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[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

         THE STATUS OF COAST GUARD CUTTER ACQUISITION PROGRAMS

=======================================================================

                                (114-32)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                COAST GUARD AND MARITIME TRANSPORTATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 3, 2016

                               __________

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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                  BILL SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska                    PETER A. DeFAZIO, Oregon
JOHN J. DUNCAN, Jr., Tennessee,      ELEANOR HOLMES NORTON, District of 
  Vice Chair                             Columbia
JOHN L. MICA, Florida                JERROLD NADLER, New York
FRANK A. LoBIONDO, New Jersey        CORRINE BROWN, Florida
SAM GRAVES, Missouri                 EDDIE BERNICE JOHNSON, Texas
CANDICE S. MILLER, Michigan          ELIJAH E. CUMMINGS, Maryland
DUNCAN HUNTER, California            RICK LARSEN, Washington
ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHAEL E. CAPUANO, Massachusetts
LOU BARLETTA, Pennsylvania           GRACE F. NAPOLITANO, California
BLAKE FARENTHOLD, Texas              DANIEL LIPINSKI, Illinois
BOB GIBBS, Ohio                      STEVE COHEN, Tennessee
RICHARD L. HANNA, New York           ALBIO SIRES, New Jersey
DANIEL WEBSTER, Florida              DONNA F. EDWARDS, Maryland
JEFF DENHAM, California              JOHN GARAMENDI, California
REID J. RIBBLE, Wisconsin            ANDRE CARSON, Indiana
THOMAS MASSIE, Kentucky              JANICE HAHN, California
MARK MEADOWS, North Carolina         RICHARD M. NOLAN, Minnesota
SCOTT PERRY, Pennsylvania            ANN KIRKPATRICK, Arizona
RODNEY DAVIS, Illinois               DINA TITUS, Nevada
MARK SANFORD, South Carolina         SEAN PATRICK MALONEY, New York
ROB WOODALL, Georgia                 ELIZABETH H. ESTY, Connecticut
TODD ROKITA, Indiana                 LOIS FRANKEL, Florida
JOHN KATKO, New York                 CHERI BUSTOS, Illinois
BRIAN BABIN, Texas                   JARED HUFFMAN, California
CRESENT HARDY, Nevada                JULIA BROWNLEY, California
RYAN A. COSTELLO, Pennsylvania
GARRET GRAVES, Louisiana
MIMI WALTERS, California
BARBARA COMSTOCK, Virginia
CARLOS CURBELO, Florida
DAVID ROUZER, North Carolina
LEE M. ZELDIN, New York
VACANCY
                                ------                                

        Subcommittee on Coast Guard and Maritime Transportation

                  DUNCAN HUNTER, California, Chairman
DON YOUNG, Alaska                    JOHN GARAMENDI, California
FRANK A. LoBIONDO, New Jersey        ELIJAH E. CUMMINGS, Maryland
BOB GIBBS, Ohio                      CORRINE BROWN, Florida
MARK SANFORD, South Carolina         JANICE HAHN, California
GARRET GRAVES, Louisiana             LOIS FRANKEL, Florida
CARLOS CURBELO, Florida              JULIA BROWNLEY, California
DAVID ROUZER, North Carolina         PETER A. DeFAZIO, Oregon (Ex 
LEE M. ZELDIN, New York                  Officio)
BILL SHUSTER, Pennsylvania (Ex 
    Officio)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    iv

                               TESTIMONY

Rear Admiral Joseph M. Vojvodich, Assistant Commandant for 
  Acquisition and Chief Acquisition Officer, U.S. Coast Guard....     3
Michele Mackin, Director, Acquisition and Sourcing Management, 
  U.S. Government Accountability Office..........................     3
Ronald O'Rourke, Specialist in Naval Affairs, Congressional 
  Research Service...............................................     3

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Hon. John Garamendi of California................................    33

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Rear Admiral Joseph M. Vojvodich.................................    36
Michele Mackin...................................................    43
Ronald O'Rourke..................................................    65

                       SUBMISSIONS FOR THE RECORD

Rear Admiral Joseph M. Vojvodich, Assistant Commandant for 
  Acquisition and Chief Acquisition Officer, U.S. Coast Guard, 
  post-hearing responses to requests for information from the 
  following Representatives:

    Hon. Bob Gibbs of Ohio referenced instances of cracked diesel 
      engine cylinder heads among National Security Cutters and 
      asked if the repairs were covered under contract or 
      warranty, or paid by the U.S. Coast Guard or other entity..    12
    Hon. Garret Graves of Louisiana requested an explanation of 
      efforts by the U.S. Coast Guard to work with the Maritime 
      Administration to maintain a list of vessels for disposal..    18
    Hon. Duncan Hunter of California asked why it wasn't until 
      the testing of National Security Cutter No. 3 that 
      operational capability issues were identified yet were not 
      identified in Nos. 1 and 2.................................    24
    Hon. Duncan Hunter of California requested the U.S. Coast 
      Guard's perspective on using multiyear procurement 
      contracting and block buy contracting......................    30
    Hon. Jim Bridenstine of Oklahoma submitted written questions 
      for the record.............................................    40
      
      

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         THE STATUS OF COAST GUARD CUTTER ACQUISITION PROGRAMS

                              ----------                              

                      WEDNESDAY, FEBRUARY 3, 2016

                  House of Representatives,
          Subcommittee on Coast Guard and Maritime 
                                    Transportation,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2167, Rayburn House Office Building, Hon. Duncan Hunter 
(Chairman of the subcommittee) presiding.
    Mr. Hunter. Good morning. The subcommittee will come to 
order.
    The subcommittee is meeting today to discuss the status of 
Coast Guard cutter acquisition programs.
    The Government Accountability Office issued a report on 
January 12th entitled ``National Security Cutter: Enhanced 
Oversight Needed to Ensure Problems Discovered During Testing 
and Operations Are Addressed.'' It raises concerns with the 
timing of testing during production, the guidance available to 
guide production, testing and oversight of corrected actions, 
and the additional costs to address the deficiencies and 
operational issues.
    An important discussion I would like to have today is how 
we ensure the end assets operate as intended and are what the 
taxpayers paid for. What lessons have we learned during the 
National Security Cutter and Fast Response Cutter acquisition 
programs that can be applied to the OPC [Offshore Patrol 
Cutter] program to minimize, if not eliminate, the same issues.
    As I have said before, the Coast Guard is operating tens, 
and in some cases, hundreds of hours short of its operational 
targets, which puts our Nation at risk. Assets are not 
available for the Service to secure our ports, protect our 
environment, and ensure the safety of our waterways.
    We heard in 2014 the lack of available assets resulted in 
historic lows in drug interdiction rates. The lack of assets 
must have affected other mission areas as well. The fact that 
the new assets may not be performing as intended is a problem 
that could continue to impact mission capabilities.
    We have also previously discussed issues with the 
President's annual budget requests and the Capital Investment 
Plans, both of which have not supported the infrastructure 
needs of the Coast Guard. According to the Coast Guard's fiscal 
year 2016-2020 CIP, annual funding for acquisitions will be 
roughly $1 billion less than the GAO [Government Accountability 
Office] and Coast Guard officials have testified is needed on 
an annual basis to keep the current acquisition program on 
schedule and on budget.
    The Capital Investment Plan is nothing more than a roadmap 
to additional acquisition delays, increased costs for 
taxpayers, and ongoing mission performance failures.
    The President's budget requests have followed the poorly 
designed roadmap provided in the Capital Investment Plan. The 
fiscal year 2016 request cut funding needed to acquire 
critically needed replacement assets by 17 percent.
    The budget request also failed to guarantee the funding 
needed to begin detailed design for the OPC, and failure to 
move into detailed design on the OPC by the end of fiscal year 
2016 could result in significantly higher costs and substantial 
acquisition delays.
    Moving this, and other, acquisitions further to the right 
will only further degrade Coast Guard mission performance.
    As we move into reviewing the fiscal year 2017 budget, it 
would be a welcome change to see the President's budget support 
funding for the Coast Guard's acquisition programs.
    Another component of the recapitalization is the Coast 
Guard's mission need statement. It is used to inform us and 
everybody the evolution of the Coast Guard's Capital Investment 
Plan. Up until last month, the Coast Guard was working on a 
mission need statement from 2004. So it only took them about 11 
years to update it.
    On January 8th the Coast Guard released a new mission need 
statement, as required by this committee, the Appropriations 
Committee, and our Senate counterparts.
    The Howard Coble Coast Guard and Maritime Transportation 
Act of 2014 required an updated mission need statement to 
include information on current and projected gaps in Coast 
Guard mission capabilities and how major acquisition programs 
would address those gaps.
    However, that is what it was supposed to do. What the Coast 
Guard released on January 8th actually states this: ``This 
document does not seek to identify a material solution to meet 
future mission needs, but rather to identify the enduring, 
high-level capabilities required for the Coast Guard to execute 
its broad statutory authorities effectively and efficiently.''
    So it took the Coast Guard 11 years to do an updated 
mission need statement, and in that mission need statement, 
they said they are not going to do a future mission need 
statement.
    While having an updated mission need statement is better 
than working off one developed over a decade ago, if it does 
not provide information on what assets are needed to perform 
certain missions, does it properly inform the evolution of the 
Capital Investment Plan and subsequently the President's budget 
request for Coast Guard assets?
    Those are questions we have today. I look forward to 
discussing all of the issues before us today, including any 
lessons learned from the NSC [National Security Cutter] and the 
Fast Response Cutter acquisition programs so they could be 
applied to the Offshore Patrol Cutter acquisition program.
    In the end, the American public deserves assets that 
perform as intended and expected. We do not need missions to be 
continually compromised due to the limitations of old vessels 
and flaws in new ones.
    With that I yield to Ranking Member Garamendi.
    Mr. Garamendi. Thank you, Mr. Chairman.
    I am listening carefully to your opening statement, and I 
am thinking, ``What could I add?'' Maybe welcome and good 
morning. I look forward to your testimony.
    This chairman has laid out a series of issues. My opening 
statement repeats much of what he has already covered, and 
actually covered much more than my opening statement.
    So I am just going to submit my statement for the record, 
and we will just get into it and go from there.
    One thing that the chairman did not cover was our favorite 
subject, icebreakers. Maybe you did. Did you discuss that?
    Mr. Hunter. No, I did not.
    Mr. Garamendi. Come on.
    Mr. Hunter. This one day, you got me.
    Mr. Garamendi. So we want to talk about icebreakers a 
little bit to see where we are with that, but everything else 
that is in my opening statement he has already talked about. I 
could repeat it, but welcome, and I will submit it for the 
record.
    Mr. Hunter. One reason this is important this morning is 
because your National Security Cutters are almost done. You 
only have a block of what, 40 or 50 ships, FRCs [Fast Response 
Cutters] and OPCs, coming up, and then you are not going to 
have any acquisition for quite a while. This is it.
    So we kind of get one shot at this to do it right and to do 
it as efficiently and as effectively as possible. So hopefully 
we hear this morning on how we are going to do that.
    And with that, on the first panel for today's hearing we 
will start with Rear Admiral Joseph Vojvodich, boom, right 
there, the Coast Guard's Assistant Commandant for Acquisition 
and Chief Acquisition Officer.
    Rear Admiral, you are recognized to make your statement.

