classes of deepwater ships and aircraft would begin

reaching the end of their service life within the next 2 to 9 years and would

largely need to be phased out by 2010. Information developed since the

initial proposal indicates, however, that many of these assets, particularly

aircraft, have a service life that extends considerably beyond what the

Coast Guard projected at the time. In the 1995 proposal, the Coast Guard

also asserted that the capabilities of existing ships and aircraft were

inadequate to meet current and future demand. We were unable to verify

whether these assertions were correct because the Coast Guard did not

have sufficient supporting evidence.

The Coast Guard and DOT now recognize that the 1995 justification did not

adequately reflect the condition of deepwater ships and aircraft or their

ability to meet future needs. The Coast Guard is conducting a number of

internal studies that will update the condition and capabilities of its ships

and aircraft as part of the next phase of the acquisition process. This phase

began in August 1998, when the Coast Guard awarded contracts to three

teams of contractors for developing competing proposals for the future

deepwater system. Delays in providing updated information to the

contractor teams could adversely affect the quality of the proposals

submitted, in that, the teams could be disadvantaged in developing the

most effective economical proposals for the Deepwater Project.

The 1995 project justification was inadequate in part because of the Coast

Guard’s relative inexperience in preparing a mission analysis this complex

and in part because of certain weaknesses in the system for developing

and approving such studies. More specifically, the system’s weaknesses

included not accumulating complete data, not having specific guidance for

preparing the analysis, and not having a review process that was thorough

enough to identify weaknesses in the methodologies and the data used.

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Most Deepwater Ships

and Aircraft Can Be

Used Beyond

Originally Estimated

Service Life

The Coast Guard’s justification of the need for the Deepwater Project was

presented in the DMAR, issued in 1995.1

 The DMAR based its determination of

how long ships and aircraft could operate on the estimate made when they

were built or when they last underwent substantial modification. However,

such estimates are not always reliable predictors of actual service life,

according to industry sources and officials in the Coast Guard who

operate and maintain deepwater ships and aircraft. Instead, the estimates

are benchmarks signaling the need for a more thorough engineering

reevaluation of the condition and remaining life of the ships and aircraft.

Since 1995, a number of these reevaluations have been conducted. They

show that for deepwater aircraft, service lives can be extended

significantly beyond the initial estimates through a combination of

maintenance, safety, and capability upgrades.2

 The reevaluations of

deepwater ships have been more limited than reevaluations of the aircraft,

but the ships studied thus far show that they are also likely to have a

longer service life.

Justification for the

Deepwater Project Called

for Phaseout of Most

Aircraft and Ships by 2010

According to the DMAR, most of the Coast Guard’s deepwater aircraft and

ships will have reached the end of their service life by 2010. The estimated

service lives were generally 20 years for aircraft and 30 years for ships

unless substantial modifications had been conducted. Because these ships

and aircraft were acquired over a period of years, the DMAR indicated that

the oldest of these would need replacement or modernization generally

starting from 1998 through 2003. The estimates used were based on

industry standards, according to a Deepwater Project official. The DMAR’s

depiction of the service life of each type of aircraft and ship is shown in

table 2.1.

1

Although the Coast Guard has since withdrawn this document until it can be revised, we include a

substantial analysis of it here because (1) analyzing the available justification was a major part of our

congressional charge for this review, (2) understanding the document’s shortcomings is important for

assessing future revisions and for determining what changes to the process might be in order, and

(3) DOT’s and the Coast Guard’s guidelines indicate that the purpose of concept exploration—the

acquisition phase that the Coast Guard is in—is to explore alternative concepts for correcting the

deficiencies described in the analysis.

2

The Coast Guard stated that while the service life of ships and aircraft can be extended through

maintenance and upgrades, there can also be risks associated with doing so, especially in terms of

costs and capability. According to the Coast Guard, the current phase of the project will determine

whether and how long it is cost-effective to extend the service life of ships and aircraft.

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Table 2.1: Phaseout of Aircraft and

Ships as Shown in the DMAR

Type of asset

Years

acquired

Estimated service

life in years

Phaseout period

shown in DMAR

Ships

378-foot high-endurance

cutter 1967-72 33-39a 2003-2007

270-foot mediumendurance cutter 1983-91 30 2012-2020

210-foot mediumendurance cutter 1964-69 36-45b 2002-2011

110-foot patrol boat 1986-92 20 2005-2012

Aircraft

HC-130 long-range

surveillance airplane 1972-87 20 1998-2008

HU-25 medium-range

surveillance airplane 1982-84 20 2002-2004

HH-60J medium-range

recovery helicopter 1990-96 20 2010-2015

HH-65 short-range

recovery helicopter 1984-89 20 2005-2009

aService life is based on the date of renovation and modernization plus 15 years.

bService life used is based on the date of major maintenance plus 15 years.

Reevaluation Shows That

Aircraft Have Longer

Service Lives

Studies by the Coast Guard and other independent groups3 show that

Coast Guard aircraft can operate significantly beyond their 20-year design

life, assuming that proper maintenance and upgrades are done. Since the

DMAR was issued, the Coast Guard has completed a new study of its

aircraft. A draft of this study, prepared in May 1997, concluded that the

Coast Guard’s aircraft are capable of operating safely until at least 2010

and likely beyond.4

 This conclusion substantially affects the estimated

service life of aircraft presented in the DMAR. As figure 2.1 shows, on the

basis of estimated service life alone, no aircraft would need to be replaced

3

The Coast Guard contracted with CAE Aviation Ltd. to perform an engineering study on the condition

of HC-130 aircraft and to develop options for extending the life of the fleet; the report was issued on

January 10, 1997. Aircraft manufacturers Sikorsky and Dassault conducted studies of the HH-60J and

HU-25, respectively.

4

The draft study, entitled “Near Term Support Strategy,” was initiated as part of the Coast Guard’s

internal budgeting process and conducted by the Coast Guard’s Aeronautical Engineering Division.

The study was based on consultations with manufacturers of the aircraft and with Department of

Defense agencies operating similar aircraft, as well as consultations with Coast Guard headquarters

aircraft engineers and staff at the Aircraft Repair and Supply Center (the Coast Guard’s maintenance

depot facility). In consulting with these sources, the Coast Guard was able to identify the factors that

would cause an aircraft to reach the end of its service life the soonest and what it would take to extend

its service life. The study was approved as a final report on August 19, 1998.

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before 2010, and the final phaseout of most types of aircraft could stretch

until 2020 and beyond.

Figure 2.1: Comparison of Phaseout Periods Shown in the DMAR and Projected by Subsequent Reevaluations

The Coast Guard's estimate of phaseout period as presented in DMAR

Estimated phaseout period based on additional information

HH-60J helicopter

HH-65A helicopter

HC-130 aircraft

HU-25 aircraft

1995 2000 2005 2010 2015 2020 2025 2030 2035 2050 2040 2045

The study’s conclusion was predicated on three main factors.

• Condition of aircraft is good—and independently corroborated. According

to the Coast Guard’s engineering officials, outside assessments have been

conducted on three of the four types of aircraft. Like the Coast Guard’s

assessment, these independent studies found the aircraft to be in good

condition and capable of operating far beyond the estimates used in the

DMAR.

