Coast Guard Acquisitions: Better Information on Performance and Funding Needed to Address Shortfalls
Published: 2014-06-05T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Coast Guard is managing a multi-billion dollar effort to modernize aging assets, including ships, aircraft, and information technology to provide new capabilities to conduct missions ranging from marine safety to defense readiness. GAO has reviewed the Coast Guard's acquisitions since 2001 and has found it faces challenges managing its portfolio. In 2007, the Coast Guard established a cost baseline of $24.2 billion for 13 assets. GAO was asked to examine the Coast Guard's current and planned acquisition portfolio.
This report assesses: (1) operational performance and testing of selected assets; (2) the current cost of the Coast Guard's portfolio and funding plans; and (3) the extent to which the Coast Guard is experiencing capability gaps, if any, given known affordability issues. To conduct this work, GAO analyzed the operational performance and test reports for all 4 newly fielded assets that the Coast Guard planned to test and the costs and capabilities of its major system acquisition portfolio. GAO also interviewed Coast Guard, DHS, and Navy officials.
section_title: What GAO Found
paragraphs: The selected Coast Guard assets that GAO reviewed are generally demonstrating improved performance—according to Coast Guard operators—but GAO found that they have yet to meet all key requirements. Specifically, two assets, the HC-144 patrol aircraft and Fast Response Cutter, did not meet all key requirements during operational testing before being approved for full-rate production, and Department of Homeland Security (DHS) and Coast Guard guidance do not clearly specify when this level of performance should be achieved. Additionally, the Coast Guard changed its testing strategy for the Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR) system and, as a result, is no longer planning to test the system's key requirements. Completing operational testing for the C4ISR system would provide the Coast Guard with the knowledge of whether this asset meets requirements.
As acquisition program costs increase across the portfolio, consuming significant amounts of funding, the Coast Guard is farther from fielding its planned fleet today than it was in 2009, in terms of the money needed to finish these programs. In 2009, GAO found that the Coast Guard needed $18.2 billion to finish its 2007 baseline, but now needs $20.7 billion to finish these assets.
To inform Congress of its budget plans, the Coast Guard uses a statutorily required 5-year Capital Investment Plan, but the law does not require the Coast Guard to report the effects of actual funding levels on individual projects and, thus, it has not done so. For example, the Coast Guard has received less funding than planned in its annual budgets, but has not reflected the effects of this reduced funding in terms of increased cost or schedule for certain projects. Without complete information, Congress cannot know the full cost of the portfolio.
The Coast Guard has repeatedly delayed and reduced its capability through its annual budget process and, therefore, it does not know the extent to which it will meet mission needs and achieve desired results. This is because the Coast Guard does not have a long-term fleet modernization plan that identifies all acquisitions needed to meet mission needs over the next two decades within available resources. Without such a plan, the Coast Guard cannot know the extent to which its assets are affordable and whether it can maintain service levels and meet mission needs.
section_title: What GAO Recommends
paragraphs: Congress should consider requiring the Coast Guard to include additional information in its Capital Investment Plan. In addition, the Secretary of DHS should clarify when minimum performance standards should be achieved, conduct C4ISR testing, and develop a long-term modernization plan. DHS concurred with the recommendations, but its position on developing a long-term plan does not fully address GAO's concerns as discussed in the report.

section_title: Letter
paragraphs: The Coast Guard is managing a multi-billion dollar acquisition portfolio as  it seeks to modernize its aging assets, including ships, planes, and  information technology. Since 2001, we have reviewed the Coast Guard’s  acquisition programs and reported to Congress on the risks and  uncertainties in its acquisition portfolio. Our prior work has highlighted  problems with the cost, management, and oversight of the Coast Guard’s  acquisition portfolio that have led to delivery delays and other operational  challenges. For example, in a report issued in September 2012, we found  that the cost and schedule of the Coast Guard’s acquisition portfolio  remains unknown because of outdated baselines and uncertainty  surrounding affordability. We also found that opportunities exist to  address affordability through the requirements process. Overall, we  concluded that the Coast Guard had made strides in its efforts to improve  its acquisition management capabilities, and the Department of Homeland  Security (DHS) agreed with our recommendations to conduct a portfolio  review and to identify the Executive Oversight Council as the body to  oversee the Coast Guard’s portfolio management approach.
You asked us to review the Coast Guard’s current and planned  acquisition portfolio. We reviewed (1) how selected assets are performing  operationally and to what extent they are achieving desired performance  levels in testing; (2) the current cost of the Coast Guard’s acquisition  portfolio as well as plans to fund its assets; and (3) the extent to which the  Coast Guard is experiencing capability gaps, if any, given known  affordability issues.