   TESTIMONY OF REAR ADMIRAL JOSEPH M. VOJVODICH, ASSISTANT 
COMMANDANT FOR ACQUISITION AND CHIEF ACQUISITION OFFICER, U.S. 
COAST GUARD; MICHELE MACKIN, DIRECTOR, ACQUISITION AND SOURCING 
 MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND RONALD 
 O'ROURKE, SPECIALIST IN NAVAL AFFAIRS, CONGRESSIONAL RESEARCH 
                            SERVICE

    Admiral Vojvodich. Chairman Hunter, Ranking Member 
Garamendi, members of the subcommittee, good morning.
    Thank you for the opportunity to speak about the Coast 
Guard's ongoing activities to recapitalize the surface fleet. 
On behalf of the Commandant and the men and the women of the 
United States Coast Guard, I want to express my appreciation 
for your oversight and continued support of our Service.
    I also want to note the Service's thanks for including 
several Coast Guard priorities in the recently passed 
authorization bill. These new authorities will allow the 
Service to improve command structure and overall performance.
    Our internal efforts to achieve continuous improvement are 
complemented by the valuable oversight performed by this 
subcommittee and the organizations represented by my 
distinguished fellow panel members today.
    We continue to have a very effective working relationship 
with the Government Accountability Office, Ms. Mackin, and her 
team. This was evident during GAO's recent review of the 
National Security Cutter operational test and evaluation 
activities, which concluded with recommendations that are 
consistent with our plans to achieve OT&E.
    We likewise benefit from the research and knowledge of Mr. 
O'Rourke and the Congressional Research Service. I am honored 
to have the opportunity to jointly testify with these committed 
professionals.
    As the chief acquisition officer, I have the distinct 
pleasure to lead a talented team in delivering assets and 
capabilities needed to accomplish the Service's many missions. 
The importance of this work is reflected by the efforts put 
forward by this subcommittee and your colleagues to fully 
support the Coast Guard acquisition priorities in fiscal year 
2016. We are fully prepared to execute these funds in an 
effective and efficient manner.
    I can say this because we have made investment to mature 
our acquisition enterprise. We continue to grow a deep and 
talented acquisition workforce capable of performing critical 
program management, contract and support functions. We are 
actively applying lessons learned from each program to improve 
decisionmaking across the portfolio.
    From cutter to cutter, program to program, we are approving 
our processes in a quality of delivered assets. In the end we 
are providing more capable products to our end users: the men 
and women in the field who are responsible for executing the 
missions.
    We continue full rate production of the National Security 
Cutter and the Fast Response Cutter, and we are working hard on 
designing and delivering an affordable and capable Offshore 
Patrol Cutter. We recently completed preliminary and contract 
design phase of the OPC, and we are on schedule to award a 
follow-on contract for detail design before the end of this 
fiscal year.
    At the same time, we are acting on the President's 
direction to accelerate the acquisition of a heavy icebreaker 
and begin planning construction of additional icebreakers. We 
recently completed the operational requirements document and 
released a draft technical package late last month, which 
outlines key requirements for a heavy icebreaker to advance our 
industry outreach strategy.
    Additionally, we started a preservation and material 
condition assessment of Polar Star, and we anticipate having 
results later this summer.
    The Commandant continues to make fleet recapitalization one 
of the Service's highest priorities, and we recognize the need 
to achieve affordability in everything that we do.
    Thank you for your support of the Coast Guard's effort to 
provide our men and women in uniform with the mission 
capability they need in the 21st century.
    I appreciate the opportunity to testify, and I look forward 
to the questions that you may have.
    Mr. Hunter. Thanks, Admiral.
    Our next witness is Ms. Michele Mackin, Director of 
Acquisition and Sourcing Management for the U.S. Government 
Accountability Office.
    Ms. Mackin, you are recognized.
    Ms. Mackin. Thank you, Mr. Chairman.
    Good morning, Ranking Member Garamendi, members of the 
subcommittee. Thank you for having me here this morning to 
discuss the Coast Guard's cutter acquisitions, in particular, 
issues identified in the National Security Cutter's testing and 
in ongoing operations.
    As was noted, we reported on these issues last month at the 
request of the subcommittee.
    I will also share some observations on lessons learned from 
the NSC and from our work on commercial best practices as the 
Coast Guard moves forward with the Offshore Patrol Cutter.
    By all accounts, the NSC is a more capable vessel than the 
High Endurance Cutters it is replacing. For example, it has 
increased range and a larger flight deck.
    The NSC had an important event in the spring of 2014, its 
initial operational test and evaluation conducted by the Navy's 
test agent. This kind of operational testing is the only way to 
ensure that an asset is ready to meet its missions.
    At the time of the testing, seven of eight NSCs were either 
delivered or under contract, and three were operational. The 
test was done on the third NSC, the Stratton.
    The Navy determined that the NSC is operationally 
effective, meaning capable of performing its missions, and 
operationally suitable, meaning it can sustain operations in 
terms of availability and reliability.
    At the same time, however, the Navy identified 10 major 
deficiencies that could affect the ship's operations. In 
addition, 7 of the 19 key performance parameters were not fully 
met. Some areas of concern pertain to the combat systems suite. 
Others pertain to the sea state requirements for the cutter 
boats that launch from the NSC.
    Of note, the unmanned aerial system, key to the NSC's 
planned capabilities, could not be tested because the Coast 
Guard has not yet acquired a UAS [unmanned aircraft system].
    The Coast Guard has plans to address most of the identified 
issues, and the items will be assessed again during follow-on 
operational testing, which is expected to start later this year 
and continue into 2017 or longer, at which point at least six 
NSCs will have been delivered.
    In addition to the testing issues, the Coast Guard will 
need to replace certain equipment after all NSCs have been 
built. Examples include the gantry crane, which was not 
designed for a maritime environment and is experiencing 
significant corrosion, and the single point davit which cannot 
be operated in high seas as intended. These and other retrofits 
will cost over $200 million.
    Further, we identified problems that have arisen during the 
5 years the NSCs have been operational. Some of the problems 
are proving difficult to fix. Key areas of concern are high 
engine temperatures, which limit the speed of the NSC in 
certain conditions; cracked cylinder heads, which are occurring 
at a rate higher than expected; and overheating generator 
bearings, which have caused at least one patrol to be cut 
short.
    Until corrective actions are identified and implemented, 
the Coast Guard faces increased costs and the potential for NSC 
missions to be limited.
    Finally, regarding lessons learned from the NSC, one 
element is competition. Our work on commercial shipbuilding 
best practices has found that competition can save money. The 
NSC procurement was sole-sourced under the Deepwater program, 
and the Coast Guard is taking steps to inject competition into 
the OPC acquisition.
    Another observation is that the Coast Guard plans to 
conduct initial operational test and evaluation when one of the 
25 OPCs is operational as compared to 3 of the 8 NSCs.
    A third area is warranty provisions. Who pays for the 
defects and retrofits? In the case of the NSC, the Coast Guard 
generally will pay. The planned OPC warranty, which according 
to the Coast Guard will be similar to that of the Fast Response 
Cutter, would have stronger provisions that should be more 
effective in protecting taxpayer dollars.
    And finally, the Coast Guard has opportunities to 
incorporate best practices in terms of ensuring that the OPC 
design is solidified and stable before construction begins, and 
that quality assurance at the shipyard is robust.
    Mr. Chairman, Ranking Member Garamendi, members of the 
subcommittee, this concludes my prepared remarks.
    Thank you.
    Mr. Hunter. Thank you, Ms. Mackin.
    Our last witness is Mr. Ronald O'Rourke, a specialist in 
naval affairs for the CRS [Congressional Research Service].
    Mr. O'Rourke, you are recognized.
    Mr. O'Rourke. Chairman Hunter, Ranking Member Garamendi, 
distinguished members of the subcommittee, thank you for the 
opportunity to appear before you today to discuss Coast Guard 
cutter acquisition programs.
    Mr. Chairman, with your permission I would like to submit 
my written statement for the record and summarize it here 
briefly.
    As requested, my testimony focuses on how multiyear 
procurement and block buy contracting could reduce acquisition 
costs for new Coast Guard cutters. I have seven points I would 
like to make.
    The first is that multiyear procurement can reduce 
acquisition costs by roughly 10 percent compared to costs under 
annual contracting, and that block buy contracting can reduce 
acquisition costs by comparable amounts if the authority 
granted for using block buy contracting includes authority for 
making economic order quantity purchases of components.
    The second point is that the Navy has used multiyear 
procurement and block buy contracting extensively in recent 
years in its shipbuilding and aircraft acquisition programs, 
and as a result estimates that it has saved billions of dollars 
in acquisition costs. That is billions with a ``B.''
    Among other things, using multiyear procurement helped the 
Navy and Congress to convert a 9-ship buy of DDG-51 destroyers 
into a 10-ship buy and to convert a 9-ship buy of Virginia-
class attack submarines into a 10-ship buy.
    The third point is that although the Navy in recent years 
has made extensive use of multiyear procurement and block buy 
contracting to reduce acquisition costs, the Coast Guard to 
date has not used multiyear procurement or block buy 
contracting in its cutter acquisition programs. The Coast Guard 
has used contracts with options in cutter acquisition programs. 
A contract with options may look like a form of multiyear 
contracting, but operates more like a series of annual 
contracts.
    Contracts with options do not achieve the reductions in 
acquisition costs that are possible with multiyear procurement 
and block buy contracting.
    The fourth point is that the Offshore Patrol Cutter program 
and the polar icebreaker program can be viewed as candidates 
for using block buy contracting, and the Fast Response Cutter 
program can be viewed as a candidate for using either multiyear 
procurement or block buy contracting.
    The fifth point is that from a congressional perspective 
tradeoffs in making use of multiyear procurement and block buy 
contracting include reduced congressional control over year-to-
year spending and tying the hands of future Congresses; reduced 
flexibility for making changes in Coast Guard acquisition 
programs in response to unforeseen changes in strategic and 
budgetary circumstances; a potential need to shift funding from 
later years to earlier years to fund economic order quantity 
purchases of components; the risk of having to make penalty 
payments to shipbuilders if multiyear contracts need to be 
terminated due to unavailability of funds; and the risk that 
materials and components purchased for ships to be procured in 
future years might go to waste if those ships are not 
eventually procured.
    The sixth point is that using block buy contracting might 
save about $1 billion in the Offshore Control Cutter program; 
that using multiyear procurement or block buy contracting might 
save more than $100 million in the Fast Response Cutter 
program; and that using block buy contracting might save 
upwards of $100 million in a two-ship polar icebreaker program.
    The $1 billion in potential savings in the OPC program 
would be about enough to pay for a polar icebreaker, and the 
combined potential savings across all three programs of about 
$1.2 billion is about equal to the average annual funding level 
in the Coast Guard's acquisition, construction and improvements 
account.
    My seventh and final point is that in considering whether 
to grant authority for using multiyear procurement or block buy 
contracting, Congress may weigh the potential savings of these 
contracting mechanisms against the tradeoffs I just listed.
    Mr. Chairman, this concludes my remarks. Thank you again 
for the opportunity to testify, and I look forward to the 
subcommittee's questions.
    Mr. Hunter. Thanks, Mr. O'Rourke.
    I am not going to ask questions right now, but I would like 
you to explain just one thing really quickly and then we will 
start asking questions.
    Can you just explain in layman's terms what a block buy 
does and tie it into appropriations and authorizations here in 
Congress and how the money is appropriated if you do a block 
buy and you give money for lead materials through the 
appropriations process here? How does it actually work?
    Mr. O'Rourke. A block buy contract is similar to a 
multiyear procurement contract. You can consider it to be the 
less formal stepchild or step-sibling of a multiyear 
procurement contract. Like a multiyear procurement contract, it 
is one contract. It covers several years' worth of procurement, 
and it gives the manufacturer, in this case the shipbuilder, 
the assurance that that firm needs to make investments in its 
capital plant and in its workforce to optimize the situation 