• Capabilities of existing aircraft can be upgraded to better meet the Coast

Guard’s missions. The study identifies several projects that can further the

life or upgrade the capability of each aircraft. For fiscal year 1999, for

example, the Coast Guard is requesting $37 million in acquisition,

construction, and improvements (AC&I) funding for projects to upgrade

individual types of aircraft.5

 In addition to projects related to specific

aircraft, other current AC&I projects are improving the flow of

5

These appropriations fund AC&I of ships, aircraft, and other equipment.

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communication and information for all aircraft—for example, a

$21.5 million project is providing secure and reliable communications for

command and control through commercial satellite communications.6

 In

all, according to a Coast Guard engineering official, the study identified

about $200 million in AC&I projects benefitting deepwater aircraft. (For

more detailed information on the projects, see app. III.)

• A rigorous maintenance program is in place. According to the Coast Guard

Aircraft Repair and Supply Center (ARSC) official responsible for

maintaining the agency’s aircraft, a rigorous maintenance program for

aircraft, as well as periodic assessments of the condition of each aircraft,

allow the aircraft to operate beyond original service life estimates. The

Coast Guard uses a two-level maintenance system that includes

maintenance performed at the air stations (servicing, component

replacement, and inspection for corrosion and fatigue cracks) and more

extensive maintenance performed periodically at the ARSC,

7

 which can take

several months to be completed.

At the four air stations we visited, we asked 37 Coast Guard flight crew

members what they thought about the condition and capability of their

aircraft and their ability to carry out their missions. (These flight crews

also conduct maintenance on their own aircraft.) Overall, most crew

members said that they were satisfied with the condition and performance

of their aircraft but noted shortcomings in sensors and communication

equipment that hampered their ability to fully carry out their missions. For

example, Coast Guard crew members stated either that existing night

vision capabilities are totally absent or that they are making due with

equipment designed for other purposes.

Limited Data Obtained

Suggests That Ships May

Also Have a Longer Service

Life

Although the Coast Guard has not yet performed all of the engineering

studies necessary to evaluate the entire fleet of deepwater ships, recently

completed assessments of some of its deepwater ships show that they can

operate beyond the service life estimates used in the DMAR. These

engineering assessments, performed from 1994 through 1997 by the Coast

Guard’s Ship Structure and Machinery Evaluation Board and referred to as

SSMEBs, have been conducted for a limited number of three of the four

types of ships. Each has shown that the ships are in good condition and

6

Of the $21.5 million for this project, $4 million was requested for fiscal year 1999, $5 million was

planned for fiscal 2000, and $12.5 million was planned for future years.

7

The Coast Guard performs major overhauls of the two types of helicopters and HU-25 medium-range

surveillance airplanes at its ARSC, and it contracts out the overhaul maintenance of HC-130s.

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that, in two of three instances, the service life estimates are longer than

those presented in the DMAR.

The Coast Guard established the SSMEBs as a way of assessing the

condition of ships and determining if their service life can be extended.

The assessments are supposed to be conducted on one or more ships of

each type 10 years after the commissioning of the lead ship and at each

5-year interval thereafter.8 SSMEBs on the 378-foot high-endurance cutter

have not been performed because of budgetary constraints, according to

the Coast Guard’s Chief Naval Engineer.9

 In light of information needs for

the Deepwater Project, the Coast Guard is initiating assessments on one

378-foot and one 270-foot cutter and expects to complete them in fiscal

year 1999.

The most recent SSMEBs or other evaluations have indicated that the

service life of the evaluated vessels is longer than that indicated in the

DMAR.

10

• 270-foot cutter. In 1994, an SSMEB showed the evaluated cutter to be in

excellent condition and a potential for extending the cutter’s service life

through the replacement of equipment or modifications to be done during

maintenance periods. A recommended mid-life maintenance, similar to

that done on the 210-foot cutters, would add an additional 15 years to the

service life of the vessels—well beyond the service dates shown in the

DMAR.

• 210-foot cutter. SSMEBs conducted on two cutters in 1997 showed that their

service life was longer than that shown in the DMAR (at least 2 additional

years for one cutter evaluated and at least 5 years for the other).

• 110-foot patrol boat. The three SSMEBs conducted on these patrol boats

since 1995 were consistent with the service life estimates used in the DMAR.

However, other studies conducted by the Coast Guard have estimated the

remaining service life to be up to 6 years beyond the dates cited in the

DMAR.

8

An SSMEB consists of a review of the repair history of a class of cutters, an assessment of the future

supportability of the main propulsion, auxiliary, and prime mission equipment on that class of cutter,

and a thorough physical examination of the hull, engines, and auxiliary equipment.

9

Although no 378-foot cutter has recently received an SSMEB, the service life of these ships has been

studied. In 1990, officials in the Coast Guard’s Cutter Division estimated that the 378-foot cutters had a

service life that could be extended from 2007 through 2012, or 4 to 5 years longer than the service life

estimates used in the DMAR.

10An SSMEB’s determination that a ship’s service life can be extended by a certain period (e.g., 5

additional years) should not be taken to mean that the ship will necessarily reach the end of its useful

life when the 5-year period has ended. A subsequent SSMEB will determine if the useful life can be

extended further.

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As with aircraft, maintenance and upgrades are key factors that help

extend the service life of Coast Guard surface vessels, according to Coast

Guard naval engineering officials. A number of upgrades are scheduled,

and the Coast Guard takes preventive and corrective action on a continual

basis to ensure that a vessel’s condition is maintained.11 For example, the

Coast Guard has been replacing surface search radars on many of its

cutters since 1994 and has requested $12.9 million for fiscal year 1999 to

continue this project.

During the course of our work, we visited cutter crews at four locations to

discuss the capabilities of the Coast Guard’s deepwater ships and specific

on-board systems for such functions as detecting and classifying targets

and communicating with other Coast Guard assets and land units. Like

their aviation counterparts, most of the ships’ crew members were

satisfied with the performance of their vessel. However, many said that

outdated sensors and communication equipment limited their abilities to

fully perform their missions. Similar to Coast Guard pilots, crew members

cited the need to improve night vision capabilities, which could improve

target detection capabilities and the ability of helicopters to land on

cutters at night. Also, they noted the difficulty of launching small boats

from cutters during rough seas, which could be improved if the ships had

better launching systems; the inefficiency of the gas turbine engines on the

high-endurance cutters was mentioned as well.

Remaining Service Life of

Ships and Aircraft Merits

Careful Study

As ships and aircraft continue to age, rising operations and maintenance

costs can become one factor in deciding whether to keep equipment or

replace it. For example, studies have shown that the cost to operate and

maintain aircraft can rise as they age. This occurs as equipment wears out

and needs to be replaced or maintained more frequently. So far, the

studies showing that the agency’s ships and aircraft have a longer life than

originally thought have presumed that proper maintenance and upgrades

will be carried out. Several of the studies note that upgrades are more

likely to be a lower-cost solution than replacing the entire ship or aircraft.

As the Coast Guard proceeds with the Deepwater Project, it is developing

11Vessel maintenance generally occurs at three levels—organizational, intermediate, and depot.

Organizational-level maintenance is conducted by the assigned crew of the unit or by shore-based

teams assigned to a group of vessels. It generally takes place on board ship or at Coast Guard facilities,

such as boat stations or engineering support units. Intermediate-level maintenance is performed by

Coast Guard maintenance staff with specialized resources or skills unavailable to the unit. Depot-level

maintenance involves major overhauls, major hull repairs, or major system overhauls and is done at

commercial shipyards or at the Coast Guard’s yard about once every 4 years for cutters and once every

3 years for patrol boats.

