Department of Homeland Security

Office of Inspector General 

U.S. Coast Guard's Plan to Improve 


Deepwater Accountability 


(Letter Report) 


OIG-09-75 June 2009 
 

Office of Inspector General 

U.S. Department of Homeland Security

Washington, DC 20528 

May 29, 2009 

MEMORANDUM FOR: 	 The Honorable Admiral Thad W. Allen 

 Commandant 

United States Coast Guard 

FROM: 	 Richard L. Skinner 

Inspector General 

SUBJECT:	 Letter Report: U.S. Coast Guard’s Plans to Improve 

Deepwater Accountability (OIG-09-75) 

In response to a congressional request, we initiated a review of the U.S. Coast Guard’s 

plans to hold Integrated Coast Guard Systems, the prime contractor for the Integrated 

Deepwater System Program (Deepwater), accountable for problems associated with the 

acquisition of five assets: the National Security Cutter, the 110'/123' Patrol Boat, the Fast 

Response Cutter, the Short-Range Prosecutor, and the Vertical-Takeoff-and-Landing 

Unmanned Aerial Vehicle. 

The Coast Guard plans to recoup funds from acquisitions of the 110'/123' Patrol Boat and 

the Short-Range Prosecutor, whose design and performance did not meet minimum 

Deepwater contract and mission requirements. Problems with those two acquisitions 

included structural design flaws and installation of nonconforming communications 

equipment. The Coast Guard will not seek to recoup funds related to acquisitions of the 

National Security Cutter, Fast Response Cutter, and Vertical-Takeoff-and-Landing 

Unmanned Aerial Vehicle. In the case of the National Security Cutter, the Coast Guard 

chose to renegotiate the contract to reach terms more favorable to the U.S. government 

for proceeding with the acquisition. The contractor met the terms of the Fast Response 

Cutter contract, but the design of the asset did not meet the Coast Guard’s mission 

requirements. The Coast Guard canceled the Vertical-Takeoff-and-Landing Unmanned 

Aerial Vehicle acquisition because the asset lacked technical maturity and because cost 

estimates exceeded available funding. 

Should you have any questions, please call me, or your staff may contact Anne L. 

Richards, Assistant Inspector General for Audits, at (202) 254-4100. 

1 

Background 

In June 2002, the Coast Guard awarded Integrated Coast Guard Systems an initial 5­

year base term contract to serve as the Deepwater systems integrator. The Coast Guard 

has since invested more than $1.8 billion to acquire the following five assets to help 

accomplish the Deepwater mission: 

•	 $1.6 billion for the National Security Cutter, the flagship of the U.S. Coast 

Guard’s Deepwater cutter fleet, capable of executing the most challenging 

maritime security, drug and migrant interdiction, and search and rescue 

missions. 

•	 $87 million for the 110'/123' Patrol Boat Modernization Project, which 

involved lengthening the boats to accommodate the launching of the new 

Short-Range Prosecutor from the stern rather than over the side, and 

modernizing them through extensive superstructure improvements and 

advanced electronics, communication, and navigation systems. 

•	 $40 million for the design of the Fast Response Cutter, intended to replace the 

Coast Guard’s 110'/123' Patrol Boat fleet with cutters of greater operational 

endurance. 

•	 $3 million for the Short Range Prosecutor, a rigid-hull inflatable small boat 

designed for use aboard the 123' Patrol Boat, the Fast Response Cutter, the 

National Security Cutter, and other Deepwater surface assets. 

•	 $93 million for the Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle, 

with outstanding obligations totaling $11 million, of which some will be 

deobligated as part of the contract closeout procedure. This asset was 

intended to enable the Coast Guard to surveil, detect, classify, and identify 

targets of interest operating beyond the visual range of the new and legacy 

flight deck-equipped cutters. 

Because of problems encountered in their development, construction, and testing phases, 

these acquisitions were canceled, modified, or accelerated, in some instances creating or 

increasing gaps in the Coast Guard’s operational capacity to accomplish its offshore 

missions. The Coast Guard was left to determine what funds, if any, it could recoup from 

the contractor for the unsuccessful acquisition efforts. 

Review Results 

The Coast Guard plans to recoup funds from efforts to acquire two of the five Deepwater 

assets—the 110'/123' Patrol Boat and the Short-Range Prosecutor—whose design and 

performance did not meet minimum Deepwater contract and mission requirements. 

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Problems with these assets included structural design flaws and installation of 

nonconforming communications equipment. 