for the production of the units covered under the period of the 
contract. That saves money at the shipyard.
    A block buy contract, if it also has written into it 
authority for making economic order quantity purchases of 
components, that is, batch purchases of components upfront, can 
save money at the component manufacturers.
    And when you add those savings together, the savings under 
a block buy contract can be comparable to those of a multiyear 
procurement contract, on the order of roughly 10 percent, and 
this has occurred in a number of shipbuilding and aircraft 
acquisition programs that the Navy and the other DOD services 
have pursued in recent years.
    Mr. Hunter. How was the money appropriated? So if you do a 
multiyear, so say you are buying ships over 3 years, for 
example. How does the appropriations process work here in the 
House?
    Mr. O'Rourke. The appropriations are generally the same. 
You are doing annual appropriations. There is no need to fund 
the entire thing upfront. So you are funding the ships in this 
case one at a time.
    The one change from annual contracting is that if you are 
doing economic order quantity, or EOQ, purchases of 
components----
    Mr. Hunter. Say that again.
    Mr. O'Rourke. If you are doing economic order quantity, or 
EOQ, purchases of components and you are ordering those 
components upfront that would be installed across all the ships 
in the group, then you do bring some money from later years 
into earlier years to pay for that.
    Mr. Hunter. Do you mind pulling that closer to you? I have 
artillery ears, and the rest of these guys are just old.
    Mr. O'Rourke. The one difference is that if you are making 
EOQ purchases of components, batch purchases of components, 
upfront as part of your strategy for achieving savings, then 
the money to pay for that is moved from later years into 
earlier years.
    So in the first year of block buy contract for a group of 
cutters, you would pay for that first cutter in that year, but 
you would also make a payment for some of the components for 
the downstream ships, and that would be in addition.
    So there is a shifting or re-phasing of a little bit of the 
money to the extent that you want to use your authority for 
making economic order quantity purchases--upfront batch 
purchases of components.
    But in general, you are still paying for the ships one at a 
time as you would under annual contracting.
    Mr. Hunter. So could the manufacturer buy all the steel 
they want to as the steel market goes up and down? They can 
wait and time their buys or no?
    Mr. O'Rourke. It is usually discussed in terms of 
components, but the authority may extend I believe to materials 
as well. You can think about pumps and valves, for example, 
being the kind of thing that the shipbuilder would then order 
in batch fashion from the component manufacturer so that they 
can make them in an economically efficient manner, and then 
they would be ready for installation on each of the ships as 
those ships are then funded and produced through the life of 
the contract.
    Mr. Hunter. What is the difference between lead time 
materials and having the money appropriated upfront to buy lead 
materials, and what you are talking about, or is there a 
difference?
    Mr. O'Rourke. Somewhat similar. Long lead time materials 
are ordered ahead of the ship that it is going on so that they 
will be ready in time for installation on that one ship.
    In this case if you are doing 25 OPCs or as many as 26 Fast 
Response Cutters, you are getting as many as 25 things or maybe 
11 things for the OPC program, 11 sets of pumps and valves, all 
upfront, and they would sit there and wait then to be installed 
on each of the first 11 OPCs or the 26 Fast Response Cutters.
    Mr. Hunter. OK. And thanks.
    We are going to jump right back into this, but I would just 
like to recognize Mr. Garamendi.
    Mr. Garamendi. Well, let us not jump out of this for a few 
moments.
    So the experience of the National Security Cutter and the 
Offshore Patrol Cutter would indicate that we may be better off 
looking at a block buy or a multiyear procurement contract for 
the OPCs; is that correct, Mr. O'Rourke?
    Mr. O'Rourke. What I would say is that the Navy's 
experience in reducing shipbuilding and aircraft acquisition 
costs through the use of both multiyear procurement contracts 
and block buy contracting offers an example that can be 
considered by this committee and the Congress for application 
in Coast Guard cutter acquisition. In weighing whether to do 
this or not, you would balance the potential savings of these 
contracting mechanisms against the tradeoffs that I listed 
earlier in my opening statement.
    Mr. Garamendi. Ms. Mackin, do you tend to agree with the 
theory that Mr. O'Rourke is putting forward?
    Ms. Mackin. I think block buy multiyear can result in 
savings, but I will just mention Littoral Combat Ship. That was 
a block buy contract. It has not gone well in large part 
because the requirements were not firm, and now the Navy, you 
know, had 10 ships for each shipyard in these block buy 
contracts, and that was their strategy.
    So I think it can result in savings, but the key really is 
to have the requirements nailed down and firm before 
construction. You may build a few ships and then move into a 
block buy situation afterwards, for example.
    So that would be my only caveat there.
    Mr. O'Rourke. If I could just add very quickly, the 
Littoral Combat Ship program has had issues and controversy and 
difficulties, but I view those as being independent of the 
Navy's use of block buy contracting in that program, and the 
actual construction of the ships that are under the block buy 
contract under the LCS program has gone a lot more smoothly 
than the construction of the earlier ships that were done under 
annual contracting.
    Mr. Garamendi. Why was that?
    Mr. O'Rourke. In part because the stability provided by 
working out the problems with the initial designs fed into the 
block buy contracts, and the shipbuilders were in a position 
where they could then produce them on a recurring, regular 
basis.
    Mr. Garamendi. The first ships in any of these three and I 
suppose the Littoral Combat Ship also, the first ones are kind 
of like we are going to discover all of the errors and mistakes 
and problems and hopefully know what they are and get them out 
of the way, and then move into a more production type 
procedure.
    Is that basically what happens all the time?
    Mr. O'Rourke. I think as a general matter the Navy 
discovers design issues and experiences cost growth on lead 
ships that is then, yes, fed into its understanding of the 
remainder of----
    Mr. Garamendi. These three programs are all new ships. 
Excuse me. Each program is a new program. It is a new ship that 
had not previously been in the fleet; is that correct? I think 
so. I am wrong?
    Mr. O'Rourke. No, the Fast Response Cutter program is well 
underway, and so if you were to do a contract for that program, 
you are in the middle of it already.
    Mr. Garamendi. I did not communicate well. My apologies. 
What I am saying is that all three of these ships, each one is 
a new ship at its outset. When the contract was let, it was a 
new ship. National Security Cutter had never been built before.
    There are going to be problems. You are going to find out 
that this did not fit. You really did not want it done that 
way. What you really needed was something different. That is 
kind of like the way it is, is it not?
    I guess the point to us is we should expect that to happen 
with the first one off the line. It gets into the water; 
hopefully it floats, and you go from there. Is that more or 
less correct, Admiral?
    And then you find the problems. You solve it. You figure 
out the solutions to the problems, and then hopefully the next 
ships coming off the line do not have the same problem, 
correct?
    Admiral Vojvodich. Yes, sir, there is a great deal of 
learning that goes on in the shipyard.
    Mr. Garamendi. In that process. So we might expect for the 
first cutter coming off in any of these three, first ships 
coming off in any of these three different types of ships to 
have problems, right? Wrong? It is going to be perfect?
    Ms. Mackin. I doubt it will be perfect, but I think this is 
where the commercial shipbuilding best practices could help 
inform the OPC acquisition. They are not the same kind of 
ships, but the principle of building them, the whole 
mechanical, electrical, the basic construction of the ships, 
there are definitely lessons to be learned there.
    In the commercial world, they deliver a ship that works 
right off the bat, and largely because they make sure that the 
design is stable before they begin construction.
    The Navy typically does not do that, and so I think here is 
an opportunity for the Coast Guard to try to get that part 
right on the OPC.
    Mr. Garamendi. Very interesting. So you want to know before 
you begin to lay the keel what it is you want it to look like 
when it is completed. Is that what I heard you say?
    Ms. Mackin. Yes, sir.
    Mr. Garamendi. And all of the little elements, including 
the unmanned aerial vehicle?
    Ms. Mackin. Those are additional capabilities. You know, I 
think here we are kind of dealing with a legacy Deepwater issue 
when you talk about the UAS, the cutter boats. The stern doors 
have problems. A lot of this is the way that procurement went. 
It was in a sole source environment. The Government had very 
little control over the requirements in those days.
    The Coast Guard obviously has come a long way since then.
    Mr. Garamendi. So I think what I am trying to get is a good 
sense of lessons learned, which I think is what we are here for 
today, and the application of those lessons learned to this 
next class of ships.
    Mr. O'Rourke. One of the oldest lessons in shipbuilding 
that has been learned many times over is to avoid design 
construction concurrency, and the Navy has moved in recent 
years to get away from that and to take its designs to a high 
stage of completion prior to starting the construction of the 
ships, and the degree of completion of design has been moving 
upward over time.
    But, yes, that is one of the oldest and most----
    Mr. Garamendi. Now, with that foundation in place I am out 
of time, well out of time, and so I am going to yield back, but 
I want to come back and circle back around as to whether those 
lessons are being applied by the Coast Guard.
    Thank you, Mr. Chairman.
    Mr. Hunter. Mr. Gibbs from Ohio is recognized.
    Mr. Gibbs. Thank you, Mr. Chairman.
    Admiral, you know, I listened to the testimony from Ms. 
Mackin and Mr. O'Rourke, and I hear a common theme about the 
purchasing problems. We could save $1 billion if they do 
purchasing differently. That would pay for an icebreaker. I 
hear about the warranty. I have got a paper in front of me that 
talks about some of the challenges the Coast Guard has had, 
averages four cracked cylinder heads a year. Then the Coast 
Guard paid for it. Warranty did not pay for it or the 
manufacturer. Generator bearings, propulsion systems, stern 
doors maybe leak, may cause the boat to capsize.
    I am trying to understand these issues. Why are taxpayers 
paying for these fixes? I mean, how do you guys negotiate 
contracts here? I mean, how does this work?
    I think the other two witnesses, the Government 
Accountability Office and the Congressional Research Service 
are pretty critical about the procurement and what is 
happening. So can you expound or enlighten me why this is 
happening?
    Admiral Vojvodich. Yes, sir. Thank you for the opportunity 
to address that.
    The National Security Cutter is obviously a very complex 
cutter derived with many complex systems, and so over time as 
we learn to operate them in the operational environment, we are 
going to encounter issues out there. And so, you know, when 
those issues come up, we engage our technical authority to make 
sure we understand the engineering aspect of it.
    We engage the shipbuilder as well as the originating 
equipment manufacturers to understand the solutions. We put 
plans in place whether it is in design or prototypes or 
optimization studies, and we look at mission impact.
    What we have observed with the National Security Cutter, we 
are able to meet mission. We are encountering issues along the 
way, and again, through this whole process of technical 
authority and the shipbuilder, we are addressing those 
efficiently to make sure that we have the best capability that 
we can provide to our operators.
    Mr. Gibbs. So I guess what you are saying is some of this 
technology, you are developing it as you are building the ship, 
and so it is not as clear-cut.
    I mean, we are talking about cracked cylinder heads on a 
diesel engine. I mean, I would think I missed something here.
    Admiral Vojvodich. The application of these technologies in 
a maritime environment in these complex, harsh environments, 
and again, when we looked at the initial design, a crane, a 
boat launch, a certain type of engine that has been used, and 
then we put it in the operator's hands in terms of how we 
actually apply and use it from a----
    Mr. Gibbs. Well, let me ask you. OK. So you have a problem. 
So it is the cylinder heads, and you go back to the 
manufacturer. I mean, what kind of discussion do you have about 
who is responsible?
    Why does it fall on the taxpayers? Do they assume some 
responsibility for the defect, or do you think it is all 
because of the stress and the pressures that the Coast Guard is 
putting on these ships? It is above the norm?
    Admiral Vojvodich. In terms of addressing who pays for it 
depends on the construct of the contract, whether it is in a 
warranty or it is missing a capability that we put on contract. 
In these particularities, it depends, sir, and in the case of 
the engine and the cracked cylinder head, I would like to get 
back to you and provide you the accurate detail for that 
particular case.
    [The information follows:]