To assess the operational performance of Coast Guard assets, we  selected all four major acquisition programs that were fielded between  fiscal year 2007 and 2014 that the Coast Guard planned to test. These  assets were also part of the Coast Guard’s original 2007 baseline. The  specific assets reviewed were the Maritime Patrol Aircraft (HC-144), Fast  Response Cutter, National Security Cutter, and Command, Control,  Communications, Computers, Intelligence, Surveillance, and  Reconnaissance (C4ISR) systems. For each asset, we reviewed the  operational performance through post deployment reports, test reports,  and met with asset operators. We also interviewed officials at the Navy’s  Commander Operational Test and Evaluation Force (COTF) and DHS  Office of Test and Evaluation to discuss observations and met with  officials from the four programs. To assess the cost and schedule of the  Coast Guard’s portfolio and steps taken to address affordability concerns,  we reviewed each asset’s acquisition program baseline as well as the  Coast Guard’s budget and discussed the acquisition portfolio with Coast  Guard, DHS, and Office of Management and Budget (OMB) officials and  followed up on previous efforts to address affordability. We also reviewed  the Coast Guard’s Capital Investment Plan and compared it to the  relevant law that specifies the contents of the plan. To assess what, if  any, capability gaps exist given the Coast Guard’s affordability issues, we  reviewed funding needs, mission needs, future plans, and performance  data and reviewed the Coast Guard’s fiscal year 2014 and 2015 budgets.  We reviewed the Coast Guard’s estimates of its overall fleet performance  in key areas and also reviewed any current or potential performance  gaps. We also looked at the extent to which the Coast Guard is pursuing  alternatives that could reduce costs. Appendix I contains more  information regarding our scope and methodology.
We conducted this performance audit from June 2013 to June 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Coast Guard is a multi-mission, maritime military service within DHS.  The Coast Guard’s range of responsibilities includes maintaining the  United States’ maritime borders, facilitating the global movement of  commerce, safeguarding marine resources, and protecting those at sea.  To meet its statutory missions, the Coast Guard operates a number of  vessels, aircraft, and information technology systems. Many of the assets  that the Coast Guard operates were delivered between 1960 and 1992  and are approaching the end of or have exceeded the period for which  they were expected to perform—known as the assets’ service lives.
subsections: section_title: A Brief History of the Deepwater Program
paragraphs: The Coast Guard began a recapitalization effort in the late 1990s to  modernize a significant portion of its entire surface and aviation fleet by  rebuilding or replacing assets. The Coast Guard awarded a contract to  Integrated Coast Guard Systems (ICGS) in June 2002 to be the systems  integrator for the portfolio. The Coast Guard generally provided ICGS with  broad, overall performance specifications—such as the ability to interdict  illegal immigrants—and ICGS determined the assets needed and their  specifications. A central aspect of this effort was to use information  technology to connect its major assets through a single command and  control architecture—C4ISR—to improve the accuracy and speed of  conducting Coast Guard missions. This system of systems approach was  the effort formerly known as Deepwater. In 2002, the Coast Guard  conducted an analysis that determined the fleet, as designed by ICGS,  would have significant capability gaps in meeting mission requirements  that emerged after the September 11, 2001, terrorist attacks. The Coast  Guard decided, due to fiscal constraints, not to make significant changes  to the ICGS planned fleet, but did approve changes to several assets’  capabilities. In 2012, we reported on the Coast Guard’s progress in  achieving these capabilities, such as adding chemical, biological, and  other decontamination capability.
In 2006, the Coast Guard acknowledged that it had relied too heavily on  contractors and, citing cost increases, took over the role of lead systems  integrator. DHS approved a new baseline in May 2007 that established  the total acquisition cost of the Deepwater program at $24.2 billion and  projected the Coast Guard would complete the acquisition in 2027. The  Coast Guard also reconsidered the planned fleet mix, required to meet  the established mission needs, through a series of analyses. We  reviewed these analyses in May 2012 and found that the Coast Guard did  not consider any assets with less capability than the Deepwater assets  and that the Coast Guard used optimistic cost constraints to conclude that  it could afford the portfolio. budget, DHS and the Coast Guard no longer use the term “Deepwater”  for the program aimed at recapitalizing its surface, air, and information  technology capacity. This effort is now called Coast Guard recapitalization  and it includes many of the assets that made up the former Deepwater  effort as well as other major acquisitions.
section_title: Overview of the Current Coast Guard Acquisition Portfolio
paragraphs: GAO, Observations on the Coast Guard’s and the Department of Homeland Security’s  Fleet Studies, GAO-12-751R (Washington, D.C.: May 31, 2012). portfolio, formerly known as Deepwater. Appendix III shows the estimated  cost of programs in the current portfolio.