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information on the cost to operate and maintain its ships and aircraft over

time.12 Such information may provide the agency with additional insights

on the most cost-effective solutions to carrying out its deepwater

missions.

Acquisition

Requirements for

Demonstrating a

Capability Gap Not

Met

DOT’s and the Coast Guard’s acquisition requirements emphasize the need

to document any gaps between the capability of current ships and aircraft

and future performance expectations as part of the mission analysis.

Specifically, the Transportation Acquisition Manual says that a mission

analysis “identifies capabilities needed to perform required functions,

highlights deficiencies in the functional capability, and documents the

results of the analysis.” Likewise, the Commandant’s instruction setting

the Coast Guard’s policy on mission analysis states that mission analysis is

to “identify deficiencies in current and projected capabilities.” The

instruction also states that mission analysis should include a “baseline of

current mission performance and asset capabilities.” However, we found

that the justification presented in the DMAR was not backed up by

quantifiable analyses demonstrating that a capability shortfall existed.

While the DMAR asserted that a gap in capabilities existed, we found no

evidence that the Coast Guard had conducted an analysis comparing the

current capabilities of aircraft and ships with current and future

requirements, as required by DOT’s and the Coast Guard’s guidance. For

example, the DMAR stated that “A comparison between mission

requirements and current asset capabilities indicate that Coast Guard

assets are very capable, but will not meet all requirements for the future.”

According to the Coast Guard official heading the team responsible for

preparing the DMAR, the Coast Guard did not perform any specific analyses

or comparisons to support this statement. Rather, the statement was based

on an informal comparison conducted by the project team and based on

its experiences with the deepwater aircraft and ships.

Coast Guard officials told us that they plan to complete a comparative

assessment of the current capabilities and functional needs of the future

deepwater system by November 1998.13 Coast Guard officials told us that

12Beginning in fiscal year 1997, the Coast Guard began developing a Fleet Logistics System to address,

in part, the absence of integrated cost-accounting and historical data and management information for

the maintenance, repair, and modernization of its ships. The Coast Guard plans to complete this

project in fiscal year 2000.

13Since the DMAR was issued, the Coast Guard has defined its functional requirements for the future

system. The future functional requirements for deepwater missions were defined in the System

Performance Specifications, which provide a baseline performance specification for the Coast Guard’s

Integrated Deepwater System and are included in the request for proposal.

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the proposed comparative assessment would involve a baseline

determination of current deepwater ships and aircraft and an evaluation of

how well they meet future functional requirements. As of August 1998, a

contractor for the Coast Guard had collected data on the performance

standards and measures for deepwater missions, as well as the capabilities

of ships and aircraft. These data will be used in the comparative

assessment to be conducted by the Coast Guard.

Shortfalls in Meeting

Demand for Services

Could Not Be Verified

DOT’s and the Coast Guard’s acquisition requirements call for developing

an estimate of the future need and demand for major systems before they

request funds from the Congress. According to the DMAR, the Coast Guard’s

deepwater ships and aircraft were able to meet only about one half the

actual need for surface and air hours. In future years, as existing ships and

aircraft reach the end of their useful life, the gap between available

resources and actual need was projected to become even greater. (See fig.

2.2.)

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Figure 2.2: Demand Gap Presented in Initial Deepwater Project’s Justification

0

10

20

30

40

50

60

70

80

90

0

100

200

300

400

500

600 Operating hours (in thousands)

Service 

availability

Demand range

Maximum

Minimum

Gap

1995 2000 2005 2010 2015

Operating hours (in thousands)

Service 

availability

Demand range

Maximum

Minimum

Gap

1995 2000 2005 2010 2015

Ships Aircraft

Source: DMAR.

The unmet need, according to the Coast Guard, affects primarily the drug

interdiction and fisheries missions. For example, the Coast Guard said that

it had to reduce drug interdiction missions in the Caribbean below desired

levels and that it had to reduce fisheries patrols in areas off the Northeast

coast that had been closed to fishing. The unmet need also reflected

cutting operations in low-priority areas; areas that would typically receive

little attention would not be patrolled.

Projected Demand for

Coast Guard Ships and

Aircraft Is of Unknown

Reliability

We attempted to verify the Coast Guard’s estimates of surface and aviation

hours needed for deepwater law enforcement missions, which constitute

over 95 percent of the total estimated mission-related hours for ships and

about 90 percent of the total estimated mission-related hours for aircraft.

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The Coast Guard and its consultant who studied this area could not

provide us with the information they used to make these estimates.

Estimates for Ships We could not verify the reasonableness of surface demand hour estimates

because the data sources used were not documented or available. The

Coast Guard had contracted with a private company to develop the

demand analysis. Contractor officials responsible for the analysis told us

the analysis was based on data obtained from Coast Guard officials.

However, the contractor did not document any details regarding the data,

such as which Coast Guard officials provided the data and what they were

based on.

Coast Guard officials told us that the demand analysis was based on two

main sources: fiscal year 1992 data from the Law Enforcement Information

System and information supplied by working groups at the Coast Guard’s

headquarters, who based their estimates on recent field experience. To

verify these data, we judgmentally selected 24 data items and asked Coast

Guard officials to provide support for them. The Coast Guard was unable

to provide us with sufficient support for any of the 24 items.

One of the data items that we examined—the estimated demand for drug

interdiction hours—provides an example of the lack of clearly verifiable

information, as well as an example of the possible errors introduced into

the analysis. The demand analysis based its estimates of drug interdiction

hours, in part, on intelligence reports showing 400 suspected

narcotraffickers per year in one district. Coast Guard officials were unable

to provide support for these data and said that they presumed that the

analysts had access to intelligence lists and that they had counted

approximately 400 different suspect vessels for fiscal year 1992. In

addition, we found that the estimated surface demand hours for drug

interdiction may have been substantially overstated because the number

of possible suspect vessels may have been double-counted. For example,

two Coast Guard performance standards task the Coast Guard to (1) board

10 percent of the targets of interest within high-threat areas and

(2) apprehend, assist in the apprehension of or hand-off to another

counter-drug law enforcement agency, every known narcotrafficker

intercepted. To accomplish both standards, the Coast Guard must identify

and board vessels. However, the contractor did not adjust its methodology

to eliminate the problem of identifying and boarding the same vessel

twice. Our analysis indicates that the resulting overstatement could be as

much as 21 percent of the total demand estimate for drug interdiction,

depending on the extent of the duplication.

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Estimates for Aircraft We could not verify the reasonableness of the Coast Guard’s estimate of

needed aircraft hours because the source and quality of the data used in

the study were not fully supported. The estimate was based on a 1992

Coast Guard study that used fiscal year 1991 aviation data. The Coast

Guard told us that the fiscal year 1991 aircraft usage totaled about 40,000

hours. However, the 1992 study indicated that about 75,000 hours were

needed—35,000 more than could be supported by actual usage on the

basis of the prior year’s usage. Coast Guard officials were unable to

provide support for the additional 35,000 hours other than to explain that

for its 1992 study, the Coast Guard directed its district offices to base their

estimates of needed aircraft hours on historical data for fiscal year 1991

and to add hours for unmet and future requirements. The district offices

did not provide support for their unmet and future requirements.

