GAO 

United States Government Accountability Office

Testimony 

Before the Subcommittee on Homeland 

Security, Committee on Appropriations, 

House of Representatives 

COAST GUARD

Update on Deepwater 

Program Management, Cost, 

and Acquisition Workforce 

Statement of John P. Hutton, Director 

Acquisition and Sourcing Management 

For Release on Delivery 

Expected at 10:00 a.m. EDT 

Wednesday, April 22, 2009 

GAO-09-620T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

April 22, 2009

COAST GUARD

Update on Deepwater Program Management, Cost, 

and Acquisition Workforce 

Highlights of GAO-09-620T, testimony 

before the Subcommittee on Homeland 

Security, Committee on Appropriations, 

House of Representatives 

T

The Deepwater Program is 

intended to recapitalize the Coast 

Guard’s fleet and includes efforts 

to build or modernize five classes 

each of ships and aircraft, and 

procure other key capabilities. In 

2002, the Coast Guard contracted 

with Integrated Coast Guard 

Systems (ICGS) to manage the 

acquisition as systems integrator. 

After the program experienced a 

series of failures, the Coast Guard 

announced in April 2007 that it 

would take over the lead role, with 

future work on individual assets to 

be potentially bid competitively 

outside of the existing contract. A 

program baseline of $24.2 billion 

was set as well. In June 2008, GAO 

reported on the new approach and 

concluded that while these steps 

were beneficial, continued 

oversight and improvement was 

necessary. The Coast Guard has 

taken actions to address the 

recommendations in that report. 

This testimony updates key issues 

from prior work: (1) Coast Guard 

program management at the overall 

Deepwater Program and asset 

levels; (2) how cost, schedules, and 

capabilities have changed from the 

2007 baseline and how well costs 

are communicated to Congress; 

and (3) Coast Guard efforts to 

manage and build its acquisition 

workforce. 

The Coast Guard has assumed the role of systems integrator for the overall 

Deepwater Program by reducing the scope of work on contract with ICGS and 

assigning these functions to Coast Guard stakeholders. As part of its systems 

integration responsibilities, the Coast Guard has undertaken a fundamental 

reassessment of the capabilities, number, and mix of assets it needs; 

according to an official, it expects to complete this analysis by the summer of 

2009. At the individual Deepwater asset level, the Coast Guard has improved 

and begun to apply the disciplined management process found in its Major 

Systems Acquisition Manual, but did not meet its goal of complete adherence 

to this process for all Deepwater assets by the second quarter of fiscal year 

2009. For example, key acquisition management activities—such as 

operational requirements documents and test plans—are not in place for 

assets with contracts recently awarded or in production, placing the Coast 

Guard at risk of cost overruns or schedule slips. 

Due in part to the Coast Guard’s increased insight into what it is buying, the 

anticipated cost, schedules, and capabilities of many of the Deepwater assets 

have changed since the establishment of the $24.2 billion baseline in 2007. 

Coast Guard officials have stated that this baseline reflected not a traditional 

cost estimate but rather the anticipated contract costs as determined by ICGS. 

As the Coast Guard has developed its own cost baselines for some assets, it 

has become apparent that some of the assets it is procuring will likely cost 

more than anticipated. Information to date shows that the total cost of the 

program may grow by $2.1 billion. As more cost baselines are developed and 

approved, further cost growth may become apparent. In addition, while the 

Coast Guard plans to update its annual budget requests with asset-based cost 

information, the current structure of its budget submission to Congress does 

not include certain details at the asset level, such as estimates of total costs 

and total numbers to be procured. The Coast Guard’s reevaluation of 

baselines has also changed its understanding of the delivery schedules and 

capabilities of Deepwater assets. 

One reason the Coast Guard sought a systems integrator from outside the 

Coast Guard was because it recognized that it lacked the experience and 

depth in workforce to manage the acquisition internally. The Coast Guard 

acknowledges that it still faces challenges in hiring and retaining qualified 

acquisition personnel and that this situation poses a risk to the successful 

execution of its acquisition programs. According to human capital officials in 

the acquisition directorate, as of April 2009, the acquisition branch had 16 

percent of positions unfilled, including key jobs such as contracting officers 

and systems engineers. Even as it attempts to fill its current vacancies, the 

Coast Guard plans to increase the size of its acquisition workforce 

significantly by the end of fiscal year 2011. While the Coast Guard may be 

hard-pressed to fill these positions, it has made progress in identifying the 

broader challenges it faces and is working to mitigate them. In the meantime, 

the Coast Guard has been increasing its use of support contractors. 

GAO reviewed Coast Guard 

acquisition program baselines, 

human capital plans and other 

documents, and interviewed 

officials. For information not 

previously reported, GAO obtained 

Coast Guard views. The Coast 

Guard generally concurred with the 

findings. 

View GAO-09-620T or key components.

