Department of Homeland Security 

Office of Inspector General 

U.S. Coast Guard's Acquisition of the 


Vertical-Takeoff-and-Landing 


Unmanned Aerial Vehicle 


OIG-09-82 June 2009 
 

Office of Inspector General 

U.S. Department of Homeland Security

Washington, DC 25028 

June 24, 2009 

Preface 

The Department of Homeland Security (DHS) Office of Inspector General (OIG) was 

established by the Homeland Security Act of 2002 (Public Law 107-296) by amendment 

to the Inspector General Act of 1978. This is one of a series of audit, inspection, and 

special reports prepared as part of our oversight responsibilities to promote economy, 

efficiency, and effectiveness within the department. 

Given the cancellation of the Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 

acquisition, this report identifies issues that the U.S. Coast Guard can address to mitigate 

the existing operational capability gap. It is based on interviews with employees and 

officials of relevant agencies and institutions, direct observations, and a review of 

applicable documents. 

The recommendations herein have been developed to the best knowledge available to our 

office, and have been discussed in draft with those responsible for implementation. We 

trust this report will result in more effective, efficient, and economical operations. We 

express our appreciation to all of those who contributed to the preparation of this report. 

Richard L. Skinner 


Inspector General 

Table of Contents/Abbreviations 


Executive Summary.............................................................................................................1
 

Background .........................................................................................................................2
 

Results of Review ................................................................................................................3
 

Need to Mitigate the Existing Aerial Surveillance Capability Gap ..............................3
 

Need to Resolve FAA Regulatory Requirements ..........................................................4 


Recommendations..........................................................................................................6 


Management Comments and OIG Analysis ..................................................................6
 

Appendices 

Appendix A: Purpose, Scope, and Methodology .......................................................8 


Appendix B: Management Comments to the Draft Report .......................................9 


Appendix C: Major Contributors to this Report .....................................................12 


Appendix D: Report Distribution ............................................................................13 


Abbreviations 

FAA Federal Aviation Administration 


VUAV Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle
 
OIG
 

Department of Homeland Security 

Office of Inspector General 

Executive Summary 

In June 2007, after five years of effort and a total of $113.7 million in 

expenditures and outstanding obligations, the Coast Guard terminated 

the Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 

acquisition. Internal Coast Guard analyses recommended program 

cancellation due to unresolved developmental risks and increased costs. 

Without the Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle, 

the aerial surveillance capability of the National Security Cutter is 

reduced from 58,160 square nautical miles to 18,320 square nautical 

miles, a 68% reduction. 

The Coast Guard needs to document its short-term strategy to mitigate 

the maritime surveillance gap resulting from canceling the VerticalTakeoff-and-Landing Unmanned Aerial Vehicle program. The Coast 

Guard should also continue to work with the Federal Aviation 

Administration and the International Civil Aviation Organization to 

ensure that future unmanned aircraft acquisitions meet regulatory 

requirements that may otherwise restrict the operation of unmanned 

aircraft in national and international airspace. 

The Coast Guard proceeded with the acquisition of the VerticalTakeoff-and-Landing Unmanned Aerial Vehicle without assurance that 

the aircraft would be able to operate in a manner to meet the Coast 

Guard's mission needs without restrictions. 

This report contains two recommendations to the Coast Guard to 

mitigate the surveillance capability gap and resolve regulatory issues 

for operating unmanned aircraft in controlled airspace. 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


Page 1
 
Background 

Acquisition of the Vertical-Takeoff-and-Landing Unmanned Aerial 

Vehicle (VUAV) was a key component of the Coast Guard's 

Integrated Deepwater System (Deepwater) contract with Integrated 

Coast Guard Systems. The $24 billion, 25-year acquisition program 

was designed to replace and modernize the Coast Guard’s aging and 

deteriorating fleet of ships and aircraft. 

The 2002 Deepwater contract specified the delivery of 69 VUAVs for 

an estimated total cost of $425 million, with the delivery of the first 

eight aircraft to occur in 2006. The VUAV project did not receive 

funding in FY 2003 because the Deepwater program was not fully 

funded and available funds were used on higher priority projects. 

The VUAV project was only partially funded from FY 2004 through 

FY 2006. To continue with the VUAV acquisition within budget 

limitations, the Coast Guard divided the original VUAV development 

and demonstration contract into three increments: system 

development, system component production, and vehicle assembly 

and demonstration. According to the Coast Guard, incrementally 

funding the VUAV project increased costs and added two years to the 

acquisition schedule. In February 2006, the Coast Guard revised its 

Deepwater Implementation Plan to the delivery of one VUAV 

(delivery date not specified). 