Key Assumption Not

Disclosed for Demand

Estimates

The Coast Guard’s guidelines for mission analysis require the disclosure of

assumptions that underlie the analysis. However, the Coast Guard did not

disclose a key assumption in the analysis that the demand for services was

based on the Coast Guard’s having unlimited resources to accomplish

every task within its missions. In other words, the Coast Guard based the

demand on fully meeting every responsibility assigned to the agency and

with the assumption that it would have enough staffing, support, and

equipment to meet all of these responsibilities.

A Coast Guard official said that the agency assumed unlimited resources

because the agency sets its sights on providing a high level of service and

strives to achieve it. Not making this assumption clear, however, can

present a distorted picture of the demand for services. While the Coast

Guard may believe it is appropriate to base its estimates on the underlying

assumption that unlimited resources will be available, not disclosing this

fact can leave decisionmakers with an unclear picture of what is being

presented.

Many Data Issues

Remain Unresolved

In January 1998, the Office of Management and Budget told the Coast

Guard and DOT to withdraw the DMAR and the Mission Needs Statement as

justification for the Deepwater Project. This occurred because OMB

officials were concerned that more data were needed before the Coast

Guard formally submitted information to contractor teams on the extent of

the Coast Guard’s resource needs. To address this concern, the

administration plans to create a Presidential Roles and Missions

Commission to review and validate the Coast Guard’s roles and missions.

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More specifically, the Commission will identify the Coast Guard’s statutory

and regulatory missions and evaluate whether the agency continues to be

the most appropriate organization to carry out these assignments.14 The

results of the Commission’s work would then be used as input to the

project.

The Coast Guard plans to replace the DMAR after the Presidential

Commission completes its work in October 1999. As of August 1998, the

Coast Guard planned to revise the DMAR by January 2000. In the meantime,

the Coast Guard’s plans call for the contractors themselves to assess the

condition of ships and aircraft as part of the next phase of the acquisition

process. In August 1998, the Coast Guard awarded contracts to three

contracting teams to develop proposals for an integrated deepwater

system. By February 1999, these contractors must submit a description of

the alternatives they are considering for the system. By December 1999,

they must submit their proposal for the system, including life-cycle cost

estimates of the system and its assets and an implementation schedule for

acquisition and deployment.

We expressed concerns to senior Coast Guard and DOT officials about

proceeding without the kind of clear understanding of the condition and

capabilities of vessels and aircraft and service demands envisioned in a

well-substantiated DMAR. Our concern mirrored a similar concern

expressed in a November 1997 internal Coast Guard study, which

concluded that the DMAR and the Mission Needs Statement needed to be

revalidated. According to a December 1997 memo from the Assistant

Commandant for Operations, “Industry will extensively use these

documents . . . to develop a system of systems and it is critical that our

projected missions and the stated levels/standards of performance are still

accurate.”

Without clear knowledge of whether current ships and aircraft are clearly

deficient in their capabilities or when they are likely to reach the end of

their useful life, contractors may develop proposals that call for buying

ships and aircraft that are unnecessary or, if necessary, are brought into

service too early or too late. This is of particular concern when the

potential cost of new aircraft and ships is considered. Even if contractors

receive this updated information, receiving it too late could mean that they

would be disadvantaged in developing workable proposals for the next

step of the acquisition process. For example, they may already have

14According to the Coast Guard, the Commission will distinguish which of its roles, missions, and

functions might be (1) added or enhanced, (2) maintained at current levels of performance, or

(3) reduced or eliminated.

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eliminated alternatives that, in the context of the additional information,

are more cost-effective.

Coast Guard officials agreed that it is essential to provide contractors with

updated information on the condition of ships and aircraft as soon as

possible, but they said that it was also important to move forward with the

contract awards because the contractors had already formed their teams

and were ready to begin work. They noted that long procurement lead

times require that the agency initiate actions now without delay.

According to agency officials, the Coast Guard has learned the importance

of having sufficient time for advance planning to ensure that it has

adequate ships and aircraft to accomplish its mission while ensuring that

they are available at minimal cost. Coast Guard officials also said they plan

to provide the information on the condition and capabilities of its ships

and aircraft as contractors proceed with their work.

What follows is a listing of the relevant types of information, together with

Coast Guard officials’ statements about the degree to which contractors

would be provided with such information during this phase of the

acquisition process.

Studies of the Useful Life

of Aircraft and Ships

The Coast Guard plans to provide contractor teams with available data on

its existing ships and aircraft at a meeting with them in September 1998,

according to Coast Guard officials. As of August 1998, several studies of

ships had not been finalized. The specific studies under way or completed

and their status follow:

• Internal evaluation of aircraft (the Near Term Support Strategy study).

This study, which establishes a baseline of the condition of all four types

of deepwater aircraft, was essentially completed in May 1997 and issued in

final form on August 19, 1998. A Coast Guard Deepwater Project official

said that project officials expected to provide contractors with the results

of this study in September 1998. He said the contractors will also be able

to visit the Aircraft Repair Supply Center and other Coast Guard locations

to obtain additional information on aircraft condition.

• Internal evaluations of ships (SSMEBs and related studies). SSMEBs and

related studies conducted since the DMAR was published provide the most

up-to-date indications of vessels’ conditions. In addition to the SSMEBs and

studies already completed, the Coast Guard’s Boat Engineering Branch

plans to issue an engineering report soon on the remaining useful service

life of the 110-foot patrol boats. A Coast Guard Deepwater Project official

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said that the completed SSMEBs and studies would be released to

contractors when completed. Several additional SSMEBs are scheduled for

completion in June 1999, well after the contractors have started their

work. The Coast Guard official added that for SSMEBs under way, as well as

for any other information on ships’ conditions, contractors will be able to

visit Pacific and Atlantic Logistics Centers to obtain their own information.

Studies of the Capabilities

of Aircraft and Ships

During our review, the Coast Guard began planning to study the

capabilities of its current deepwater aircraft and ships and comparing

these capabilities with the future functional requirements of the deepwater

system. This work will be done by a private contractor. The information

from such a study would appear to be critical to contractors in developing

proposals for the most cost-effective way to fill such gaps. This analysis is

scheduled for completion in November 1998. A Coast Guard Deepwater

Project official told us that project officials plan to make the study and its

underlying data available to contractors at that time.

Studies of Future Demand As part of the ongoing planning for the Deepwater Project, the Coast

Guard attempted to recalculate its estimates of future demand for

services. According to the staff involved, the reliability of the underlying

database did not permit such a recalculation. OMB expects that the

Presidential Roles and Missions Study will be issued by October 1999 and

that it will provide additional information on the future demand for Coast

Guard services. A Coast Guard Deepwater Project official said that the

Coast Guard plans to recalculate the demand estimate as part of revising

the DMAR. According to the Coast Guard’s current plan, as of August 1998,

the DMAR and the Mission Needs Statement will not be revised until

January 2000, or after contractors have submitted their initial proposals on

the project.