        The Coast Guard has been responsible for paying for replacement 
        cylinder heads on the propulsion diesel engines. The Coast 
        Guard continues to work with the engine manufacturer to study 
        the root cause of these issues and is committed to developing 
        an engineering solution to reduce the frequency of this repair.

        There have been other component repairs on the propulsion 
        diesel engines, separate from the cylinder heads, where the 
        Coast Guard and manufacturer have shared costs of failure 
        analyses and repairs, and also situations where the 
        manufacturer assumed all costs. In each instance, 
        responsibility for the repairs was determined based on the 
        specifics of that situation.

    Mr. Gibbs. Ms. Mackin, do you want to respond since you 
talked about that this morning?
    Ms. Mackin. I think generally this is one of the lessons 
learned that we would point to for the OPC. The NSC, the way 
that procurement was under, you know, the former Deepwater 
program, it did not have a strong warranty provision. It just 
did not.
    The Fast Response Cutter's warranty is much stronger, more 
what we would think of as a typical warranty, and as I 
mentioned, that is the same kind of warranty that is planned 
for the OPC. So if that plays out as planned, it should be 
better at protecting the taxpayer investment.
    Mr. O'Rourke. Could I just add one comment though?
    Mr. Gibbs. Yes, go ahead.
    Mr. O'Rourke. Warranties are not free. If you tell the 
contractor that he is going to operate with a contract under 
warranty, he is going to price that into the contract. So the 
idea that you can get warranty protection and not have to pay 
for it, you know, you could be deluding yourselves on that.
    It is not a question of avoiding a cost to the taxpayer. It 
is of balancing risk and when the taxpayer might pay for it. If 
you do not have a warranty provision, the Government might have 
a bad surprise down the road and the taxpayer would have to pay 
for it at that point, but if you put the warranty into the 
contract, the contractor will price that in, and the taxpayer 
is paying for it along the way. There is no bad surprise.
    Mr. Gibbs. No, I would agree with that, but I just want to 
make sure that the Coast Guard is doing their due diligence 
here to make sure that they are not getting taken for a ride.
    Mr. O'Rourke. But when you weigh the cost of that warranty 
against the risks, it may or may not make sense to have that 
warranty.
    When you go to a store and you buy some new piece of 
electronics equipment, the salesperson says, ``Well, do you 
want to get a warranty on that?''
    Now, how many of you have bought that warranty? Probably 
not many because it is priced in a way that it is not actually 
a good deal. So from the Coast Guard's standpoint, it is a 
matter of weighing what the extra cost of that warranty is 
against the risks and the exposure that it has.
    That is not an easy task to do because there is some 
uncertainty involved, but I wanted to make that point because 
warranties may or may not make sense based on how they are 
priced into the contract.
    Mr. Gibbs. I think that is an excellent point, and I 
appreciate and would agree with that. But I wanted to make sure 
that there should be some responsibility in some instances back 
on the manufacturer when trying to do our due diligence.
    Mr. O'Rourke. And the Coast Guard needs to address that 
issue with eyes open and take a careful look at it. That is 
what really needs to happen, and then make as informed a 
decision as you can on it.
    Mr. Gibbs. Thank you, Mr. Chairman.
    Mr. Hunter. I thank the gentleman.
    I would say, too, just looking at the NSC equipment 
problems that Mr. Gibbs was just nailing off, it looks like 
three or four of those are Coast Guard things, and the rest, 
the cylinder heads, the generator bearings, the propulsion 
systems, those are not Coast Guard-centric, right? I mean, 
those are just boat things. Those have nothing to do with 
weaponization or launching a UAS or launching a small boat off 
the back. It is not the gantry crane. That is none of those 
things. It is the engines, right?
    Admiral Vojvodich. Yes, sir.
    Mr. Hunter. And I would separate. I mean, you can expect to 
have issues with new things like the single point launching for 
the small boats and the crane and the UAS stop and maybe the 
modules for weapons, but not the engines. I think that is what 
is kind of surprising to me at least.
    The gentlelady from California is recognized.
    Ms. Brownley. Thank you, Mr. Chairman.
    And I apologize for being late. I was attending another 
meeting, but I am glad to be here as of now. So if my questions 
are repetitive, I apologize.
    But the first question I had had to do with NSC retrofits, 
and I believe, Ms. Mackin, in your testimony you noted that the 
GAO review identified several issues that will require 
retrofits.
    The Coast Guard plans to maintain the original equipment 
for the production of the remaining NSCs and conduct retrofits 
after accepting delivery. So my question is: does the GAO 
believe that this decision will result in a cost savings for 
the Coast Guard?
    And how long would the new NSCs be out of service while 
these retrofits are being made?
    Ms. Mackin. Some of the retrofits have been known for many 
years, for example, the structural enhancements on the first 
two NSCs. I am not sure exactly what the timeframe will be, but 
I would expect many months for those two ships.
    Others like the gantry crane were never intended for a 
maritime environment. So obviously it is experiencing 
corrosion. That will need to be replaced on all the ships, and 
there are prototypes right now, which is one reason they are 
testing the prototype on the third NSC before they go back and 
do the retrofits.
    Maybe the admiral will have a better idea about how long 
the retrofits will take.
    Ms. Brownley. Can you speak to any cost issues relative to 
that? Is it going to cost more? Will there be cost savings?
    Ms. Mackin. The Coast Guard estimates a little over $200 
million for the known retrofits. How that will play out time 
will tell because they have not taken place yet, and some of 
that will depend on how they contract for these and what that 
will look like, and that is not known at this point.
    Ms. Brownley. Thank you.
    Admiral, thank you for your service. If you have any 
comments. No comment?
    I mean, any terms of downtime with the retrofit, will it 
impact the Coast Guard's mission readiness at all?
    Admiral Vojvodich. Ma'am, thank you for the question. When 
we leave the cutter production at the shipyard, we incur costs, 
and sometimes we try to optimize the overall cost in terms of 
delivering a mission complete cutter. Sometimes it is to our 
advantage to be able to get it out of the shipyard and put it 
in the hands of our sailors to operate it, to understand it, 
and then we get to pick the time and choose the time in between 
a deployment or an opportunity to learn more about the cutter 
to put in those retrofits in a place that we could perhaps 
compete and thoroughly understand the design with our technical 
authorities, as well as any of the manufacturers that we are 
involved with.
    Ms. Brownley. Thank you.
    Ms. Mackin, again, in your testimony you noted that several 
weapons systems and the radar were repaired following initial 
operational test and evaluation, but the post-operational 
reports indicated persistent problems with these systems.
    So what types of problems do persist?
    Ms. Mackin. There have been some problems with the combat 
systems suites. The air search radar, for example, has had some 
parts fail, and it is taking some time to get replacement parts 
from overseas. So that is one issue that has been coming up in 
operations.
    In the test event itself, some of the weapons systems did 
not function as intended. As I noted, the Coast Guard has plans 
to fix those problems, and we will see how they do in the 
follow-on testing.
    Ms. Brownley. So would you describe these problems as 
isolated incidences or reoccurring in terms of other cutters 
and issues?
    Ms. Mackin. Frankly, until the follow-on testing is 
complete, which as I mentioned will not be until 2017 or later, 
it is hard to answer that question for sure. The Coast Guard 
will continue, I am sure, during operations to get more 
information, but really that operational testing that is very 
rigorous is the best way to ensure that these are not 
repeatable problems.
    Ms. Brownley. And who are the providers of the parts that 
are late? You said they came from overseas.
    Ms. Mackin. It is a German firm. I do not recall the name 
off the top of my head.
    Ms. Brownley. Thank you.
    I yield back, Mr. Chairman.
    Mr. Hunter. Great question there on the end, too. I did not 
know we were buying German stuff with our taxpayer dollars. 
That is good.
    Mr. Sanford, the gentleman from South Carolina is 
recognized.
    Mr. Sanford. Thank you, Mr. Chairman.
    Two quick questions. One, we had a brief conversation about 
multiyear contracting and block buy contracting, which is 
ultimately I guess all about fleet modernization, and what hit 
me is the real next cusp of fleet modernization is really tied 
to the air. You know, vessels are important in terms of patrol, 
but ultimately if you really want to leverage that capacity in 
terms of intelligence, surveillance, reconnaissance, et cetera, 
you really need to have things attached to you that give you a 
much wider view than a patrol would.
    And yet it seems that the stuff that I have read has 
suggested that we are really behind with Guard unmanned aerial 
systems on the new National Security Cutters. Bring me up to 
speed on that. Why the lag?
    Because it seems to me if you are really going to leverage 
taxpayer dollars, that is a vital way of doing so.
    Admiral Vojvodich. Sir, thanks for that question.
    So the unmanned aerial system requirement exists in the 
National Security Cutter. We have looked at other solutions in 
terms of optimizing from an affordability perspective in 
delivering capability. We are working through a number of 
options, and one of the ones that we want to team up with is 
making sure that we are acquiring mature technologies that 
provide some capability, that some of the risks are wrung out, 
if you will.
    So we partnered up with the Navy who has a small UAS 
program that delivers some capability. Right now we are looking 
at the design aspect, integrating with the National Security 
Cutter, and we anticipate in a year or so to be able to deliver 
some capability on the National Security Cutter here and test 
its capability accordingly.
    Mr. Sanford. Yes, ma'am. You had a thought as well?
    Ms. Mackin. I was just going to note that the UAS 
capability has long been an integral planned part of the NSC's 
capability as you mentioned, and it has been delayed. It was 
supposed to be initially available in 2007.
    It turned out to be way too expensive and some technology 
problems existed there. So the Coast Guard has been studying it 
for many years since then.
    As the admiral noted, it sounds like a small UAS will be 
available to be assessed in the follow-on testing.
    Mr. Sanford. But we still move forward with these vessels, 
but not the part that really leverages the vessels' capacity. 
It just seems to me we have got a little bit of that backward, 
but I will skip to a second question.
    The GAO report suggested, I guess, the Fast Response Cutter 
and the HC-144 Maritime Patrol Aircraft that the initial 
testing basically said it was not fully operational, and this 
really goes back to my colleague's point with regard to things 
going wrong on ships and yet full procurement was approved.
    Why would you go forward with something where in essence 
there are bolts in the system that are not working so well, yet 
you are going to go ahead with full production?
    Help me understand that sequencing.
    Admiral Vojvodich. We follow a very rigorous process to 
understand what we are acquiring, and so we go through this 
initial operating, test and evaluation, and we get in our 
operators' hands. We demonstrate through an independent 
operational test authority, again, that it is operational, it 
is suitable, and effective, and that allows us to move forward 
to do mission. It allows us to get it into the operator's hand 
to be able to do----
    Mr. Sanford. So let me just interrupt then. So what you'd 
say is the GAO was off in their report? Because I mean their 
words were that neither asset met all key, ``key'' in their 
words, key requirements during initial operational testing.
    Admiral Vojvodich. At the high level we are ready to 
operate. There are aspects of the cutter that did not meet some 
of the testing criteria.
    Mr. Sanford. So you disagree with their definition of 
``key.''
    Admiral Vojvodich. Those are our words. Those are key 
elements of the cutter. We have to demonstrate that. We are 
committed to complete the testing in the fall, operating test 
and evaluation.
    Mr. Sanford. I have got 22 seconds. So let me just throw 
one other thought at you and respond as best you can, which is 
the GAO report was also critical with regard to Coast Guard 
notifying Congress of performance breaches. Anything new that 
the committee ought to be aware of on that front?
    Ms. Mackin. We did make a recommendation there largely 
pertaining to the guidance of the Department of Homeland 
Security. It was not really clear. If you did not meet a key 
performance parameter during the testing, does that mean you 
are in breach and should report to Congress?
    DHS has since, based on our recommendation, revised its 
guidance to allow for the follow-on testing to prove that those 
key parameters can be met before a breach is reported.
    Mr. Sanford. Thank you very much for your testimony.
    Thank you, Mr. Chairman.
    Mr. Hunter. I thank the gentleman.
    Mr. Garamendi is recognized.
    [Inaudible.]
    OK. Mr. Graves is recognized.
    Mr. Graves of Louisiana. Thank you, Mr. Chairman.
    The acquisition schedule for NSC, FRC, OPC is concerning 
for a number of reasons when you look at the increased mission 
of the Coast Guard, and I think that has come up in several 
hearings that we have had over the last few years.
    Mr. O'Rourke, one thing that the Navy last year retired the 
USS Simpson, which is the last of the Perry-class frigates; 
those served as a law enforcement platform for Coast Guard law 
enforcement detachments for operations particularly in the 
Caribbean.
    Last year at a hearing Admiral Z noted that he had his 
eyes, I think, on 90 percent of the transit of drugs, but only 
had the capabilities to address 20 percent. What does the loss 
of that Perry-class platform do to the Coast Guard's 
capabilities?
    Mr. O'Rourke. I think the admiral was better prepared than 
I am to speak to that. I have been at hearings where this issue 
was discussed, and, yes, the shortfall in available cutter 
hours down in the southern region has reduced the fraction of 
drug interdiction warnings that the Coast Guard is actually 
prepared to act on, and they have intelligence that they 
sometimes cannot act on due to lack of assets.
    Mr. Graves of Louisiana. Is it safe to say that the 
acquisition schedule for the vessels I mentioned is not meeting 
demand, I guess, for lack of a better term, in regard to the 
Coast Guard's mission?
    Mr. O'Rourke. In a couple of ways. One is that the total 
number of cutters planned under the Coast Guard's program of 
record is well short of the number that the Coast Guard has 
previously calculated would be needed to fully perform all of 
the Coast Guard's projected missions in coming years. In fact, 
the number is about 60 percent.
    So the program of record would get you about 60 percent of 
the cutters that the Coast Guard feels it will need in future 
years under an earlier calculation to do all of its missions.
    Mr. Graves of Louisiana. OK.
    Mr. O'Rourke. A second way that the schedule is problematic 
is that the speed at which you are bringing on those ships is 
late compared to the end-of-service lives of the older assets 
they are replacing.
    Mr. Graves of Louisiana. Sure, sure. OK.
    Mr. O'Rourke. And that is well established as a function of 
the schedule.
    Mr. Graves of Louisiana. Thank you.
    Admiral, switching topics, the inspector general reported 
that the MarAd [Maritime Administration] should maintain an 
inventory of vessels, U.S. vessels that are to be disposed and 
suggested that MarAd work with folks like the Coast Guard to 
maintain that inventory of vessels.
    Are you aware of any efforts by the Coast Guard to work 
with MarAd to maintain a list of vessels to be disposed for 
scrapping purposes?
    Admiral Vojvodich. I am not aware of the specific list that 
you refer to with MarAd. We do work with MarAd, but I am not--I 
do not have any knowledge.
    Mr. Graves of Louisiana. Would you mind submitting on the 
record just an explanation of efforts by the Coast Guard to 
work with MarAd?
    In that same regard, the Coast Guard vessel Storis was 
scrapped by MarAd, and as I recall, that vessel was scrapped in 
Mexico, which I believe was contrary to U.S. law, which 
required that scrapping efforts take place in the United 
States.
    Are you aware of any efforts by the Coast Guard to address 
that inconsistency with MarAd?
    Admiral Vojvodich. I will provide a response for the 
record.
    [The information follows:]