For more information, contact John Hutton at 

(202) 512-4841 or huttonj@gao.gov. 
Page 1 GAO-09-620T 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the Coast Guard’s management 

and oversight of its Deepwater Program. The Deepwater Program began in 

the late 1990s as an effort to recapitalize the Coast Guard’s operational 

fleet and now includes projects to build or modernize five classes each of 

ships and aircraft, as well as to procure other capabilities such as 

improved command, control, communications, computers, intelligence, 

surveillance, and reconnaissance (C4ISR) and unmanned aircraft. 

Recognizing that it did not have in place the experience and depth in its 

workforce to manage the acquisition, the Coast Guard contracted with 

Integrated Coast Guard Systems (ICGS) as a systems integrator in June 

2002. After experiencing a series of programmatic failures, the 

Commandant acknowledged in April 2007 that the Coast Guard had relied 

too heavily on contractors to do the work of government and that 

government and industry had failed to control costs. He announced 

several major changes to the acquisition approach for Deepwater, the key 

one being that the Coast Guard would take over the lead role in systems 

integration from ICGS, with future work on individual assets to be 

potentially bid competitively outside of the existing contract. In May 2007, 

soon after this announcement, the Department of Homeland Security 

(DHS) approved a revised acquisition program baseline of $24.2 billion for 

the Deepwater Program. 

In June 2008, we reported on our assessment of the preliminary steps the 

Coast Guard had taken to revise its acquisition approach and concluded 

that while these steps were beneficial, continued oversight and 

improvement was necessary to further mitigate risks.1

 The Coast Guard 

has taken actions to address the recommendations we made in that report. 

My statement is based largely on ongoing work for this subcommittee.2

 We 

plan to provide a more complete analysis of the Deepwater issues raised in 

this statement in a report this summer. 

My focus today will be on: 

 

1

GAO, Coast Guard: Change in Course Improves Deepwater Management and Oversight, 

but Outcome Still Uncertain, GAO-08-745 (Washington, D.C.: June 24, 2008). 

2

Our ongoing work is also being done for the Subcommittee on Homeland Security, 

Committee on Appropriations, U.S. Senate. 
• Coast Guard efforts to manage the Deepwater Program at both the 

overall system and asset levels; 

• how cost, schedules, and capabilities have changed from the 2007 

baseline, and how well costs are communicated to Congress; and 

• Coast Guard efforts to manage and build its acquisition workforce. 

As part of our ongoing work, we reviewed key Coast Guard 

documentation such as the Coast Guard’s Major Systems Acquisition 

Manual, approved acquisition program baselines, and human capital 

plans. We also interviewed Coast Guard officials in the acquisition 

directorate, including program managers and contracting officers, and in 

other directorates such as those responsible for human capital issues and 

for assessing and developing operational requirements for Deepwater 

assets. This work was conducted between September 2008 and April 2009. 

We also relied on our past work regarding the Deepwater Program. 

Appendix I lists our selected reports on the Deepwater Program. All work 

for this statement was conducted in accordance with generally accepted 

government auditing standards. Those standards require that we plan and 

perform the audit to obtain sufficient, appropriate evidence to provide a 

reasonable basis for our findings and conclusions based on our audit 

objectives. We believe that the evidence obtained provides a reasonable 

basis for our findings and conclusions based on our audit objectives. For 

issues where our observations are based on work that has not been 

previously reported, we obtained Coast Guard views on our findings and 

incorporated technical comments where appropriate. The Coast Guard 

generally concurred with our findings. 

The Coast Guard is a multimission, maritime military service within DHS. 

The Coast Guard’s responsibilities fall into two general categories—those 

related to homeland security missions, such as port security and vessel 

escorts, and those related to non–homeland security missions, such as 

search and rescue and polar ice operations. To carry out these 

responsibilities, the Coast Guard operates a number of vessels and aircraft 

and, through its Deepwater Program, is currently modernizing or replacing 

those assets. 

Background 

At the start of the Deepwater Program in the late 1990s, the Coast Guard 

chose to use a system-of-systems acquisition strategy. A system-of-systems 

is defined as a set or arrangement of assets that results when independent 

assets are integrated into a larger system that delivers unique capabilities. 

As the systems integrator, ICGS was responsible for designing, 

constructing, deploying, supporting, and integrating the Deepwater assets 

Page 2 GAO-09-620T 
into a system-of-systems. Under this approach, the Coast Guard provided 

the contractor with broad, overall performance specifications—such as 

the ability to interdict illegal immigrants—and ICGS determined the asset 

specifications. According to Coast Guard officials, the ICGS proposal was 

submitted and priced as a package; that is, the Coast Guard bought the 

entire solution and could not reject any individual component. In 

November 2006, the Coast Guard submitted a cost, schedule, and 

performance baseline to DHS that established the total acquisition cost of 

the ICGS solution at $24.2 billion and projected that the acquisition would 

be completed in 2027. In May 2007, shortly after the Coast Guard had 

announced its intention to take over the role of systems integrator, DHS 

approved the baseline. 

Table 1 describes in more detail the assets the Coast Guard is planning to 

procure according to approved baselines. 