Presidential Commission

Study on Roles and

Missions

Decisions made by the Presidential Commission formed for studying the

Coast Guard’s roles and missions could also have a direct bearing on the

eventual shape of the Deepwater Project. The Commission was proposed

out of concern that more information was needed on the Coast Guard’s

resource needs. However, by July 1998, the future of the proposed

Commission had become more uncertain. In that month, the

Subcommittee on Transportation, House Committee on Appropriations,

expressed concerns about the Commission and proposed replacing it with

a blue-ribbon panel to study not only the Coast Guard’s roles and missions

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but its capital needs as well. But even if the Presidential Commission is

formed in the fall of 1998, the results of its work are not anticipated until

at least October 1999. As a result, the results of the Commission’s study

will not be available for the contractors to consider as they develop their

blueprints for the agency’s future deepwater system. The timetable for a

report by the congressionally proposed blue-ribbon panel shows that its

report would be issued by January 2001.

Better Acquisition

Guidance and Review

Could Help Avoid

Similar Problems in

the Future

A number of factors contributed to the data weaknesses we noted in the

DMAR and ultimately resulted in the Coast Guard’s proceeding with the

project before it had established a fully sound justification. One reason,

Coast Guard officials pointed out, was that nothing as comprehensive as

the Deepwater Project had ever been covered in a mission analysis report.

For example, it was the first time the Coast Guard had dedicated staff to

produce a mission analysis, and it was the first time the Coast Guard had

ever tried to document the demand for the ships and aircraft being

studied. In many respects, the agency was learning as it went through the

process, since the staff were not familiar with mission analysis techniques.

We also noted weaknesses in DOT’s and the Coast Guard’s internal

guidance for preparing mission analyses and the processes for reviewing

such documents. Three aspects of the process merit attention: more

specific requirements and guidance for assessing the condition of current

assets, more thorough disclosure of how information supporting the

justification was developed, and more structured and thorough review of

the project justification itself.

Guidance for Assessing

Condition of Current

Assets Is Limited

DOT and Coast Guard policies provide limited guidance for assessing

current assets as part of developing a mission analysis report, such as the

DMAR, on which the project’s justification is based. The closest thing to a

requirement for assessing the condition of current assets is a statement in

the DOT Acquisition Manual that the mission analysis should be “based on

the continuous monitoring of performance, supportability, and

maintenance trends of operational systems to determine when they will no

longer be able to meet current or emerging needs.” The Coast Guard’s

guidance generally outlines the types of analyses and information to be

included in the mission analysis but does not specifically mention an

assessment of the current condition of the assets scheduled for

replacement.

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Disclosure of Data Sources

and Methodologies Was

Largely Absent

In reviewing the information on which the decisions about an acquisition

as large as the Deepwater Project will be based, it is important that

decisionmakers in the Coast Guard and the DOT are able to understand

how planners arrived at their conclusions. For example, it is important for

decisionmakers to know about any limitations in the approach for

collecting information, limitations in the reliability of the underlying data,

or other factors that would affect the credibility of the information in

supporting a major capital expenditure. Such explanations of how

planners arrived at their conclusions is an important part of minimizing

the possibility for errors and erroneous conclusions.

The Coast Guard’s and DOT’s guidance for developing a mission analysis

are silent on disclosing methodologies and data sources. We found several

instances in which not knowing this information could result in assigning

too much credibility to the conclusion being drawn. For example, in its

presentation on capability shortfalls, the DMAR stated that deepwater ships

and aircraft had capability deficiencies but did not explain the information

on which this conclusion was based. According to a Deepwater Project

official, to make this assertion, the Coast Guard relied on the opinions of a

few personnel who were working on the Deepwater Project. No database

was developed, nor was any systematic approach used to collect

information on capability deficiencies from a cross-section of personnel

who actually operated and maintained these assets. Similarly, the DMAR did

not include an explanation for how planners had determined the

substantial gap between future demand and current operating levels,

which was presented in the DMAR. In developing this estimate, planners

relied in part on a survey of a small number of Coast Guard units—not

enough to provide statistical validity. This limitation was not disclosed.

We recognize that in some instances, it may be difficult to develop

information as thoroughly or systematically as might ideally be desired.

However, ensuring that explanations for how information was obtained

and what information is used for conclusions would provide a more solid

foundation for the Coast Guard when it develops mission analysis reports

in the future.

Review at Agency and

Departmental Levels Did

Not Disclose Data

Problems

After the justification for the Deepwater Project was developed, it went

through a number of reviews inside and outside the Coast Guard. None of

these reviews included any systematic checks of the underlying

information. As a result, these reviews did not disclose the data

weaknesses that we later found, including the fact that some basic

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acquisition requirements—such as documenting the capability deficiencies

of current assets—were not met. For example, the DMAR’s primary internal

review, which was coordinated by the Director of Resources’ office,

involved a review of the document by a number of senior managers within

the Coast Guard. However, this review did not involve any verification of

the underlying data on which the DMAR’s findings and conclusions were

based.

This same focus was found in additional reviews that took place. Before

an acquisition as large as the Deepwater Project can proceed past the first

main decision point and into the concept exploration phase of OMB

Circular A-109’s acquisition process, the Coast Guard’s System Acquisition

Manual calls for it to be reviewed by two councils—one within the Coast

Guard (the Coast Guard Acquisition Review Council) and one within DOT

(the Transportation Systems Acquisition Review Council). The Coast

Guard Acquisition Review Council is an advisory body on major

acquisitions for the agency’s acquisition executive. It reviews major

acquisitions at each key decision point and serves as a forum for

discussing project-related issues and resolving problems that need to be

handled by the Coast Guard’s top management. According to the Coast

Guard’s Systems Acquisition Manual, the Council shall review a project’s

documentation, ensure that the project manager is ready for DOT’s review,

and ensure top management’s commitment to the project’s acquisition

strategy and plans. However, this review did not include a check of the

underlying information. As a result, the data problems that eventually

surfaced were not revealed by this review.

When a project moves to a review by the Transportation Systems

Acquisition Review Council, members presume that the sponsoring agency

has presented complete and valid data, according to the Council’s

Executive Secretary. In reviewing the Deepwater Project, Council

members did ask the Coast Guard to clarify its schedule and estimated

costs, clarify the mission activities, and identify the remaining service life

of assets. However, the level of review did not extend to examining the

completeness of the data.

Our review suggests that at one or more points in the process of reviewing

a proposal of this size and complexity, additional steps should be taken to

help ensure that acquisition requirements are adequately carried out. For

example, reviewers of proposals might require that preparers of

documents like the DMAR complete checklists or certify that requirements

have been met. Alternatively, one or more of these levels of review could

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employ a checklist or some other approach to ensure that a certain level of

testing and verification is conducted as part of the review. For the DMAR,

such steps would likely have identified the absence of a formal analysis for

comparing required capabilities with the capabilities of existing assets.

Conclusions The remaining useful life of the Coast Guard’s deepwater aircraft and

ships may be much longer than the Coast Guard originally estimated.

While this development could be a justification for slowing down the

project, it should be weighed against the long lead time needed for a

procurement of this magnitude. If the Coast Guard ensures that the

contractors that are developing the initial deepwater proposals have

current, complete information on the condition and capabilities of the

agency’s ships and aircraft, potential problems in this area could be

minimized and the project could proceed as planned. This information is

critical for ensuring that contractors have the opportunity to develop the

most cost-effective proposals as possible, as well as ensuring that the

Coast Guard is able to make the best use of existing, upgradable ships and

aircraft.