In June 2007, the Coast Guard terminated the VUAV, citing 

development risks and a lack of funding beyond 2007 as reasons for 

discontinuing the program. The Coast Guard said that it does not 

intend to seek recoupment of the funds expended on the VUAV 

acquisition other than unobligated funds in Integrated Coast Guard 

Systems’ accounts. According to the Coast Guard, at project 

termination, $90.3 million was expended with outstanding obligations 

of an additional $23.4 million. 

The Coast Guard has been conducting a series of alternatives 

analyses to determine the path forward to replacing the capability lost 

resulting from the termination of the VUAV project. These analyses 

have included research on land- and cutter-based unmanned aircraft. 

For example, the Coast Guard has worked collaboratively with U.S. 

Customs and Border Protection on the use of unmanned aircraft in a 

marine environment. 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


Page 2 
Results of Review 

The Coast Guard needs to document its short-term strategy to 

mitigate the maritime surveillance capability gap resulting from 

canceling the VUAV project. The Coast Guard should also 

continue to work with the Federal Aviation Administration (FAA) 

and the International Civil Aviation Organization to ensure that 

future unmanned aircraft acquisitions meet regulatory requirements 

that may otherwise restrict the operation of unmanned aircraft in 

national and international airspace. The Coast Guard proceeded 

with the acquisition of the VUAV without assurance that the 

aircraft would be able to operate without restrictions, potentially 

hampering the Coast Guard’s ability to accomplish its missions. 

Need to Mitigate the Existing Aerial Surveillance
 

Capability Gap 


Without VUAVs, the aerial surveillance capability of the National 

Security Cutter is reduced from 58,160 square nautical miles to 

18,320 square nautical miles, a 68% reduction. According to the 

Coast Guard, the operational effectiveness of the National Security 

Cutter without the 

VUAV will be 

comparable to that of 

the 378-foot Hamilton 

class high-endurance 

cutter.1

 Hamilton 

class cutters are 

currently deployed 

with a single 

helicopter 

programmed to 

conduct up to four 

hours of aerial surveillance per day. In contrast, the National Security 

Cutter was projected to be deployed with aviation assets ranging from 

one manned helicopter and two VUAVs, to four VUAVs without a 

helicopter. Together, these assets were to provide up to 16 hours of 

aerial surveillance per day for each cutter. A similar reduction in 

aerial surveillance capability is expected to affect the proposed 

Offshore Patrol Cutter fleet. The Coast Guard expected the VUAV to 

1

 The Coast Guard intends to replace its aging and deteriorating fleet of high- endurance and mediumendurance cutters with 8 National Security Cutters and 25 Off Shore Patrol cutters, to be acquired over the next 

20 years. 

Bell Eagle Eye Demonstrator Aircraft 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


Page 3 
significantly improve the ability of the National Security Cutter and 

the Offshore Patrol Cutter to conduct drug and migrant interdiction, 

law enforcement, living marine resource patrols, and search and 

rescue missions. 

With the cancellation of the VUAV, the Coast Guard needs to 

document its short-term strategy to fill the aerial surveillance 

capability gap for the National Security Cutter. For the short term, the 

Coast Guard has proposed compensating for the surveillance 

capability gap through increased flight hours of the HH-65 Dolphin 

Helicopters. The Coast Guard is also considering increasing the flight 

hours of the medium-range surveillance maritime patrol aircraft and 

the long-range surveillance and transport aircraft. The Coast Guard 

has said that these short-term solutions come at a higher price per 

flight hour than the planned VUAV. We are concerned that the 

diversion of these air assets to compensate for the National Security 

Cutter surveillance capability gap also may impact other Coast Guard 

mission requirements. For example, a long-range surveillance and 

transport aircraft may need to be diverted from conducting a living 

marine resources enforcement patrol to provide higher priority aerial 

surveillance support for a National Security Cutter. 

For the long term, the Coast Guard is continuing to investigate 

unmanned aircraft alternatives. In February 2009, the Department of 

Homeland Security approved the Coast Guard’s strategy for 

determining the most effective unmanned aircraft system to operate 

from the National Security Cutter. The Coast Guard plans to conduct 

research, including testing and evaluation, of an existing unmanned 

aircraft system to support future system acquisition programs. The 

research also includes an air safety analysis to determine the 

requirements necessary to address regulatory issues that may restrict 

unmanned aircraft operations in the Coast Guard's operating and 

mission areas. According to the Coast Guard, the final report is 

expected in March 2010. 