        MarAd is the program manager regarding scrapping of a variety 
        of mothballed ships in the National Defense Reserve Fleet 
        (NDRF). MarAd does not provide a list of NDRF vessels to the 
        U.S. Coast Guard that are pending scrapping. MarAd does post a 
        list of those vessels available for disposal in our open ship 
        disposal solicitation DTMA-91-Q-2013-0014 posted on the Federal 
        Business Opportunity Web site. The Coast Guard has no 
        engagement regarding the selection of ship recycling facilities 
        used by MarAd.

    Mr. Graves of Louisiana. Great. Thank you.
    Mr. O'Rourke, one last question. Certainly you are familiar 
with increased activities in the Arctic, and could you just 
give a quick assessment of U.S. ice breaking capabilities 
compared to some of the other Arctic nations?
    Mr. O'Rourke. Yes. The Coast Guard currently has two 
operational polar icebreakers, one heavy polar icebreaker. That 
is the Polar Star, and one medium polar icebreaker. That is the 
Healy.
    There is one additional heavy polar icebreaker. That is the 
Polar Sea. That ship is nonoperational. So the operational 
fleet can be characterized as one plus one, one heavy, one 
medium, and one additional heavy in nonoperational status.
    Mr. Graves of Louisiana. Do you see those capabilities as 
being sufficient, noting again increased activities in changes 
in the Arctic?
    Mr. O'Rourke. What I can tell you is that the Department of 
Homeland Security has issued their own mission need statement. 
That is an official requirement statement expressing the view 
of the Department of Homeland Security, which states that the 
Coast Guard in coming years will potentially need up to three 
plus three polar icebreakers.
    Mr. Graves of Louisiana. And you mentioned that is in the 
Homeland Security report. Do you see that mission as solely 
being a Homeland Security or Coast Guard mission, or do you see 
other agencies, again, looking at what other nations are doing; 
do you see other agencies perhaps with the Department of 
Defense are having additional needs outside the scope of that 
report?
    Mr. O'Rourke. Oh, it is well established that the Coast 
Guard is operating its polar icebreakers as a national asset 
that serves the needs not only of core Coast Guard missions, 
but for other agencies as well, in particular, the National 
Science Foundation. A lot of what we use our polar icebreakers 
for is to support scientific research activities.
    Mr. Graves of Louisiana. What about military defense 
missions? Do you see a need there?
    Mr. O'Rourke. The icebreakers also have requirements under 
our military plans to meet national defense requirements.
    And part of the reason for going up to three plus three 
potentially is to meet presence requirements for polar 
icebreakers that the Department of Defense has communicated to 
the Department of Homeland Security.
    Mr. Graves of Louisiana. Thank you.
    Mr. Chairman, I am going to note that CRS just endorsed 
your bill.
    Thank you.
    Mr. Hunter. I thank the gentleman.
    Mr. Garamendi is recognized.
    Mr. Garamendi. I am trying to figure out how to structure 
my work and in a way that has the maximum potential of 
resolving problems in the two projects that are going forward.
    Ms. Mackin and Mr. O'Rourke, you have done extensive 
research on the problems that exist in the National Security 
Cutter and the OPC. Both the Fast Response Cutter and OPC have 
work to be done, new ships to be built, new contracts to be 
let. In reviewing the testimony and reviewing your work, you 
have information that I think can be put into a checklist, a 
list of things that need to be done to reduce the potential for 
problems.
    But I do not have a list, nor do I see a list in your 
testimony. I think it would be very, very helpful. I can spend 
a lot of time asking questions, and I would probably learn a 
lot, but it seems to me that if we could have the development 
of a checklist. These are things that the Coast Guard should 
and must do to avoid problems that we have seen develop in the 
previous National Security Cutter program or the OPC.
    Can the two of you, individually or together, develop such 
a checklist? And we can then hold the Coast Guard responsible 
to addressing. ``Yep, we did that one. That problem is not 
going to happen again because we are paying attention. Maybe we 
ought to pay attention to this one because we have not paid 
attention to it.''
    Is that possible for you guys to do?
    Mr. O'Rourke. It is not only possible. I have already 
developed a list of well-established lessons in shipbuilding. I 
am sometimes asked for it. I will be happy to provide it for 
you after the hearing.
    Ms. Mackin. And for our part, I think in my statement I 
mentioned several items that there are lessons learned from NSC 
and commercial practices that could be applied to OPC. We could 
provide that.
    Mr. Garamendi. I have noticed it is not to say that you 
have not thought about it because you have, but you know, maybe 
we can just get a little computer file and it says, ``Check 
this off. Let us see. We are going to have some sort of a 
cannon, and does the Navy have that cannon already and can we 
just use the Naval cannon and, by the way, the control system 
for it and radar systems which may be available?''
    Anyway, just a checklist, if you could develop that, that 
would certainly be useful to me and save probably a whole round 
of questions as I pursue trying to figure it out.
    So I am asking for it from both of you, and if you want to 
work together that would be OK, too.
    Ms. Mackin. OK.
    Mr. Garamendi. Thank you very much.
    And with that I yield back.
    Mr. Hunter. I thank the gentleman.
    OK. Now it is just you and me. Let us go back, multiyear 
procurement, block buy contracting, advanced procurement. 
Admiral, what does the Coast Guard have the statutory ability 
to do out of those three, if any?
    Admiral Vojvodich. Mr. Chairman, we have authority through 
title 10 to be able to do a multiyear procurement. We 
understand the benefits of that in terms of once we have a 
stable design, enduring need, and a good understanding of the 
cost. Those are great criteria to use.
    We are also looking at potential downside. It does commit 
the Government well in advance of the year of appropriation in 
terms of things that we are going to buy, and so the downside 
is that if we are not able to meet that obligation, there could 
be a real downside in that contract in terms of not providing 
the expected funding for the multiyear buy.
    Mr. Hunter. But that is not your job. That is our job.
    Admiral Vojvodich. Yes, sir. Right.
    Mr. Hunter. So you have the statutory ability to do 
advanced procurement.
    Admiral Vojvodich. Yes, sir, advanced procurement, yes, 
sir.
    Mr. Hunter. And multiyear.
    Admiral Vojvodich. Multiyear procurement, yes, sir.
    Mr. Hunter. Have you ever used multiyear procurement?
    Admiral Vojvodich. I have not. I will have to go back in 
the archives and research that.
    Mr. Hunter. Well, we have the research right over here.
    Have they ever used multiyear procurement?
    Mr. O'Rourke. I am not aware of the Coast Guard having used 
it in the past. I cannot prove a negative on it, but in the 
years that I have been here I have not seen it.
    Mr. Hunter. So I guess that leads to you already have the 
statutory ability to do multiyear procurement, which you could 
have done with the FRCs and did not do. You could have done it 
with the NSC. You did not do it.
    Did you use advanced procurement? Advanced procurement I am 
guessing is the batch buys, or is that buying stuff for the one 
vessel?
    Admiral Vojvodich. We buy long lead time material that is 
in front of what is going to come in product.
    Mr. Hunter. That is per one vessel, right?
    Admiral Vojvodich. That is per one or a number of vessels 
that might be coming up in that production cycle within that 
particular fiscal year.
    Mr. O'Rourke. Right. That is only for 1 year's worth of 
procurement.
    Mr. Hunter. OK.
    Mr. O'Rourke. Either the ship or the multiple ships being 
procured that year, and that helps to optimize the construction 
schedule just for those ships, but that is still implementing 
annual contracting.
    Mr. Hunter. So Mr. O'Rourke says you could have saved $1 
billion, could have saved, not can still save, but could have 
saved with the NSC.
    Mr. O'Rourke. The savings in my testimony are all future 
savings out there that could be realized. We missed 
opportunities for doing that with the National Security Cutter 
and the first 36 ships in the Fast Response Cutter program.
    Mr. Hunter. OK. So why not do it? If the Coast Guard has 
the ability to do it, why didn't the Coast Guard do it?
    Why not save $1 billion?
    Admiral Vojvodich. We chose a contract strategy that 
encouraged options, sir. We can look at that further. We will 
have to work with the Department administration to really 
understand the upside and the downside of that, but we are 
willing to take another look at that.
    Mr. Hunter. Well, let me ask you this, Ms. Mackin and Mr. 
O'Rourke. When it comes to the Coast Guard then and the 
administration, where does OMB play in terms of what the Coast 
Guard can do, meaning what type of contracting strategies they 
can use?
    Do they have a play in it? I mean, how does the 
administration play in terms of what their strategies are for 
contracting future ships?
    Mr. O'Rourke. In general, my understanding is that OMB can 
give directions to agencies regarding the ways in which it can 
carry its programs forward. Now, what OMB may or may not have 
said about the use of multiyear procedure or block buy 
contracting for these programs I do not know, but as a general 
issue, OMB can issue instructions to executive branch agencies, 
guidance if you will, for how programs are to be executed.
    Mr. Hunter. Ms. Mackin?
    Ms. Mackin. All I would say is for the National Security 
Cutter, I am not sure that would have been a good approach 
because the requirements were not stable. We are still seeing 
problems now. The first two ships are going to have to go 
through these structural enhancements. They are not 
representative of the rest of the ships, and so I think, again, 
not that it is a bad idea, not that it cannot save money, it is 
just that, as the admiral mentioned, it needs to be carefully 
considered.
    Mr. Hunter. And the one example, the LCS is a horrible 
ship, ships, right? The requirements were not set for and now 
they are lowering the number of LCS they are going to make in 
the future because they realize it was not the right ship. They 
just wanted to get numbers, et cetera, and all of the problems 
that they had.
    I am look at one of the big retrofits. It is like $80 
million for the C4ISR [command, control, communications, 
computers, intelligence, surveillance and reconnaissance] in 
the NSC. Why are things like that not simply taken from the 
Navy? It is not like the Coast Guard has to do special things 
that are tens of billions of dollars Navy budgeting has not 
already had to look at, in terms of weapons systems, C4ISR, 
radar, UAS.
    You already talked about piggybacking with the Navy on UAS, 
thank God. Why the C4ISR retrofit? Why would the Coast Guard 
possibly need their own type of C4ISR modules or platform? 
There is no way it is more all-encompassing than what the Navy 
has. There is no way.
    Ms. Mackin. One thing I would offer, and the admiral can 
weigh in, is this, again, is a legacy Deepwater issue. The 
original C4ISR was an ICGS, Integrated Coast Guard Systems, a 
contractor system, very proprietary.
    Mr. Hunter. But why would the Coast Guard want to do that 
even then? I mean why would you have people in the Coast Guard 
say, ``Let us develop our brandnew system that is probably much 
more limited than what the Navy has anyway, but let us do it 
all for us''?
    Why would they decide that, even with the flawed Deepwater 
system, a program that was flawed for other reasons?
    Who in the Coast Guard would say it is a great idea for us 
to develop our own multimillion-dollar communication C4ISR 
platform?
    Ms. Mackin. That was inherent in the Deepwater strategy. 
The contractor said, ``Here it is,'' and frankly, the 
Government did not have adequate insight into the requirements, 
and the contractor made that call and so now the Coast Guard is 
opening up, opening up the architecture and implementing 
actually a very more cost-effective C4ISR system.
    Mr. O'Rourke. Mr. Chairman, if I could go back to your 
earlier question about the missed opportunity on the National 
Security Cutter, Ms. Mackin is right, of course, that there 
were problems with the design of that ship, but one of the 
statutory requirements for using multiyear procurement is that 
the item being procured has to have a stable design.
    In shipbuilding programs, stable design is demonstrated by 
completing the construction of the first ship in class and 
putting it through its initial testing to show that there are 
no problems.
    At that point, once those problems had been identified and, 
in fact, they were cranked into later ships in the NSC, you had 
a design that might then have met the statutory requirement for 
stable design, and the follow-on ships in the program could 
have been pursued under multiyear procurement.
    So it is correct that you do not want to do this if you 
think that the design is not stable, but as you review the 
schedule of how these events transpired, multiyear procurement 
is never used on a lead ship anyway because of the requirement 
for stable design. It was a question of whether the program was 
ready for multiyear procurement for the follow-on ships in the 
class, and that is a question that people could have looked at 
and decided, well, yeah, it might have been.
    Mr. Hunter. I am not clear on that. On the NSC when you had 
some testing done, you had the first couple of ships done, were 
the problems that we are looking at, and we are looking at 
this. We already got this, but this is a nice, little page that 
has a lot of the issues, right?
    These were not recognized right away? No one realized that 
there were issues until the fourth ship, fifth ship? At what 
point did you realize there were some issues?
    Admiral Vojvodich. Sir, some of those issues were revealed 
during operational test and evaluation through the test event.
    Mr. Hunter. Oh, the first ship?
    Admiral Vojvodich. In this particular case we used a third 
ship to demonstrate.
    Mr. Hunter. But the first ship was working well or these 
same issues were on the first ship as well?
    Admiral Vojvodich. Not that I know of, but I can get back 
to you. If there is a lineage that we can provide, we certainly 
will do that.
    A number of those items, sir, if we leverage a Navy program 
of record like you just commented, that we need a weapons 
system and we need a particular sensor system; we leveraged the 
Navy on a number of those things outlined, and we will follow 
the Navy's priorities and look to them to, you know, help us 
develop those solutions and implementation.
    And then over time as we get smarter and better users, we 
have brought more cutters, and we have more sailors that are 
accustomed to using the equipment. You know, we will become 
better and more proficient with the usage of the system.
    Mr. Hunter. I still do not understand that. OK. So you have 
one NSC goes into the water and people start operating it and 
it goes and does its thing. There are no issues there.
    The second NSC jumps in the water. It goes out and starts 
being tested, and it is used operationally while it is being 
evaluated, and no problems there. Nothing changes.
    You built the third NSC, put it in the water, and you have 
all of a sudden realized all of these different issues on the 
third one that no one saw on the first one or second one?
    Admiral Vojvodich. The third one was our opportunity to 
really have the capability that is reflective. So Ms. Mackin 
alluded to the changes----
    Mr. Hunter. Can you explain that though? Why is number 3 
the charm? Why could you not recognize the operational 
capability of the first or second ones?
    I mean, why did you have to wait until number 3 to really 
delve into it? I am just not understanding.
    Admiral Vojvodich. I would like to get you a finer detail 
for the record sir, for that one.
    Mr. Hunter. No, no, just tell me how. I do not need fine 
detail. Why is it boat number 3 is the one that we started 
recognizing issues and not the first one?
    I am not trying to get you. I just do not understand.
    Admiral Vojvodich. Right. So that is the one that we said 
that is the one that we will have crews on it that is going to 
be indicative of future National Security Cutters. We want that 
one to be tested because that is going to demonstrate the 
initial operating capability.
    Mr. Hunter. Did you dramatically change design after the 
first two on the third one?
    Admiral Vojvodich. We did, and I will have to give you a 
level of detail on that, sir.
    [The information follows:]

        The third NSC, USCGC Stratton, was chosen for Initial 
        Operational Test and Evaluation (IOT&E) because it was the 
        first cutter considered representative of the fleet for the 
        foreseeable future. That is to say Stratton's fundamental 
        characteristics and capabilities represent that which is 
        intended for all NSCs.