The development of the initial justification for the Deepwater Project was

the most complex mission analysis the Coast Guard has ever undertaken,

according to Coast Guard officials. As they continue to refine its

acquisition-planning process, the Coast Guard and DOT can also apply the

lessons learned to future acquisitions as well. In particular, the agencies

can look to (1) strengthening the guidance for determining how to

establish the remaining useful life of assets, (2) providing better data and

documentation on how information supporting an acquisition was

developed, and (3) ensuring that reviews of proposals include checks that

will help ensure the completeness and accuracy of the information behind

a proposal.

Recommendations We recommend that the Secretary of Transportation direct the Office of

the Assistant Secretary for Administration and the Coast Guard to

expedite the development and issuance of updated information from

internal studies to contractors involved in developing proposals for the

Deepwater Project. Information should include, but not necessarily be

limited to, the remaining service life of ships and aircraft, gaps between

current and needed capabilities, and future service levels.

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We recommend that the Secretary of Transportation direct the Office of

the the Assistant Secretary for Administration and the Coast Guard to

carry out the following additional actions:

• Revise acquisition guidelines to better ensure that mission analysis

projects for future projects are based on accurate and complete data on

the condition of current assets, as appropriate for the assets or systems in

question. Such revisions should stress the importance of using rigorous

engineering or other data-based evaluations to estimate the remaining

service life of assets rather than using estimates made when the assets

were produced or modified.

• Revise acquisition guidelines to ensure that mission analysis reports and

mission needs statements disclose the methodologies and data sources

used. Also, expand the guidelines and emphasize the importance of using

more systematic data collection techniques, such as structured interviews,

sampling techniques, and empirical data.

• Develop a method to better ensure that existing acquisition requirements

are carried out, such as documenting the gap between current and needed

capabilities. Such actions could include the use of tools like checklists of

key requirements or certification that requirements have been met.

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Current Budget Environment

The Coast Guard has told contractors developing proposals for the

Deepwater Project to develop their plans on the assumption that the

project will cost $9.8 billion over 20 years—$300 million starting in fiscal

year 2001 and $500 million per year thereafter. At this size, the budget

would take virtually all of the Coast Guard’s projected spending for its

capital projects, thus leaving little room for ongoing and future projects

that amount to at least $300 million a year. Unless the Congress grants

additional funds, which, under existing budget laws could mean reducing

funding for some other agency or program, these other capital projects

could be severely affected. Furthermore, the Coast Guard proposes that

about one-third of the project’s funding come from proposed user fees for

navigational and domestic ice-breaking services. Such fees have proven

controversial when proposed in the past, and the Subcommittees of the

Senate and House Committees on Appropriations with jurisdiction over

the Coast Guard’s budget have already expressed their opposition to such

fees. Absent such fees, the money would most likely need to come from

additional appropriations. This would place the Deepwater Project in

competition with other budget priorities, both inside and outside the Coast

Guard.

If budget realities force a readjustment in the Coast Guard’s acquisition

plans for the Deepwater Project, the agency will likely face one of two

choices: reducing the project’s scope or buying the same amount but over

a longer period of time. Department of Defense (DOD) agencies seeking to

procure several such items at once under restricted budgets have often

tried to deal with the situation through the latter approach. However, this

approach ultimately drives up costs because of such factors as higher

administrative costs and the loss of quantity discounts. Now that the Coast

Guard has found that many of its ships and aircraft will have a longer

useful life than originally thought when the Deepwater Project was

proposed, it can reassess the project’s strategy and scope and avoid this

problem.

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Coast Guard’s

Capital-Spending

Target Is Expected to

Grow

Funding for the Coast Guard’s capital needs is affected by efforts to

balance the federal budget. These efforts have resulted in limits on

discretionary spending1

 through fiscal year 2002.2 These limits are

translated into budget targets developed by OMB for individual agencies.

The budget targets set by OMB are then subject to change as the President

and the Congress consider trade-offs involved in changing the distribution

of available funds among programs and agencies.

Overall, OMB’s budget targets call for an increase in the Coast Guard’s

Acquisition, Construction, and Improvements account—the account used

to fund the agency’s capital projects—over the next 5 years, from about

$398 million in fiscal year 1998 to about $518 million in fiscal 2003. The

higher target presumes that $165 million in new user fees will be available.

Estimated Cost of

Deepwater Project

Leaves Little Room

for Other Capital

Projects

The estimated cost for the Deepwater Project that the Coast Guard put

forth in its initial spending plan would soon take up nearly the entire AC&I

budget target established by OMB. By fiscal year 2002, when capital

spending for the Deepwater Project is anticipated to reach $500 million,

the Deepwater Project will have consumed 97 percent of the projected

AC&I account. If the Coast Guard receives the target levels set by OMB, they

will leave little room for the Coast Guard’s other ongoing capital

expenditures. The Coast Guard’s capital plan shows that at least

$300 million a year in other capital needs is scheduled from fiscal year

1999 through fiscal 2003.3

 Many of these projects, such as the buoy tender

projects and shore infrastructure improvements, are ongoing projects that

have been in progress for years.

1

Discretionary spending refers to outlays controllable through the congressional appropriation

process. In contrast, mandatory spending, which includes outlays for such entitlement programs as

food stamps, Medicare, and veterans’ pensions, is controlled by the Congress indirectly by its defining

of eligibility and setting the benefits or payment rules rather than directly going through the

appropriation process.

2

Accompanying the effort to balance the budget are statutory limits on total discretionary spending

that have been in effect since fiscal year 1991. The Balanced Budget and Emergency Deficit Control

Act of 1985 (the “Deficit Control Act”), as amended by the Budget Enforcement Act of 1990, the

Omnibus Budget Reconciliation Act of 1993, and the Budget Enforcement Act of 1997, established

statutory limits on federal government discretionary spending for fiscal years 1991 through 2002.

Under these limits, outlays for discretionary spending will remain almost constant in dollar terms from

fiscal year 1998 through fiscal 2002. OMB is the agency that prepares the calculations and estimates

used to adjust and enforce these limits.

3

To identify and plan for its 15-year capital needs, the Coast Guard develops an Agency Capital Plan

(formerly called the Capital Investment Plan). According to the Coast Guard, the plan was based on

unconstrained resource needs, did not reflect the austere budget climate in which it was issued, and

was not a budget strategy document. Coast Guard officials are developing a new plan that would be

more aligned with probable levels of funding. Initially, the Coast Guard planned to issue an interim

plan in July 1997. As of July 1998, the agency had not issued its new plan.

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Taken together, all current and projected capital spending would dwarf

OMB’s target by fiscal year 2002. (See fig. 3.1.) Expenditures for the

Deepwater Project alone will have risen to the point where they are nearly

as great as OMB’s target, while expenditures for projects already approved,

other future projects, and AC&I personnel4

 bring the total to more than

$300 million higher than the OMB target.

Figure 3.1: Comparison of OMB’s

Budget Target and Actual and

Proposed Coast Guard Capital

Projects, Fiscal Years 1999-2003

0

200

400

600

800

1,000

OMB target for 

entire AC&I 

account

Share of AC&I 

account funded 

by proposed 

user fees

Millions of dollars

1999 2000 2002 2003 2001

Deepwater 

Project

Capital projects currently 

under way or approved

AC&I 

personnel

Other proposed capital 

projects

4

Salaries and other costs for Cost Guard personnel responsible for AC&I projects are counted as part

of the AC&I account.