Need to Resolve FAA Regulatory Requirements 

The FAA and the International Civil Aviation Organization classify 

unmanned aerial vehicles as aircraft. Therefore, the operation of 

unmanned aerial vehicles in national and international airspace is 

subject to existing aircraft flight rules and regulations. The Coast 

Guard worked with the FAA to address regulatory requirements such 

as airworthiness certification standards. However, the Coast Guard 

did not resolve with the FAA and the International Civil Aviation 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


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Organization how it would operate the VUAV in airspace controlled 

by either of these organizations. 

See and Avoid Capability 

Central to FAA air safety requirements for aircraft to operate 

unrestricted in regulated airspace is the ability of the aircraft pilots to 

see and avoid other traffic in the airspace.2

 To meet this requirement, 

Integrated Coast Guard Systems proposed using a High Frequency 

Surface Wave Radar. The High Frequency Surface Wave Radar was 

a U.S. Navy developmental program that was outside the Coast 

Guard's direct control. This radar technology was to be installed 

aboard the National Security Cutter and the proposed Offshore Patrol 

Cutter to provide a detect, see, and avoid capability. The U.S. Navy 

cancelled the High Frequency Surface Wave Radar project in 2003 

due to technological problems. 

The Coast Guard and Integrated Coast Guard Systems had no 

assurances that the High Frequency Surface Wave Radar would have 

satisfied FAA airspace deconfliction requirements. According to the 

FAA, a detect, sense (see), and avoid system capable of meeting FAA 

requirements does not yet exist. Without detect, see, and avoid 

technology for unmanned aircraft vehicles that satisfies FAA 

requirements for unrestricted access to U.S. airspace, or a FAA 

accepted airspace safety risk analysis and usage plan, it is unlikely 

that unmanned aircraft will be authorized for unrestricted use by the 

Coast Guard in performing its missions in FAA-regulated airspace. 

The Coast Guard intended to operate the VUAV over the high seas in 

national and international airspace using the National Security 

Cutter’s air search radar capability to mitigate risk by clearing the 

airspace around the VUAV. The Coast Guard was also investigating 

the use of “Due Regard" provisions. These provisions would have 

permitted the Coast Guard to operate the VUAV in international 

airspace even though it had not met the FAA's detect, see, and avoid 

requirements. The Due Regard provisions allow the Coast Guard to 

deviate from normally accepted flight procedures by requiring that it 

assume full responsibility for separation of its aircraft from all other 

aircraft operating in the same international airspace.3 

2

 Per 14 CFR § 91.113 (b), when weather conditions permit, regardless of whether an operation is conducted 

under instrument flight rules or visual flight rules, vigilance shall be maintained by each person operating an 

aircraft so as to see and avoid other aircraft. 

3 Article 3(d) of the Convention of International Civil Aviation of 1944 states, “The contracting States 

undertake, when issuing regulations for their state aircraft, that they will have due regard for the safety of 

navigation of civil aircraft.” 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


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The Coast Guard, under its Due Regard provisions and the FAA’s 

Certificate of Authorization application process, intended to use the 

cutters’ air search radar to provide airspace deconfliction for VUAV 

operations in international airspace. These operations would be 

conducted more than 50 nautical miles from shore, where the 

likelihood of encountering other air traffic would be relatively low. 

However, the operation of the VUAV 50 nautical miles from shore 

might not have permitted the Coast Guard to conduct missions in 

accordance with the planned Concept of Operations. For example, the 

Coast Guard planned to operate the VUAV in the Caribbean, but 

those operations might have been problematic because of the 

proximity of many islands and countries in the region to each other. 

The Coast Guard is conducting airspace studies to determine the 

closest approach to shore for VUAV operations that will meet FAA 

safety criteria. 

Recommendations 

We recommend that the Commandant of the Coast Guard: 

Recommendation #1: Document the short-term strategy and plans to 

mitigate the maritime surveillance gap, including potential impacts on 

Coast Guard missions, until the long-term solution to replacing the 

operational capability lost as a result from the cancellation of the 

VUAV project is identified. 

Recommendation #2: Ensure that any future unmanned aircraft 

system acquisition will satisfy FAA and international regulatory 

requirements necessary to meet Coast Guard operational needs. 

Management Comments and OIG Analysis 

The Coast Guard concurred with both recommendations. 

Additionally, the Coast Guard has indicated that it is taking corrective 

actions to address the recommendations. We consider both 

recommendations resolved, but they will remain open until we receive 

additional information regarding the Coast Guard's implementation of 

the corrective actions indicated. 