Specifically, shortly after the delivery of the first 123' Patrol Boat in March 2004, the 

Coast Guard discovered deformation and cracks in the hull. Similar structural problems 

were subsequently reported on the other seven 123' Patrol Boats. In November 2006, the 

Coast Guard announced that it would suspend operations of all eight 123' patrol boats 

pending assessment of the problem and how best to address it. In 2007, the Coast Guard 

revoked acceptance of the eight existing 123' Patrol Boats and canceled other planned 

acquisitions. The Coast Guard now intends to recoup an estimated $96 million in 

damages from the contractor for the structural problems with the eight 110'/123' Patrol 

Boats. 

The Coast Guard plans to pursue recoupment for all communications equipment 

deficiencies on the Short-Range Prosecutor. The maximum recoupment is estimated to 

be $26,000 per Short-Range Prosecutor. As of March 2009, two of the Short-Range 

Prosecutors had been modified and are in use: One is deployed aboard National Security 

Cutter-1, the CGC Bertholf, and the other is at the Project Resident Office Gulf Coast in 

Pascagoula, Mississippi, for as-needed testing. The remaining six Short-Range 

Prosecutors are in storage at the Coast Guard Yard in Baltimore, Maryland. There are 

plans to modify three of these six vessels for use aboard National Security Cutter-2, the 

CGC Waesche, in 2009. 

The Coast Guard will not seek recoupment for issues related to the following three 

Deepwater assets, which also experienced technical and structural problems even though 

the contract terms were met: 

National Security Cutter: The Coast Guard identified structural changes to 

address design issues associated with the first two National Security Cutters. If 

left uncorrected, these issues could result in fatigue cracks, significantly increased 

maintenance costs, and reduced service life. Structural changes to National 

Security Cutters 1 and 2 will be made after delivery. The Coast Guard also 

renegotiated the contracts for the first two National Security Cutters and thus 

resolved outstanding contracting actions estimated at $300 million, added 

incentives for the contractor to control costs, and aligned the contracts more 

closely with U.S. Navy best shipbuilding practices. For National Security Cutters 

3 to 8, design modifications have been identified for completion during the 

production phase. 

Fast Response Cutter: Given the development risks involved, the Coast Guard 

canceled acquisition of the Fast Response Cutter. According to the Coast Guard, 

the cutter design satisfied contract terms but did not meet Deepwater mission 

needs. Based on independent assessments conducted in March 2006, the 

composite hull weight and propulsion plant capacity were not consistent with 

inservice patrol boats of comparable length, speed, and range. As an alternative, 

the Coast Guard has initiated a dual strategy involving production of steel hull 

3 

cutters and postponed acquisition of composite hull cutters until their 

development risk is significantly reduced. 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle: In June 2007, the 

Coast Guard terminated this acquisition before receiving any operational aircraft. 

The contractor met the terms of the contract through critical design review and 

initiation of the systems development phase. The Coast Guard canceled the 

acquisition because the asset lacked technical maturity and because cost estimates 

exceeded available funding. 

The Coast Guard continues its efforts to recoup funds for the 110'/123' Patrol Boat 

Modernization Program and the Short-Range Prosecutor. It is moving forward with the 

production of National Security Cutters under a contract that it has determined to be more 

favorable to the U.S. government. Finally, in light of the cancellation of the Fast 

Response Cutter acquisition, the Coast Guard is pursuing an alternative cutter to meet its 

unique mission requirements. 

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Appendix A 

Major Contributors to This Report

Richard Johnson, Director 

Bradley Mosher, Audit Manager 

Andrea Rambow, Program Analyst 

Lorinda Couch, Program Analyst 

Marisa Martinez, Program Analyst 

5 

Appendix B 

Report Distribution

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff for Operations 

Chief of Staff for Policy 

Acting General Counsel 

Executive Secretariat 

Director, GAO/OIG Liaison Office 

Assistant Secretary for Office of Policy 

Assistant Secretary for Office of Public Affairs 

Assistant Secretary for Office of Legislative Affairs 

Chief Information Officer, DHS 

Chief Information Security Officer, DHS 

DHS Audit Liaison 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as 

appropriate 

6 

ADDITIONAL INFORMATION AND COPIES 

To obtain additional copies of this report, please call the Office of Inspector General (OIG) at (202) 254-4199, 

fax your request to (202) 254-4305, or visit the OIG web site at www.dhs.gov/oig. 

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