Table 1: Information on Deepwater Assets 

Asset Quantity Description 

National Security Cutter 8 ships The NSC is intended to be the flagship of the Coast Guard’s fleet, with an extended 

on-scene presence, long transits, and forward deployment. The cutter and its 

aircraft and boat assets are to operate worldwide. 

Offshore Patrol Cutter 25 ships The OPC is intended to conduct patrols for homeland security functions, law 

enforcement, and search and rescue operations. It will be designed for longdistance transit, extended on-scene presence, and operations with multiple aircraft 

and boats. 

Fast Response Cutter 58 ships The FRC is conceived as a patrol boat with high readiness, speed, adaptability, 

and endurance to perform a wide range of missions. 

Medium Endurance Cutter 

Sustainment 

27 ships The cutter sustainment project is intended to improve the cutters’ operating and 

cost performance by replacing obsolete, unsupportable, or maintenance-intensive 

equipment. 

Patrol Boat Sustainment 20 ships The patrol boat sustainment project is intended to improve the boats’ operating and 

cost performance by replacing obsolete, unsupportable, or maintenance-intensive 

equipment. 

Cutter Small Boats 124 boats Cutter small boats are an integral component of the planned capabilities for the 

larger cutters and patrol boats and are critical to achieving success in all 

operational missions. The Coast Guard is currently restructuring its cutter small 

boat programs. 

Maritime Patrol Aircraft 36 aircraft The MPA is intended to be a transport and surveillance, fixed-wing aircraft used to 

perform search and rescue missions, enforce laws and treaties, and transport 

cargo and personnel. 

HC-130J Long-Range 

Surveillance Aircraft 

6 aircraft The HC-130J is a four-engine turbo-prop aircraft that the Coast Guard intends to 

deploy with improved interoperability, C4ISR, and sensors to enhance surveillance, 

detection, classification, identification, and prosecution. 

Page 3 GAO-09-620T 
Asset Quantity Description 

HC-130H Long-Range 

Surveillance Aircraft 

16 aircraft The HC-130H is the legacy Coast Guard long-range surveillance aircraft, which the 

Coast Guard intends to update with structural sustainability, improved 

interoperability, C4ISR, and sensors to enhance surveillance, detection, 

classification, identification, and prosecution. 

HH-65 Multimission Cutter 

Helicopter 

102 aircraft The HH-65 Dolphin is the Coast Guard’s short-range recovery helicopter which is 

being upgraded in phases to improve its engines, communications equipment, 

avionics, and other capabilities. 

HH-60 Medium Range Recovery 

Helicopter 

42 aircraft The HH-60J is a medium-range recovery helicopter designed to perform search 

and rescue missions offshore in all weather conditions. The Coast Guard intends to 

upgrade the helicopters’ avionics, C4ISR, and other systems. 

Unmanned Aerial System To be 

determined 

The Coast Guard has deferred acquisition of this asset because of challenges in 

technology maturation of the ICGS proposed design. The Coast Guard continues 

its analysis of needs and alternatives, with an acquisition plan for this asset in 

development. 

C4ISR n.a. The Coast Guard’s acquisition of C4ISR capabilities includes upgrades to existing 

cutters and shore installations, acquisitions of new assets, and development of a 

common operating picture to provide operationally-relevant information and 

knowledge across the full range of Coast Guard operations. 

Source: GAO analysis of Coast Guard data. 

In deciding to take over the systems integrator role from ICGS, the Coast 

Guard has taken steps to increase government control and accountability 

by, among other things, applying the disciplined program management 

processes in its Major Systems Acquisition Manual (MSAM) to 

Deepwater assets. The MSAM requires documentation and approval of 

acquisition decisions at key points in a program’s life-cycle by designated 

officials at high levels. The Coast Guard has established a number of goals 

and deadlines for completing these activities in its Blueprint for 

Acquisition Reform, which was initially released in July 2007 and was last 

updated in July 2008. 

Page 4 GAO-09-620T 
Coast Guard Has 

Assumed the Role of 

Systems Integrator 

But Lags In Applying 

Disciplined AssetLevel Processes as It 

Continues with 

Procurements 

The Coast Guard has taken three major steps to become the systems 

integrator for the Deepwater Program. It has defined and assigned systems 

integrator functions to Coast Guard stakeholders, begun to reassess the 

capabilities and mix of assets it requires, and significantly reduced the 

contractual responsibilities of ICGS. While the Coast Guard has made 

progress in applying the disciplined MSAM acquisition process to its 

Deepwater assets, it did not meet its goal of being fully compliant by the 

second quarter of fiscal year 2009. In the meantime, the Coast Guard 

continues with production of certain assets and award of new contracts in 

light of what it views as pressing operational needs. 