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User Fee Proposal

Creates Greater

Funding Uncertainty

The spending targets set by OMB presume funding from two main

sources—annual appropriations from the Congress and new user fees. As

proposed, the portion that would come from appropriations would drop

from $407 million in fiscal year 1999 to $353 million in fiscal 2003.5

 To

augment these funds, the administration is proposing $165 million per year

in new user fees beginning in fiscal year 2000.6

 The fees are for

navigational services (such as vessel traffic services in busy harbor areas

or maintaining other aids to navigation) and ice-breaking services in

domestic waters. The Coast Guard currently provides these services but

does not charge for them.

If past experience is any indication, the new fee will likely create

controversy. The administration has proposed such fees before, and they

have met with strong opposition. Groups who would have to pay the fees,

such as ship and barge companies, have argued that singling out such a

function for additional charge is unfair. For example, the administration’s

proposed fiscal year 1998 budget mentioned the possibility of collecting a

fee to recover the Coast Guard’s cost of providing ice-breaking services in

the Great Lakes and the Northeast. However, in its deliberations on the

Coast Guard’s budget, the Congress did not endorse this user fee.

Obtaining this additional capital funding through user fees would also

require congressional approval of a change with regard to

earmarking—that is, allowing an agency to keep at least a portion of the

fees collected to pay for providing the service. Currently, the Coast Guard

is not allowed to keep fees collected; the revenues are sent to the

Department of the Treasury, and the agency is reimbursed for its

collection costs only.7

In July 1998, in their deliberations on the Coast Guard’s fiscal year 1999

budget request, the Subcommittees of the Senate and House Committees

on Appropriations with jurisdiction over the Coast Guard’s budget cited

their opposition to the new user fees proposed by the administration, and

in addition, the House and Senate have prohibited the Coast Guard from

planning or implementing any new user fees. This restriction will require

the Coast Guard to seek out alternative sources of financing. The limits on

5

Twenty million dollars would come from the Oil Spill Liability Trust Fund.

6

For fiscal year 1999, the administration is proposing $35 million in new user fees.

7

In some circumstances, the Congress has allowed agencies to keep the proceeds from user fees to

finance programs. For example, in 1997, the Congress authorized the National Park Service to conduct

a demonstration fee program that allows parks and other units to collect new or increased admission

and user fees and spend the new revenue for park improvements.

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discretionary spending set by the Deficit Control Act, as amended, will

make it difficult for the Coast Guard to increase the level of funding for its

AC&I account without taking funds away from another agency or budget

account. Within the context of this act, as amended, increasing the level of

appropriated funding in the future can be done only by reducing the level

of another account, since discretionary spending is limited to the same

nominal amount from fiscal year 1999 through fiscal 2002. These

conditions—the reality of deficit reduction efforts and the uncertainty of a

yet to be implemented user fee—point to the potential for a “double

squeeze” on the Coast Guard’s AC&I account.

Reassessing the

Acquisition and

Funding Plan for the

Deepwater Project

Could Reduce the

Risk of Cost Increases

Later

Now that the Coast Guard knows that many of its deepwater ships and

aircraft will have a longer useful life than originally thought, it may be in a

position to reassess whether the funding strategy for the Deepwater

Project should be changed. Such a reassessment may be needed to avoid

the procurement mistakes often made by federal agencies in the past. If

budget realities dictate the procurement of deepwater ships and aircraft at

a much lower level than $500 million a year, this could result in the Coast

Guard’s being able to obtain considerably less value for the dollars

expended.

Agencies that plan procurements that are too large for available funding

budgets are left with essentially two choices: they can reduce the scope of

the project at that point or they can adjust by using schedule

stretch-outs—that is, buying smaller quantities of each item and

lengthening the period over which the assets are acquired. Our work on

DOD’s acquisition projects shows that costs can expand dramatically when

this latter approach is adopted as a solution to acquisition plans that are

not closely aligned with probable funding levels. For example, in a study

of DOD’s acquisition strategy, we found that an attempt to purchase too

many weapon systems at once had the effect of driving up costs, even

when the weapons being produced were proven systems that were beyond

the testing stage. When DOD was faced with funding limitations and had to

stretch out the procurement period for 17 such weapons systems, the

systems had cost increases totaling $10 billion.8

The Coast Guard has already used schedule stretch-outs as a way to deal

with tight budgets—and with the same consequences. For example, the

Coast Guard stretched procurement of 11 seagoing buoy tenders to 5 years

8

The $10 billion estimate is in 1996 dollars. See Weapons Acquisition: Better Use of Limited DOD

Acquisition Funding Would Reduce Costs (GAO/NSIAD-97-23, Feb. 23, 1997).

Page 45 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Chapter 3 

Estimated Funding Level for the Deepwater

Project May Not Be Attainable in the

Current Budget Environment

instead of the planned 3-year period. Because of the loss of quantity

discounts and higher administrative costs, the acquisition cost increased

by an estimated $20 million to $30 million, according to the Coast Guard.

As the Coast Guard proceeds with the project, the better-than-anticipated

life of current deepwater ships and aircraft may provide the agency with

an opportunity to adopt a more effective approach. It is now clear that

many deepwater assets—especially aircraft—can operate many years

beyond earlier estimates, assuming they receive the proper maintenance

and upgrades. If many of these ships and aircraft can be upgraded and

used for a much longer period of time, replacement needs—particularly in

the short term—could be considerably less than the $500 million a year the

Coast Guard has asked contractors to design their proposals around.

Instead of being in a situation that commits the Coast Guard to replacing

several kinds of deepwater ships and aircraft at once, the improved

outlook would appear to allow the Coast Guard to focus on acquiring

those ships and aircraft clearly in need of immediate recapitalization. This,

in turn, would allow the Coast Guard to focus more dollars on completing

other nondeepwater acquisition projects in the near term, thereby

avoiding the waste that can occur under stretched-out schedules.

Coast Guard managers pointed out that their planning approach to the

Deepwater Project permits adjustments to the acquisition strategy and

projected funding stream if projected levels of funding are not

appropriated. Agency managers indicated that decisions on the schedule

and options for procurement—ranging from the replacement of the entire

system to the renovation and modernization of the existing system—will

be made as the Coast Guard proceeds with the project. According to

agency managers, proceeding to the next phase of the

acquisition—demonstration and validation—will be contingent on the

availability of funds. In the likelihood that $500 million a year is not

received, they said, the agency will make adjustments and call on its

contractors to revise their proposals and plans.

We acknowledge that the Coast Guard has the flexibility to adjust the

project later, but we question the advisability of continuing to ask

contractors to develop a proposal so expensive that its funding appears

doubtful. Our concern is that the planning assumption on which the

Deepwater Project’s development is currently being based (a funding

stream of $500 million a year) make the options for later adjustments

expensive. If proposals must be extensively redone to make them less

expensive, the government will have spent time and money in funding

Page 46 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Chapter 3 

Estimated Funding Level for the Deepwater

Project May Not Be Attainable in the

Current Budget Environment

work that may be of limited value, and if the decision is made to adopt an

expensive proposal but stretch out the procurement period to make it

affordable, the Coast Guard could repeat the money-wasting scenario we

have identified in so many other DOD scenarios. By contrast, using a

strategy that is based on probable funding levels would appear to leave the

Coast Guard in a better position to continue with the rest of the

acquisition process.

Conclusions In a global sense, the Coast Guard is correct in beginning now to explore

future systems to modernize deepwater ships and aircraft, especially given

the long lead times often associated with procurements of this magnitude.