        As it relates to the first two NSCs (Bertholf and Waesche), 
        there were two compelling reasons why the Coast Guard, 
        Department, and the Navy's Commander Operational Test and 
        Evaluation Force (COMOPTEVFOR) chose not to use them for IOT&E:

        1.  Cutter boat handling systems: Based on operational feedback 
        from the first two NSCs, an improvement was needed for these 
        systems. This included the original overhead gantry crane on 
        the stern of the ship and the single-point davit on the 
        starboard side of the ship. The overhead gantry crane was 
        replaced with three folding boom cranes and the side davit was 
        replaced with a new davit system offering improved control and 
        handling during boat launch and recovery. These were first 
        installed and tested on Stratton. To maximize the benefits of, 
        and document best practices during formal testing, it was 
        determined that the new cutter boat handling systems should be 
        tested in IOT&E, and therefore Stratton was selected. The 
        cutter boat handling systems for Bertholf and Waesche will be 
        upgraded during their respective structural enhancement 
        periods.

        2.  Structural enhancements: Neither Bertholf nor Waesche had 
        undergone the structural enhancement to ensure at least a 30-
        year fatigue life of the ship's structure. These two cutters 
        were too far along in construction to incorporate the 
        structural enhancements during construction without incurring 
        inordinate contract cost and schedule impacts. Although not a 
        disabling impediment to testing, structural differences between 
        Stratton and the first two NSCs were considered relevant to 
        ensure IOT&E results were most representative of the end-state 
        fleet.

    Mr. Hunter. OK. And how many of these were built with the 
Deepwater boondoggle? How many NSCs were built under the 
Deepwater plan?
    Mr. O'Rourke. Well, the Coast Guard transitioned out of 
Deepwater in 2007, and that transition was phased with the 
completion of contracts that were legacies coming out of that 
period. I do not know what the exact cutoff point was, but this 
is now a nine-ship program, and at some point most or all of 
the significant design issues with that class became known, and 
any ships procured after that point might have been considered 
candidates for multiyear procurement or block buy contracting.
    The prices we paid for those ships suffered for a number of 
reasons. One is the general Deepwater contracting environment 
that Ms. Mackin mentioned, but there were two others. One is 
that the intervals that we had for procuring these ships were 
not regular and even. So the shipyard did not have a steady 
drumbeat.
    And the third was that the final ships in the program were 
not done under a form of multiyear contracting.
    These are all ways in which those ships turned out to be 
more expensive than they might have been.
    Mr. Hunter. Admiral, do you agree with that? Do you agree 
that multiyear procurement and block buy contracting can save 
money?
    I mean, obviously it is not going to work if your first two 
ships are not really what you wanted in the first place, where 
you have actually changed so much design on the third one that 
it is the real ship that you are going to test against, but if 
you were going to do it the way that the Navy does it, meaning 
the right way, building, have all the lead time materials, do 
it right, do all your testing on that one ship, and then be 
able to do multiyear going out, does the Coast Guard have an 
issue with that?
    Do you think that that would save you money?
    Admiral Vojvodich. We would have to look at it a lot 
closer, sir. We would absolutely love to----
    Mr. Hunter. Well, I am asking you. You do not have to look 
at it closer because in general does contracting ships like the 
Navy does it, especially when you only have really three or 
four types of ships in the entire Coast Guard, it is not too 
complicated, right?
    Do you think that that would save the Coast Guard money?
    Admiral Vojvodich. As we indicate here, if we have a stable 
design, we have an enduring need, where the costs are well, 
well understood, the applicability of the multiyear procurement 
has some merits, and we will take that back for a high-level 
consultation.
    Mr. Hunter. Do you disagree with Mr. O'Rourke that it will 
save you $1 billion in the NSC?
    Admiral Vojvodich. I would have to look at that closer, 
sir.
    Mr. Hunter. OK. Do you disagree that you would save $100 
million with the FRC?
    Admiral Vojvodich. Again, in the application of that 
particular strategy in terms of what we have here, I would have 
to look at it a lot closer.
    Mr. Hunter. OK. When the Navy went to block buys and 
multiyear procurement, did they just do it on one design and 
did they pick that ship design on purpose to do this on, or was 
it more of a ``we can use this in any kind of ship class; let 
us just jump into it''?
    I mean, how did the Navy decide to do it and was there 
anything special about when they decided to do it and on what 
type of ship?
    Mr. O'Rourke. The Navy decides its contracting strategies 
on a program-by-program basis, but I think there was a general 
atmosphere within the Navy in recent years that these 
contracting mechanisms made sense to them, and they began to 
use them more extensively.
    I think it is important to note that all three of the 
Navy's year-to-year shipbuilding programs where you get a ship 
of that kind every year, year after year, all three of them, 
the Virginia-class attack submarine, the DDG-51, and the 
Littoral Combat Ship, are now under multiyear contracting, and 
collectively those ships represent more than two-thirds of all 
the ships in the Navy's 5-year shipbuilding plan. That is how 
extensively the Navy is using this.
    And in terms of savings, if you looked at the last DDG-51 
multiyear, the savings on that were estimated at $1.3 billion 
or $1.4 billion, and if you look at the last Virginia-class 
attack submarine multiyear, the savings on that were estimated 
in the range of $3 billion to $4 billion.
    So just on those two instances of multiyear procurement 
contracting, the Navy saved more than $4 billion.
    Mr. Hunter. Has the Coast Guard looked at what class of 
ship would best fit the multiyear procurement contracting 
scheme?
    Admiral Vojvodich. Well, we read Mr. O'Rourke's report. We 
understand the utility of a multiyear strategy. We have 
considered it, and we have chosen the acquisition strategy that 
we are on right now.
    Mr. Hunter. When you do multiyear procurement, do you need 
us in this committee to authorize it?
    Mr. O'Rourke. Yes, multiyear contracts, more than a certain 
value, and these would be more than that threshold value, would 
need----
    Mr. Hunter. But does it have the statutory ability right 
now to do multiyear procurement?
    Mr. O'Rourke. They have a statutory framework in which the 
Services can conduct multiyear procurement, and that framework 
requires approval by Congress on a case-by-case basis for each 
program.
    Block buy contracting has no title 10 or permanent 
statutory framework, and so in the instances where Congress has 
provided that for the Navy, they have done it through specific 
legislation. In one time they did it in an NDAA [National 
Defense Authorization Act], and in another time they did it in 
an appropriations bill.
    Mr. Hunter. So it would be the Appropriations Committee or 
the authorizing committee can both grant that authority?
    Mr. O'Rourke. Based on the precedent of the two block buy 
contracts for Virginia-class and Littoral Combat Ship, it 
appears that the authority can be provided through a single act 
that can be either a National Defense Authorization Act or an 
Appropriations Act.
    Mr. Hunter. Say that the Navy did not want to do it. Say 
that the Navy was like the Coast Guard and we do not want to 
save billions of dollars. We just want to spend money.
    That is not fair, but I am kind of exaggerating.
    Can Congress make them do it?
    Mr. O'Rourke. The authorities that were granted for 
Virginia-class and LCS allowed the Navy to do it. They did not 
mandate, but it may be that you can write the language so that 
it mandates the use.
    For example, the Appropriations Committees in the past have 
said that the Navy will contract for the ship. It was an 
amphibious assault ship, which shall be funded on an 
incremental basis. And that is incremental funding, which is 
different from what we are talking about here.
    But the use of the ``shall'' language mandated that to the 
Navy as the way that the ship would be funded in coming fiscal 
years. And based on that precedent you might imagine that 
language for block buy contracting can use the ``shall'' 
language and not simply to say that the Coast Guard may 
contract or may do this.
    Mr. Hunter. So the one last thing, I am not understanding 
that. How do you see it, and, Admiral, we will start with you; 
how do you see the Coast Guard? Let us just talk about buying 
ships. How is the Coast Guard different from the Navy?
    Now, I do not mean in what size of ship, but in the way 
that you acquire them, why should the Coast Guard be 
contracting differently than the Navy?
    Admiral Vojvodich. Mr. Chairman, fundamentally we acquire 
and build ships very similarly. We use some of the same 
facilities that the Navy does. There are a level of 
requirements that might be different that might change the 
approach or the testing or the scrutiny of the hardening of the 
various ships, but fundamentally, you need steel. You need a 
shipyard. You need a lift. You need proficient workers to put 
it all together, and so there are some aspects that are exactly 
the same.
    There are other ones that are some nuances that we would 