Coast Guard Has Assumed 

Key Roles and 

Responsibilities from ICGS 

in Becoming the Systems 

Integrator 

The role of systems integrator involves planning, organizing, and 

integrating a mix of assets into a system-of-systems capability greater than 

the sum of the capabilities of the individual parts. ICGS’s role as systems 

integrator for the Deepwater Program included requirements management, 

systems engineering, and defining how assets would be employed by Coast 

Guard users in an operational setting. In addition, the contractor had 

technical authority over all asset design and configuration decisions. In 

2008, the Coast Guard acknowledged that in order to assume the role of 

systems integrator, it needed to define systems integrator functions and 

assign them to Coast Guard stakeholders. Through codified changes to 

internal relationships, policies, and contractual arrangements, the Coast 

Guard has done so. For example, the Coast Guard formally designated 

certain directorates as technical authorities to establish, monitor, and 

approve technical standards for Deepwater assets related to design, 

construction, maintenance, logistics, C4ISR, and life-cycle staffing and 

training. The Coast Guard’s capabilities directorate determines operational 

requirements and the asset mix to satisfy those requirements and 

establishes priorities. This directorate is expected to collaborate with the 

technical authorities to ensure that the Coast Guard’s technical standards 

are incorporated during the requirements development process. Further, 

the acquisition directorate’s program and project managers are to be held 

accountable for ensuring that the assets it procures fulfill operational 

requirements and the technical authority standards. The relationships 

between Coast Guard directorates in executing their systems integrator 

roles are represented graphically in figure 1. 

Page 5 GAO-09-620T 
Figure 1: Directorate Relationships 

Technical Authorities

Human Resources

(CG-1)

Engineering and

Logistics (CG-4)

Command, Control,

Communications, Computers

and IT (CG-6)

Requirements

Assistant Commandant

for Capability (CG-7)

Acquisitions

Assistant Commandant

for Acquisitions (CG-9)

Source: GAO analysis based on Coast Guard documents.

When it contracted with ICGS, the Coast Guard had limited insight into 

how the contractor’s proposed solution would meet overall mission needs, 

limiting its ability to justify the proposed solution and make informed 

decisions about possible trade-offs. To improve its insight, the capabilities 

directorate has initiated a fundamental reassessment of the capabilities 

and mix of assets the Coast Guard needs to fulfill its Deepwater missions. 

The goals of this fleet mix analysis include validating mission performance 

requirements and revisiting the number and mix of all assets that are part 

of the Deepwater Program. A specific part of the study will be to analyze 

alternatives and quantities for the Offshore Patrol Cutter, an asset which 

accounts for a projected $8 billion of the total Deepwater costs. According 

to an official, the results of this analysis are expected in the summer of 

2009. Coast Guard leadership plans to assess the results and make future 

procurement decisions based on the analysis. 

In conjunction with its assuming the role of systems integrator, the Coast 

Guard has significantly reduced the scope of work on contract with ICGS. 

In March 2009, the Coast Guard issued a task order to ICGS limited to 

tasks such as data management and quality assurance for assets currently 

under contract with ICGS including C4ISR, the Maritime Patrol Aircraft 

(MPA), and the National Security Cutter (NSC). The Coast Guard is 

currently developing plans to transition these functions from ICGS to the 

Coast Guard or an independent third party by February 2011 when this 

task order expires. For assets procured or planned to be procured outside 

of the ICGS contract such as the Offshore Patrol Cutter, systems 

engineering and program management functions are expected to be 

carried out by the Coast Guard with support from third parties and 

contractors. According to officials, the Coast Guard has no plans to award 

Page 6 GAO-09-620T 
additional orders to ICGS for systems integrator functions within the 

current award term or for any work after the award term expires in 

January 2011.3

 

As Asset-level 

Management Gets 

Underway, Production and 

Award of New Contracts 

Are Proceeding Despite 

Some Gaps in Knowledge 

Since our June 2008 report on the Deepwater Program, and taking into 

account our recommendation, the Coast Guard has improved its MSAM 

process.4

 For example, the process now dictates that the acquisition 

project and program managers work collaboratively with the technical 

authorities as described above. The MSAM process was revised to require 

acquisition planning and an analysis of alternatives for procurement to 

start at an earlier stage, which is intended to help inform the budget and 

planning processes. Other improvements include the adoption of our 

recommendation for a formal design review, Milestone 2A, before 

authorizing low-rate initial production. The MSAM phases and milestones 

are shown in figure 2. 

Figure 2: Major Systems Acquisition Manual (MSAM) Phases and Milestones 

Project 

identification

Project 

initiation

Production &

deployment

Operations &

support

Concept & 

technology

development

Capability

development &

demonstration

Begin

acquisition

Approve

low-rate initial 

production

Approve

full-rate

production

0 1 2 2A 3

Source: Coast Guard.

Note: Black diamonds denote milestones. 

 

3

In June 2002, the Coast Guard awarded the Deepwater contract to ICGS. The award was 

an indefinite delivery, indefinite quantity contract with a 5-year base period and five 

potential extensions of the contract (award terms) of up to 5 years each. Based on the 

government’s assessment of its performance, ICGS earned one award term of 43 months. 

According to Coast Guard officials, the Coast Guard and ICGS have executed a bilateral 

contract modification removing any future award terms from the ICGS contract. 

4

GAO-08-745. 