The agency’s “system of systems” approach seems logical as a way to

avoid a costly one-for-one replacement of assets, and its use of multiple

contractors is an attempt to leverage technology and to identify

cost-effective alternatives. However, despite these efforts, the proposed

cost of the Deepwater Project threatens to overwhelm the Coast Guard’s

AC&I account, which already rests on an uncertain premise that new user

fees will be approved. By directing contractor teams to base their

proposals on a funding amount nearly equal to its entire projected budget

for its AC&I account, the Coast Guard is at risk of receiving Deepwater

Project proposals that either (1) must be redone once funding levels

become known or (2) result in expensive, stretched-out procurements.

Contractors have just begun work on developing their proposals for the

Deepwater Project. To align these proposals more realistically with the

agency’s budget constraints and other capital needs, the Coast Guard

would need to move as quickly as possible in changing the funding

assumptions on which the project is based.

Recommendations We recommend that the Secretary of Transportation direct the

Commandant of the Coast Guard to evaluate whether contracting teams

should be instructed to base their proposals for the Deepwater Project on

the assumption that the funding level will be lower than $500 million a

year. We also recommend that the Commandant be directed to submit his

decision on this matter to DOT’s Transportation System Acquisition Review

Council and/or other appropriate offices within DOT for approval.

Agency Comments We provided DOT and the Coast Guard with a draft of this report for review

and comment. DOT and the Coast Guard generally concurred with the

Page 47 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Chapter 3 

Estimated Funding Level for the Deepwater

Project May Not Be Attainable in the

Current Budget Environment

information in the report, and DOT indicated that they would consider the

report’s recommendations. The Coast Guard generally concurred with the

recommendations and said it will strive to improve the acquisition

process. In addition, DOT and the Coast Guard provided several comments

that clarified information on the DOT acquisition process, the cost of

operating deepwater ships and aircraft, and the goals of the Deepwater

Project, which we have incorporated into the report as appropriate.

Page 48 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Page 49 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Appendix I 

Primary Uses of Deepwater Ships and

Aircraft, Fiscal Year 1997

Mission area

Type of asset Drug control Fisheries Migrants

Search and

rescue

Training

and public

affairs

Military

operations Others

Ships

378-foot high- endurance cutter 28.2% 36.6% 1.4% 3.2% 14.8% 7.3% 8.5%

270-foot medium- endurance

cutter 44.2 13.8 15.1 1.3 10.4 2.1 13.1

210-foot medium- endurance

cutter 40.3 18.5 14.1 2.8 11.7 0.6 12.0

110-foot patrol boat 24.0 20.8 10.2 29.2 3.8 0.3 11.6

Aircraft

HC-130 long-range

surveillance airplane 18.9 25.6 10.1 15.4 17.8 0.1 12.1

HU-25 medium-range

surveillance airplane 26.1 20.7 8.0 13.1 22.0 0 10.1

HH-60 medium-range recovery

helicopter 17.2 8.3 1.6 17.7 38.7 0.4 16.1

HH-65A short-range recovery

helicopter 11.7 8.7 3.4 18.9 37.1 0.6 19.6

Source: GAO’s analysis of the Coast Guard’s data.

Page 50 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Appendix II 

Operational Costs for Deepwater Ships and

Aircraft, Fiscal Year 1997

Type of asset

Direct

expenditures

Direct support

expenditures Overhead

Ships

378-foot high- endurance cutter $101,184,769 $68,525,669 $38,499,933

270-foot medium- endurance cutter 72,227,363 47,618,453 26,753,584

210-foot medium- endurance cutter 63,451,659 44,332,894 24,907,650

110-foot patrol boat 53,650,282 30,850,002 17,332,526

Aircraft

HC-130 long-range surveillance

airplane

115,198,845 23,660,979 23,305,044

HU-25 medium-range surveillance

airplane

70,859,905 9,674,890 9,529,350

HH-60 medium-range recovery

helicopter

112,287,297 26,676,029 26,274,738

HH-65 short-range recovery helicopter 173,186,660 36,086,986 35,544,125

Source: The Coast Guard’s Cost Accounting Model.

Page 51 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Appendix III 

Upgrades to the Coast Guard’s Aircraft

The Coast Guard has identified several projects that can further the life or

upgrade the capability of its aircraft. These projects are funded from

acquisition, construction, and improvement appropriations.

Page 52 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Appendix III 

Upgrades to the Coast Guard’s Aircraft

Table III.1: Projects That Can Prolong the Life of the Coast Guard’s Aircraft

Dollars in millions

Aircraft Project’s title Project’s description Project’s cost

Project’s

status

HC-130 T-56 Engine

Conversion

The engine upgrade will decrease operating and

support costs and increase safety for flight crews.

$20.8 Started in

FY1997

HC-130 Side Looking

Airborne Radar

The project will standardize the Coast Guard’s

SLAR-equipped aircraft by upgrading the SLAR to

the HU-25 Aireye standard. This project will replace

outdated and obsolete sensor systems.

13.1 Started in

FY1993

HC-130 Aircraft Sensor

Upgrade

The project provides increased sensor efficiencies

via 12 systems capable of being rapidly

interchanged between aircraft. It will provide the

capability for more effective 24-hour operations and

provide surface- or land-based assets with

long-range real-time information.

16.3 Started in

FY1998

HC-130 Long Range Search

Capability

Preservation

The upgrade will replace antiquated electrical and

avionics systems and install standard fleet

components.

40-96 Started in

FY1998

HU-25 Avionics

Improvements

The project will replace obsolete 1970s-vintage

avionics.

11.6 To start in

FY1999

HU-25 Reengining of

aircraft

Project will replace engines. To be

determined

Start date

undetermined

HH-60J Independent

Navigation

The project will replace the current unreliable

system with a new system necessary for safe

successful single-aircraft operations.

6 To start in

FY1999

HH-60J Service Life extension The project would replace entire transmission upper

deck, vibrator absorber system, and reinforce tail

pylon.

To be

determined

Start date

undetermined

HH-65A Kapton Rewiring The project rewires the helicopter. This will correct a

serious flight safety hazard posed by the existing

Kapton wiring.

12.7 Started in

FY1997

HH-65A Mission Computer

Unit

The project replaces obsolete mission computers

with smaller, lighter, more reliable, and supportable

equipment.

20.4 Started in

FY1997

HH-65A LTS-101 engine life

cycle cost reduction

The project would replace the engine control

system with a Full Authority Digital Electronic

Control, which will minimize safety risks and

increase engine performance.

17.4 Start date

undetermined

All aircraft Aviation Logistics

Management

Information System

This source and data entry project will provide a

framework to streamline the data entry process

while facilitating access to management-level

information for aviation logistics.

12.3 Started in

FY1997

All aircraft Commercial SATCOM The project will provide secure and reliable

communications for command and control through

commercial satellite communications.

21.5 To start in

FY1999

Legend

FY = fiscal year

Page 53 GAO/RCED-99-6 Coast Guard’s Deepwater Project
Appendix IV 

Major Contributors to This Report

Neil Asaba

Sarah Brandt

Steven Calvo

David Hooper

Christopher Jones

LuAnn Moy

David Robinson

Stanley Stenersen

Randy Williamson

(348038) Page 54 GAO/RCED-99-6 Coast Guard’s Deepwater Project
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