have to look at closely, but those probably are on a case-by-
case basis.
    Mr. Hunter. Ms. Mackin, why should the Coast Guard ship 
acquisition be treated differently than the Navy?
    Ms. Mackin. I think there is one thing that has not been 
mentioned in this discussion and that is the contract type of 
the ships. The Fast Response Cutter was firm-fixed-price, and 
that is consistent with commercial best practices. That is the 
price is nailed down, and that is one reason they could 
negotiate a very strong warranty.
    I believe the plan for the Offshore Patrol Cutter is to 
transition to firm-fixed-price at some point in time as well.
    So block buy is one thing to look at, but contract type can 
also be a way to save a significant amount of money.
    Mr. O'Rourke. But the statute that regulates multiyear 
procurement requires that multiyear procurement contracts be 
fixed-price contracts, and the block buy contracts that are 
being done for the Littoral Combat Ship program are also fixed-
price type contracts.
    Ms. Mackin. They are fixed-price incentive (firm target), 
which is a little different than firm-fixed-price.
    Mr. Hunter. But again, why should the Coast Guard 
acquisition be treated differently than the Navy?
    Ms. Mackin. I mean, that is a contracting officer's call in 
large part. There are lots of factors to consider. I am just 
offering the contract type is one very important component.
    Why the Coast Guard did not consider block buy for the Fast 
Response Cutter, I do not know the answer to that.
    Mr. Hunter. Admiral? We can get it right now, Ms. Mackin.
    Admiral Vojvodich. For the OPC that is absolutely 
considered, but the path that we chose is not a multiyear 
procurement. I would be happy to take a closer look at the 
merits and the risks associated with that and provide a more 
thorough response. We would have to work with the Department 
and administration and make sure that we collectively 
understand the approach, and I am happy to follow up with you 
at some point, sir.
    Mr. Hunter. Admiral, here is what I am not understanding. 
If you build one or two ships, whether it is an FRC or the OPC, 
and you look at it and you test it and you evaluate it and you 
find problems and you then fix your problems, what is the 
downside with doing a multiyear procurement?
    What is the downside, if any? If you have a design that is 
not flawed like the NSCs that we discovered on ship 3, if your 
design is good and your ship is good and your requirements are 
firm and set and fixed, what is the downside? I am not getting 
it.
    Admiral Vojvodich. And I understand. Based on my 
understanding the downside is that if we are unable to not meet 
that future year commitment----
    Mr. Hunter. But that is not your problem.
    Admiral Vojvodich. I understand.
    Mr. Hunter. So what is the downside to the Coast Guard? Why 
would the Coast Guard not want to do that?
    Ms. Mackin. Can I make an observation?
    Mr. Hunter. Yes.
    Ms. Mackin. The FRC had its initial operational test and 
evaluation and only one of its key performance parameters was 
even partially met. So it is not proven yet. It still has----
    Mr. Hunter. So you are say only one out of a bunch.
    Ms. Mackin. Out of six.
    Mr. Hunter. Was partially met.
    Ms. Mackin. Was partially met, and so they are going to 
have the follow-on operational test beginning this fall, just 
like the NSC. So----
    Mr. Hunter. How many FRCs have been built now? Anybody? 
John might know?
    Mr. O'Rourke. Well, there are 14 or 15 of the FRCs in 
operation.
    Admiral Vojvodich. Commissioned number 15 a week or so ago 
and deliver number 16 at the end of the calendar year.
    Mr. Hunter. And so is that normal to build that many when 
the operational requirements, whatever check boxes you have, 
are not met?
    Ms. Mackin. It was a fast-paced procurement. I would not 
say that is consistent with best practices because they still 
have to go through the follow-on testing and prove that they 
can meet those key performance parameters.
    Mr. O'Rourke. Right, but the issue is that even with the 
deficiencies that have been discovered through initial testing, 
the Coast Guard's intention is still to continue getting the 
ships.
    So the question is: if you are still going to continue 
getting the ships, does it make sense to continue doing it 
under a contract with options which operates closer to being a 
form of annual contracting or under block buy?
    Mr. Hunter. Mr. Graves is recognized for 5 minutes. Sorry 
about that.
    Mr. Graves of Louisiana. Yeah, that is all right. I mean, I 
am enjoying it.
    To somewhat channel the chairman's frustration, you know 
there are two key things obviously that are, I think, his 
frustrations and ones that we share. One is that looking back 
over the last several years, certainly I think one can make a 
strong case for perhaps some taxpayer dollars not being used as 
wisely as they could have been on the acquisition, and 
something that is very important to me personally and I know 
the chairman shares it is the lack of capabilities.
    I made reference earlier to Admiral Z's statement that eyes 
are on 90 percent of the drug trafficking shipments, yet 
capabilities only respond to 20 percent of them.
    I think when you look across the Coast Guard's mission, 
which has expanded significantly over the last several years, 
the demand for the Coast Guard, the demand for the Coast Guard 
to have greater capabilities is significant, yet this 
acquisition schedule is continuing to drag on and, I think 
provide readiness issues that are not just limited to the Coast 
Guard but also transcends over to some of the support for Navy 
and other capabilities that are important for this Nation.
    So looking back, we can talk about Deepwater. We can talk 
about NSC, FRC, whatever you want, but let us look forward for 
a minute. Looking at OPC, can you talk about some of the 
lessons learned that you were applying to that acquisition 
strategy that will ensure, again, fair use of taxpayer dollars, 
and ensure that we are delivering solid equipment within an 
appropriate amount of time?
    Admiral Vojvodich. Yes, I would be happy to. I appreciate 
the opportunity.
    The key to all of this is to make sure that we have well 
understood, stable requirements that have been vetted 
throughout the Service with industry to make sure they 
understand it very well. It allowed us to have the conversation 
to understand where the cost drivers are, if you will, and to 
be able to address that, to make those appropriate adjustments.
    We are using competition to the fullest, and we are also 
using fixed-price contracting throughout the acquisition, which 
is at times very difficult in a large ship buy because there 
are a lot of unknowns in the design. So right now we are in a 
limited competition, if you will, so they can mature their 
designs to be able to make a submission that is going to be a 
fixed-price environment as we move forward.
    In terms of the testing, we absolutely learn from the 
testing over time. We are going to test on the first article 
for the OPC. We have learned that that involvement with test is 
very important.
    We have involved the testers from both the Department and 
our operational test authority early in that development so 
they can help us make sure that the things that we put in the 
requirement are testable and it is well understood. So a lot of 
things that were developed many years ago were unclear, and so 
even when we have these test events, we are sometimes not quite 
talking on the same sheet of music.
    And so those are the kinds of things that we are resolving, 
and we are clearly moving forward with a lot of lessons learned 
into the strategy for the Offshore Patrol Cutter.
    Mr. Graves of Louisiana. Admiral, thank you. In closing I 
just want to make note that, you know, you have got a great 
group of Coasties out there, and there is increasing demand 
upon their services and mission requirements and making sure 
that we get the equipment out there to them that they need as 
soon as possible.
    I think it is critical, and again, we do not need to go 
through the entire list of drug alien interdictions and many, 
many other things that you do, but looking back over the 
history, I know that there are a lot of mistakes that you guys 
are trying to make up for right now.
    I just want to encourage you. You know, the Navy obviously, 
as the chairman pointed out, has some acquisition strategies 
that may be applicable in this case, but most importantly we 
have got to get this equipment out there as quickly as we can 
and make sure that we are respectful of taxpayer dollars moving 
forward.
    Thank you. I yield back, Mr. Chairman.
    Mr. Hunter. I thank the gentleman.
    I have one last question. If the Coast Guard decided to do 
a multiyear procurement for the OPCs and the rest of the FRCs, 
do you have the authority to do that or do you have to get 
approval from the Department of Homeland Security or the 
administration?
    Admiral Vojvodich. Mr. Chairman, I would like to take that 
back for the record. I will need to understand thoroughly what 
our options are with that strategy.
    I understand at a high level what a multiprocurement 
strategy will allow. I know it was considered, but it sounds 
like you want me to take it to the next level, and I will 
thoroughly understand that.
    Mr. Hunter. I just looked at the bill we passed last year, 
the Coast Guard bill, and we grant you statutory authority for 
the OPCs to have multiyear procurement done on those.
    So my question is though you obviously looked at that, and 
you have seen that. So do you have the authority, does the 
Coast Guard have the authority to do that if they want to?
    Admiral Vojvodich. I would like to take that one back for 
the record and make sure I thoroughly understand and provide 
you the best answer possible with that.
    [The information follows:]