Page 7 GAO-09-620T 
Because the Coast Guard previously exempted Deepwater from the MSAM 

process, assets were procured without following a disciplined program 

management approach. Recognizing the importance of ensuring that each 

acquisition project is managed through sustainable and repeatable 

processes and wanting to adhere to proven acquisition procedures, in July 

2008, the Coast Guard set a goal of completing the MSAM acquisition 

management activities for all Deepwater assets by the second quarter of 

fiscal year 2009. However, of the 12 Deepwater assets in the concept and 

technology development phase or later, 9 are behind plan in terms of 

MSAM compliance. In the meantime, the Coast Guard has proceeded with 

production and awarded new contracts without all of the knowledge it 

needs to ensure that the capabilities it is buying will meet Coast Guard 

needs within cost and schedule constraints. 

For assets already in production, such as the MPA and the NSC, the Coast 

Guard has made some progress in the past year in retroactively developing 

acquisition documentation with the intent of providing the traceability 

from mission needs to operational performance that was previously 

lacking. For example, the Coast Guard approved an operational 

requirements document for the MPA in October 2008 to establish a formal 

performance baseline and identify attributes for testing. Through this 

process, the Coast Guard discovered that ICGS’s requirement for 

operational availability (the amount of time that an aircraft is available to 

perform missions) was excessive compared to the Coast Guard’s own 

standards. According to a Coast Guard official, the ICGS requirement 

would have needlessly increased costs to maintain and operate the 

aircraft. 

Even as the Coast Guard gains this additional knowledge about MPA 

requirements, it is continuing with this procurement despite not having 

completed operational testing. According to the MSAM, testing in an 

operational environment should be completed with the initial production 

variants of an asset to demonstrate that capabilities meet requirements 

before committing to larger purchases. An approved test plan helps ensure 

that the tests conducted are clearly linked to requirements and mission 

needs. While the MPA began an operational assessment in July 2008, the 

Coast Guard still lacked, as of March 2009, a test plan approved by DHS 

and endorsed by its independent test authority, the Navy’s Commander 

Operational Testing and Evaluation Force. With 11 of 36 MPAs already on 

Page 8 GAO-09-620T 
contract, the Coast Guard has completed the operational assessment 5

 but 

does not plan to complete operational testing until the fiscal year 2011 

time frame. Similarly, according to Coast Guard officials, operational 

testing of the NSC, also conducted by the Coast Guard’s independent test 

authority, has begun in the absence of an approved test plan, which is now 

expected in July 2009. By the time testing is scheduled to be completed in 

2011, the Coast Guard plans to have six of eight NSCs either built or on 

contract. 

According to the MSAM process, operational requirements must be 

approved before procuring an asset. However, since committing to the 

MSAM process, the Coast Guard has awarded new contracts for assets 

without having all required acquisition documentation in place, due to its 

determination that the need for these capabilities is pressing. This 

situation puts the Coast Guard at risk of cost overruns and schedule slips 

if it turns out that what it is buying does not meet requirements. 

• In September 2008, after conducting a full and open competition, the 

Coast Guard awarded an $88.2 million contract for the design and 

construction of a lead Fast Response Cutter. However, the Coast 

Guard does not have an approved operational requirements document 

or test plan for this asset. Recognizing the risks inherent in this 

approach, the Coast Guard developed a basic requirements document 

and an acquisition strategy based on procuring a proven design. These 

documents were reviewed and approved by the Coast Guard’s 

capabilities directorate, the engineering and logistics directorate, and 

chief of staff before the procurement began. According to a Coast 

Guard official, the Coast Guard intends to have an approved 

operational requirements document before procuring additional ships. 

• In February 2009, the Coast Guard issued a $77.7 million task order to 

ICGS for a second segment of C4SIR design and development, before 

developing its requirements for performance. Design and development 

costs for the first segment increased from $55.5 million to $141.3 

million. According to Coast Guard officials, this increase was due in 

part to the structure of the ICGS contract under which the Coast 

Guard lacked visibility into the software development processes and 

 

5

The focus of an operational assessment is on significant trends noted in development 

efforts, programmatic voids, risk areas, adequacy of requirements, and the ability of the 

program to support operational testing. An operational assessment may be conducted at 

any time using technology demonstrators, prototypes, mock-ups, engineering development 

models, or simulations, but is not to substitute for initial operational testing and evaluation. 

Page 9 GAO-09-620T 
requirements. Furthermore, ICGS’s C4ISR solution for the Deepwater 

Program contains proprietary software. The Coast Guard has acquired 

data rights to the software and, according to Coast Guard officials, has 

determined that the capabilities it is buying meet Coast Guard 

technical standards for maintenance, logistics, and interoperability. 

Since the establishment of the $24.2 billion baseline for the Deepwater 

program in 2007, the anticipated cost, schedules, and capabilities of many 

of the Deepwater assets have changed, in part due to the Coast Guard’s 

increased insight into what it is buying. The purpose of the 2007 baseline 

was to establish cost, schedule, and operational requirements for the 

Deepwater system as a whole; these were then allocated to the major 

assets. Coast Guard officials have stated that this baseline reflected not a 

traditional cost estimate but rather the anticipated contract costs as 

determined by ICGS. Furthermore, the Coast Guard lacked insight into 

how ICGS arrived at some of the costs for Deepwater assets. 