Management Comments to Recommendation #1: The Coast Guard 

concurred with our recommendation regarding the documentation of 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


Page 6
 
its short-term strategy and plans to mitigate the maritime surveillance 

gap, until the long-term solution to replacing the operational 

capability lost as a result from the cancellation of the VUAV project 

is identified. According to the Coast Guard, its operational 

commanders will prioritize the level of manned aviation support to the 

National Security Cutter and will adjust the level of aviation support 

depending on the mission and maritime surveillance needs. 

Additionally, the Coast Guard stated that it is conducting a fleet mix 

analysis to identify mission demands and capability requirements. 

The fleet mix analysis will quantify changes made to the original 

Deepwater program of record (including unmanned aircraft 

surveillance) to identify current and projected operational gaps. The 

resulting analysis will be used to define any maritime surveillance 

gaps that may exist and formulate recommendations on material 

solutions to close the gaps. 

OIG Analysis: We consider the Coast Guard's proposed actions 

responsive to the recommendation. However, this recommendation 

will remain open until the Coast Guard provides the results of the fleet 

mix analysis and its short-term strategy and plans to mitigate the 

maritime surveillance gap, including potential impacts on Coast 

Guard missions. 

Management Comments to Recommendation #2: The Coast Guard 

concurred with our recommendation to ensure that any future 

unmanned aircraft system acquisition will satisfy FAA and 

international regulatory requirements necessary to meet Coast Guard 

operational needs. According to the Coast Guard, it is working with 

the FAA to address the challenges of integrating unmanned aircraft 

into the National Airspace System, including the creation of a Coast 

Guard liaison officer position in the FAA Unmanned Aircraft Branch. 

The liaison officer will focus on unmanned aircraft operations in the 

maritime environment and development of unmanned aircraft airspace 

policies and procedures. The Coast Guard stated that it would fill the 

liaison officer position within the FAA Unmanned Aircraft Branch by 

the summer of 2009. 

OIG Analysis: We consider the Coast Guard's proposed actions 

responsive to the recommendation. However, this recommendation 

will remain open until the Coast Guard fills the Coast Guard liaison 

officer position at the FAA Unmanned Aircraft Branch. 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


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Appendix A 

Purpose, Scope, and Methodology 

This audit identifies lessons learned from the unsuccessful Bell “Eagle Eye” 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle (VUAV) project, 

contracted by the Coast Guard with Integrated Coast Guard Systems, LLC, 

under the Deepwater Acquisition Program. 

As part of the effort, we reviewed cost, schedule, and performance measures 

surrounding the VUAV acquisition to determine changes from the original 

Deepwater contract and their effects on the VUAV acquisition. We also 

reviewed the Coast Guard’s management and oversight of the VUAV 

acquisition, including its policies, procedures, and oversight authorities. 

The audit period generally covered historical VUAV data and documents as 

related to the original Deepwater request for proposal; the 2002 Deepwater 

contract; the 2005 Revised Deepwater Implementation Plan; the 2007 Award 

Term 1 contract; delivery/task orders and undefinitized contract actions; 

engineering change proposals; and requests for equitable adjustment. 

We conducted fieldwork at Coast Guard headquarters in Washington, DC; at 

the Bell Helicopter VUAV Program Office located in Hurst, TX; and at the 

Coast Guard Research and Development Center in Groton, CT. We 

interviewed Coast Guard, Integrated Coast Guard Systems, Bell Helicopter, 

and subcontractor personnel. We also reviewed department records and 

documents. 

We conducted this performance audit between June 2007 and February 2009 

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. 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


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Appendix B 

Management Comments to the Draft Report 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


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Appendix B 

Management Comments to the Draft Report 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


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Appendix B 

Management Comments to the Draft Report 

U.S. Coast Guard's Acquisition of the
 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 


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Appendix C 

Major Contributors to this Report 

Richard T. Johnson, Director, Immigration and Enforcement 

Bradley Mosher, Supervisory Auditor 

Robert Greene, Program Analyst 

Lorinda Couch, Program Analyst 

Tessa May-Fraser, Program Analyst 

U.S. Coast Guard's Acquisition of the 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 

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Appendix D 

Report Distribution 

Department of Homeland Security 

Secretary 

Deputy Secretary 

Chief of Staff for Operations 

Chief of Staff for Policy 

Deputy Chiefs of Staff 

General Counsel 

Executive Secretary 

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 

USCG Audit Liaison 

Office of Management and Budget 

Chief, Homeland Security Branch 

DHS OIG Budget Examiner 

Congress 

Congressional Oversight and Appropriations Committees, as 

appropriate 

U.S. Coast Guard's Acquisition of the 

Vertical-Takeoff-and-Landing Unmanned Aerial Vehicle 

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ADDITIONAL INFORMATION AND COPIES 

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