        Multiyear Procurement (MYP) Contracting: The Coast Guard has 
        considered multiyear procurement (MYP) contracting to acquire 
        new assets; most recently the Coast Guard evaluated this 
        strategy while planning for the Offshore Patrol Cutter. This 
        contracting approach provides stability and promotes 
        efficiencies which are more difficult to achieve when utilizing 
        annual contracting mechanisms.

        MYP contracting provides an opportunity to generate savings 
        through economic order quantities for materials and equipment, 
        as well as improved production efficiencies and shipyard 
        learning associated with construction stability. MYP 
        contracting is also beneficial for shipyard material and labor 
        cost management. Optimally phased and stable production 
        schedules establish the best scenario for shipyard learning, 
        leading to reduced labor costs. In addition, multiple ship sets 
        of supplies and materials may be procured at reduced costs due 
        to quantity buys.

        MYP contracting does introduce some risk if subsequent years' 
        funding were not available. In such circumstances the Coast 
        Guard would be required to renegotiate or terminate the 
        contract likely requiring the Government to pay a cancellation 
        fee. Renegotiating the contract would also have a negative 
        financial impact, and therefore one potential disadvantage of 
        using MYP is that it can reduce the flexibility to make changes 
        in future years.

        The Coast Guard has standing authority to enter into a 
        multiyear contract under 10 U.S.C. 2306(b). In order to 
        qualify, the Coast Guard must show the following:

          Significant savings. The program must demonstrate 
        that a MYP contract would result in ``significant savings'' 
        compared with annual contracting.
          Realistic cost estimates. The program's estimates of 
        the cost of the MYP contract and the anticipated savings must 
        be realistic.
          Stable need for the items. The program must expect 
        its minimum need for the items will remain substantially 
        unchanged during the contract in terms of production rate, 
        procurement rate, and total quantities.
          Stable funding request for the items. There must be a 
        reasonable expectation that the program will request annual 
        funding for the contract at a level required to avoid contract 
        cancellation.
          Stable design for the items. The design for the items 
        to be acquired must be stable, and the technical risks 
        associated with the items must not be excessive.

        Block Buy Contracting: Like multiyear procurement, block buy 
        contracting may provide an opportunity to generate savings 
        through economic order quantities for materials and equipment, 
        as well as improved production efficiencies and shipyard 
        learning associated with construction stability. While Congress 
        has provided the Coast Guard, the other armed services and NASA 
        standing authority for multiyear procurement under 10 U.S.C. 
        2306(b), there is no similar general authority for block buy 
        contracting. Congress has provided limited authority in 
        specific instances to the Navy to use block buy contracting to 
        acquire Virginia-class attack submarines and Littoral Combat 
        Ships; however, no similar authority has ever been enacted for 
        a Coast Guard acquisition program.

        The Coast Guard has been responsible for paying for replacement 
        cylinder heads on the propulsion diesel engines. The Coast 
        Guard continues to work with the engine manufacturer to study 
        the root cause of these issues and is committed to developing 
        an engineering solution to reduce the frequency of this repair.

        There have been other component repairs on the propulsion 
        diesel engines, separate from the cylinder heads, where the 
        Coast Guard and manufacturer have shared costs of failure 
        analyses and repairs, and also situations where the 
        manufacturer assumed all costs. In each instance, 
        responsibility for the repairs was determined based on the 
        specifics of that situation.

    Mr. Hunter. Ms. Mackin, do you know if the Coast Guard has 
the authority if they choose to go multiyear after being 
granted the authority to do so by this committee?
    Ms. Mackin. I have not looked into that.
    Mr. Hunter. Mr. O'Rourke.
    Mr. O'Rourke. Statutory authority versus direction that the 
Coast Guard may receive within the executive branch. As a 
matter of statutory authority, the Coast Guard has the 
authority to use multiyear procurement under title 10, 2306(d), 
and that is the law that governs multiyear procurement and 
establishes the statutory framework for conducting it.
    It states explicitly that the Coast Guard is among the 
Services that can use it. That same law states that to use 
multiyear procurement for a contract with a value above a 
certain level, you need to get congressional approval for each 
case in an Appropriations Act and a bill other than an 
Appropriations Act, which is typically an authorization act.
    That is all part of the legislative framework for multiyear 
procurement.
    For using block buy authority, block buy does not have a 
statutory framework. It just happens through specific 
legislation that Congress grants to the Service in question, 
and based on the two precedents of Virginia-class and Littoral 
Combat Ships, that can be a single provision in an 
authorization bill or a single provision in an Appropriations 
Act.
    Mr. Hunter. All right.
    Mr. O'Rourke. Now, none of that speaks to then the 
direction that the Service gets within the executive branch 
from its superiors, but as a matter of statutory authority, 
that is where we are.
    Mr. Hunter. All right. I think that that is all I have got. 
I do not think there is anybody else here.
    Thank you very much for kind of getting deep into the weeds 
on this stuff. That is what we have to do in the end. We want 
to make the best decision possible. We want to save lots of 
money so we can buy other stuff, in general.
    So thank you very much for your testimony.
    With that our hearing is adjourned.
    [Whereupon, at 11:33 a.m., the subcommittee was adjourned.]
    
    
 
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