Coast Guard 

Developing More 

Realistic Cost 

Estimates for 

Deepwater Assets, but 

Cost Reporting May 

Not Keep Congress 

Fully Informed As the Coast Guard has assumed greater responsibility for management of 

the Deepwater Program, it has begun to improve its understanding of costs 

by establishing new baselines for individual assets based on its own cost 

estimates. These baselines begin at the asset level and are developed by 

Coast Guard project managers, validated by a separate office within the 

acquisition branch and, in most cases, are reviewed and approved by DHS. 

The estimates use common cost estimating procedures and assumptions, 

and may account for costs not previously captured. Beginning in 

September 2008 the Coast Guard began submitting new baselines to DHS. 

To date, 10 asset baselines have been submitted to DHS and 4 have been 

approved. These new baselines are formulated using various sources of 

information depending on the acquisition phase of the asset. For example, 

the baseline for the NSC was updated using the actual costs of material, 

labor, and other considerations already in effect at the shipyards. The 

baselines for other assets, like the MPA, were updated using independent 

cost estimates. As the Coast Guard approaches major milestones, such as 

the decision to enter low-rate initial production or begin system 

development, officials have stated that the cost estimates for all assets will 

be reassessed and revalidated. 

Better-informed Baselines 

Suggest Deepwater Costs 

Could Exceed $24.2 Billion 

As the Coast Guard has developed its own cost baselines for Deepwater 

assets, it has become apparent that some of the assets it is procuring will 

likely cost more than anticipated. While the Coast Guard is still in the 

process of communicating the effect and origin of these cost issues to 

Page 10 GAO-09-620T 
DHS, information available to date for assets shows that the total cost of 

the program will likely exceed $24.2 billion, with potential cost growth of 

approximately $2.1 billion through the life of the Deepwater Program. As 

more baselines are approved by DHS, further cost growth may become 

apparent. Table 2 provides the estimates of asset costs available as of April 

2009. It does not reflect the roughly $3.6 billion in other Deepwater costs, 

such as program management, that the Coast Guard states do not require a 

new baseline. 

Table 2: Changes from 2007 Deepwater Baseline (Then-year dollars in millions) 

Asset 2007 baseline

Current estimate 

 (as of April 2009) Change

National Security Cutter 3,450 4,749 1,299

Offshore Patrol Cutter 8,098 baseline in development, due November 2009 

Fast Response Cuttera3,206 baseline with DHS 

Medium Endurance Cutter Sustainment 317 321b 4

Patrol Boat Sustainment 117 194b77

Maritime Patrol Aircraft 1,706 2,223 517

HC-130J Long-Range Surveillance Aircraft 11 167c156

HC-130H Long-Range Surveillance Aircraft 610 baseline with DHS 

HH-65 Multimission Cutter Helicopter 741 baseline with DHS 

HH-60 Medium Range Recovery Helicopter 451 baseline with DHS 

Cutter Small Boats 110 baseline in development, due June 2009 

Unmanned Aerial System 503 baseline in development 

C4ISR 1,353 baseline with DHS 

Source: GAO analysis of Coast Guard documentation. 

a

In the 2007 baseline, costs for two variants of the Fast Response Cutter were presented. The new 

baseline will represent the total costs for the recently awarded design. 

b

Reflects the threshold, or maximum allowable, cost. 

c

Reflects estimate presented in the Coast Guard’s Fiscal Year 2008 Deepwater Expenditure Plan. 

The initial estimate of $11 million only included fleet introduction costs and did not include the 

acquisition cost of the aircraft or installation of the mission systems. 

The effort by the Coast Guard to develop new baselines provides not only 

a better understanding of the costs of the Deepwater assets, but also 

insight into the drivers of any cost growth. For example, the new NSC 

baseline attributes a $1.3 billion rise in cost to a range of factors, from the 

additional costs to correct fatigue issues on the first three cutters to the 

rise in commodity and labor prices. The additional $517 million needed to 

procure all 36 MPA is attributed primarily to items that were not 

Page 11 GAO-09-620T 
accounted for in the previous baseline, including a simulator to train 

aircrews, facility improvements, and adequate spare parts. By 

understanding the reasons for cost growth, the Coast Guard may be able 

to better anticipate and control costs in the future. 

The Coast Guard has structured some of the new baselines to show how 

cost growth could be controlled by making trade-offs in asset quantities 

and/or capabilities. For example, the new MPA baseline provides cost 

increments that show the acquisition may be able to remain within its 

initial allotment of the overall $24.2 billion if 8 fewer aircraft are acquired. 

Coast Guard officials have stated that other baselines currently under 

review by DHS present similar cost increments. This information, if 

combined with data from the fleet mix study to show the effect of quantity 

or capability reductions on the system-of-systems as a whole, offers a 

unique opportunity to the Coast Guard for serious discussions of tradeoffs. 

The Coast Guard’s reevaluation of baselines has also changed its 

understanding of the delivery schedules and capabilities of Deepwater 

assets. According to the new baselines, a number of assets will be 

available for operational use later than originally anticipated. This includes 

a 12-month delay for the NSC to reach its initial operating capability and 

an 18-month delay for the MPA. Coast Guard officials stated that the 

restructuring of the unmanned aircraft and small boat projects has delayed 

the deployment of these assets with the NSC and affects the ship’s 

anticipated capabilities in the near term. We plan to report later this 

summer on the operational effect of the delays in the NSC project. 

Current Budget Reporting 

Lacks Detail at Asset 

Level, and May Not 

Adequately Inform 

Congress 

While the Coast Guard plans to update its annual budget requests with 

asset-based cost information, the current structure of its budget 

submission could limit Congress’s understanding of details at the asset 

level. The budget submission presents total acquisition costs only at the 

overall Deepwater system level ($24.2 billion), and the description of 

funding for individual assets does not include key information such as 

costs beyond the current 5-year capital investment plan, i.e., life-cycle 

costs, or the total quantities of assets planned. For example, while the 

justification of the NSC request includes an account of the capabilities the 

asset is expected to provide, how these capabilities link to the Coast 

Guard’s missions, and details on what activities past appropriations have 

funded, it does not include estimates of total program cost, future award 

or delivery dates of remaining assets, or even the total number of assets to 

be procured. 

Page 12 GAO-09-620T 
Our past work has emphasized that one of the keys to a successful capital 

acquisition, such as the multibillion-dollar ships and aircraft the Coast 

Guard is procuring, is budget submissions that clearly communicate 

needs.6

 A key part of this communication is to provide decision makers 

with information about cost estimates, risks, and the scope of a planned 

project before committing substantial resources to it. Good budgeting also 

requires that the full costs of a project be considered upfront when 

decisions are made. Other agencies within the federal government that 

acquire systems similar to those of the Coast Guard capture these 

elements in justifications of their requests. To illustrate, table 3 provides a 

comparison of the information found in the NSC budget justification with 

that used by the Navy for its shipbuilding programs. 

Table 3: Comparison of Budget Justifications 

Prior year 

allocation 

Current 

request 5-year outlook

Future contract 

awards 

Total acquisition 

cost 

Total asset 

quantities 

Coast Guard 

(NSC) 

X X X 

Navy X X X X X X 

Source: GAO analysis. 

While the Coast Guard does include some of this information in its assetlevel Quarterly Acquisition Reports to Congress and the Deepwater 

Program Expenditure Report, these documents are provided only to the 

appropriations committees, and the information is restricted due to 

acquisition sensitive material. 

One reason the Coast Guard originally sought a systems integrator was 

because it recognized that it lacked the experience and depth in its 

workforce to manage the acquisition internally. Now that the Coast Guard 

has taken control of the Deepwater acquisition, it acknowledges that it 

faces challenges in hiring and retaining qualified acquisition personnel and 

that this situation poses a risk to the successful execution of its acquisition 

programs. According to human capital officials in the acquisition 

directorate, as of April 2009, the acquisition branch had funding for 855 

military and civilian personnel and had filled 717 of these positions—

Coast Guard Having 

Difficulty Staffing 

Government 

Acquisition Positions 

but Working To 

Improve Processes 

 

6

GAO, Executive Guide: Leading Practices in Capital Decision-Making, GAO/AIMD-99-32

(Washington, D.C.: December 1998). 

Page 13 GAO-09-620T 
leaving 16 percent unfilled. The Coast Guard has identified some of these 

unfilled positions as core to the acquisition workforce, such as contracting 

officers and specialists, program management support staff, and 

engineering and technical specialists. Even as it attempts to fill its current 

vacancies, the Coast Guard plans to increase the size of its acquisition 

workforce significantly by the end of fiscal year 2011. 

Coast Guard Has 

Expanded Collaboration 

with Independent Third 

Parties and Increased Use 

of Support Contractors to 

Assist with Acquisition 

To supplement and enhance the use of its internal expertise, the Coast 

Guard has increased its use of third-party, independent experts outside of 

both the Coast Guard and existing Deepwater contractors. For example, a 

number of organizations within the Navy provided independent views and 

expertise on a wide range of issues, including testing and safety. In 

addition, the Coast Guard will use the American Bureau of Shipping, an 

independent organization that establishes and applies standards for the 

design and construction of ship and other marine equipment, as an advisor 

and independent reviewer on the design and construction of the Fast 

Response Cutter. The Coast Guard has also begun a relationship with a 

university-affiliated research center to augment its expertise as it executes 

its fleet mix analysis. 

In addition to third party experts, the Coast Guard has been increasing its 

use of support contractors. Currently, there are approximately 200 

contractor employees in support of the acquisition directorate—

representing 24 percent of its total acquisition workforce—a number that 

has steadily increased in recent years. These contractors are performing a 

variety of services—some of which support functions the Coast Guard has 

identified as core to the government acquisition workforce—including 

project management support, engineering, contract administration, and 

business analysis and management. While support contractors can provide 

a variety of essential services, their use must be carefully overseen to 

ensure that they do not perform inherently governmental roles. The Coast 

Guard acknowledges this risk and is monitoring its use of support 

contractors to properly identify the functions they perform, as well as 

developing a policy to define what is and what is not inherently 

governmental. 

Coast Guard Has Made 

Progress in Identifying and 

Mitigating Acquisition 

Workforce Challenges 

While the Coast Guard may be hard-pressed to fill the government 

acquisition positions it has identified both now and in the future, it has 

made progress in identifying the broader challenges it faces and is working 

to mitigate them. The Coast Guard has updated two documents key to this 

effort, the Blueprint for Acquisition Reform, now in its third iteration, 

Page 14 GAO-09-620T 
and the Acquisition Human Capital Strategic Plan, which is in its second 

iteration. Each document identifies challenges the Coast Guard faces in 

developing and managing its acquisition workforce and outlines initiatives 

and policies to meet these challenges. For example, the Acquisition 

Human Capital Strategic Plan lays out three overall challenges and 

outlines over a dozen strategies the Coast Guard is pursuing to address 

them in building and maintaining an acquisition workforce. The discussion 

of strategies includes status indicators and milestones to monitor 

progress, as well as supporting actions such as the formation of 

partnerships with the Defense Acquisition University and continually 

monitoring turnover in critical occupations. The Blueprint for Acquisition 

Reform supports many these initiatives and provides deadlines for their 

completion. In fact, the Coast Guard has already completed a number of 

initiatives including 

• achieving and maintaining Level III program manager certifications, 

• adopting a model to assess future workforce needs, 

• incorporating requests for additional staff into the budget cycle, 

• initiating tracking of workforce trends and metrics, 

• expanding use of merit-based rewards and recognitions, and 

• initiating training on interactions and relationships with contractors. 

In conclusion, I’d like to emphasize several key points as we continue to 

oversee the various Coast Guard initiatives discussed today. It is important 

to recognize that Coast Guard leadership has made significant progress in 

identifying and addressing the challenges in taking on the role of systems 

integrator for the Deepwater Program. The Coast Guard is continuing to 

build on this progress by starting to follow a disciplined program 

management approach that improves its knowledge of what is required to 

meet its goals. An important component of this approach is gaining 

realistic assessments of needed capabilities and associated costs to enable 

the Coast Guard and Congress to better execute decision making and 

oversight. The Coast Guard’s ability to build an adequate acquisition 

workforce is critical, and over time the right balance must be struck 

between numbers of government and contractor personnel. Until the 

Coast Guard gains a thorough understanding of what it is buying and how 

much it will cost, and is able to put in place the necessary workforce to 

manage the Deepwater Program, it will continue to face risks in carrying 

out this multibillion dollar acquisition. 

Concluding 

Observations 

Page 15 GAO-09-620T 
Mr. Chairman, this concludes my statement and I would be happy to 

respond to any questions the committee may have. 

For further information about this testimony, please contact John P. 

Hutton, Director, Acquisition and Sourcing Management, at (202) 512-4841, 

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

testimony include Michele Mackin, Assistant Director; Greg Campbell; 

Carolynn Cavanaugh; J. Kristopher Keener; Angie Nichols-Friedman; and 

Sylvia Schatz. 

GAO Contact and 

Acknowledgements 

Page 16 GAO-09-620T 
Related GAO Products 

Coast Guard: Change in Course Improves Deepwater Management and 

Oversight, but Outcome Still Uncertain. GAO-08-745. Washington, D.C.: 

June 24, 2008. 

Coast Guard: Observations on Changes to Management and Oversight of 

the Deepwater Program. GAO-09-462T. Washington, D.C.: March 24, 2009. 

Status of Selected Assets of the Coast Guard’s Deepwater Program. 

GAO-08-270R. Washington, D.C.: March 11, 2008. 

Coast Guard: Deepwater Program Management Initiatives and Key 

Homeland Security Missions. GAO-08-531T. Washington, D.C.: March 5, 

2008. 

Coast Guard: Status of Efforts to Improve Deepwater Program 

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

Washington, D.C.: March 8, 2007. 

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

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

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

Management Has Improved, but Continued Monitoring Is Warranted. 

GAO-06-546. Washington, D.C.: April 28, 2006. 

Coast Guard: Progress Being Made on Addressing Deepwater Legacy 

Asset Condition Issues and Program Management, but Acquisition 

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

Coast Guard: Preliminary Observations on the Condition of Deepwater 

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

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

Coast Guard: Deepwater Program Acquisition Schedule Update Needed. 

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

Contract Management: Coast Guard’s Deepwater Program Needs 

Increased Attention to Management and Contractor Oversight. 

GAO-04-380. Washington, D.C.: March 9, 2004. 

Coast Guard: Actions Needed to Mitigate Deepwater Project Risks. 

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

(120827) Page 17 GAO-09-620T 
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