section_title: Coast Guard Acquisition Management
paragraphs: The Coast Guard has continued to strengthen its acquisition management  capabilities when purchasing individual assets. For example, in response  to one of our prior recommendations, the Coast Guard released a  January 2013 update to its Major Systems Acquisition Manual to, among  other things, better reflect cost and schedule estimation best practices  and to clarify the roles and responsibilities of the Executive Oversight  Council. The Executive Oversight Council is comprised of admirals and  senior executives who regularly conduct oversight meetings to govern the  acquisition process. As part of the budget process, the Executive  Oversight Council provides recommendations to the Investment Board,  which are presented to the Investment Review Board—a higher level  group—and ultimately the Commandant for final investment decisions.
In addition, the Coast Guard has sought to maximize competition in its  acquisitions and to buy commercial products when available. For  example, the Coast Guard purchased a “reprocurement data licensing  package” from Bollinger Shipyards, Inc. that contains the technical  specifications and licenses necessary to build the Fast Response Cutter.  The Coast Guard is planning to use this information to conduct a full and  open competition for the remaining vessels. Our previous work has  shown that when the government owns technical data rights, it does not  need to rely on only one contractor to meet requirements. Further, the  Coast Guard has developed a warranty provision under its contract with  Bollinger Shipyards that has held the contractor responsible for  production deficiencies. While the Coast Guard does not always have  insight into how much it costs the contractor to fix these issues, after  multiple deficiencies interrupted production, officials noted they are  confident that the Coast Guard has received value from this warranty.  The Coast Guard plans to use these strategies when purchasing the  Offshore Patrol Cutter.
section_title: Operational Testing
paragraphs: DHS and Coast Guard acquisition guidelines provide that representative  units of major acquisition assets should be operationally tested by an  independent test agency before they are approved for full-rate production.  The Coast Guard uses the Navy’s Commander Operational Test and  Evaluation Force (COTF) to conduct operational tests and other  evaluations for its major acquisition assets. COTF serves as an  independent evaluator of an asset’s capabilities and has experience  testing Navy assets. Operational testing characterizes the performance of  an asset during a discrete period of time but testers may also use actual  mission performance data when available. In conducting operational  testing, COTF evaluates an asset’s operational effectiveness and  suitability:
For operational effectiveness, testers determine whether or not an  asset can meet its missions.
For operational suitability, testers determine whether or not the  agency can logistically support the asset to an acceptable standard,  such as having the asset available for operations 80 percent of the  year.
According to DHS and Coast Guard acquisition guidance, results of  operational tests are used to evaluate the degree to which the capability  or system being acquired meets its requirements and is able to operate in  its intended environment, both before and often after full-rate production  commences.
In addition to verifying that an asset is operationally effective and suitable,  operational testing also tests key performance parameters, which are the  capabilities considered essential for mission success. For example, a key  performance parameter for the Fast Response Cutter is being able to  reach a top speed of at least 28 knots. According to DHS and Coast  Guard acquisition guidance, when programs fail to meet key performance  parameters, program managers are required to file breach memorandums  stating that the program failed to demonstrate the required performance  threshold. Program managers are also required to formally notify Coast  Guard leadership, DHS, and certain congressional committees and file a  remediation plan within 30 days that proposes corrective actions to  mitigate the issues that resulted in the breach. Within 90 days of filing the  breach notification the program should have accomplished one of the  following three actions: (1) re-validate the original baseline parameters,  (2) have a new baseline approved that revises the parameters that were  breached, or (3) conduct a program review that evaluates the proposed  baseline revisions and makes recommendations to the acquisition  decision authority.
section_title: Operators Extol New Assets’ Performance Compared to Aging Counterparts, but These Assets Have Yet to Meet All Key Requirements
paragraphs: The Coast Guard’s new asset classes that we reviewed—the National  Security Cutter, Fast Response Cutter, HC-144, and the C4ISR  information technology system—are generally demonstrating improved  mission performance over the assets they are replacing, according to  Coast Guard officials who operate these assets. For example, these new  assets have greater fuel and food capacity, automation, and  handling/sea-keeping, all of which increase endurance and  effectiveness. However, the Coast Guard has not been able to prove that  assets meet key requirements through operational testing. Of these four  newly fielded asset classes, the Fast Response Cutter and the HC-144  completed initial operational testing, but did not successfully demonstrate  many key requirements during these tests. For example, the Fast  Response Cutter did not meet its operational availability requirement due  to a key engine part that failed during testing. DHS and the Coast Guard  approved both assets for full-rate production noting planned  improvements, but DHS and Coast Guard acquisition guidance is not  clear as to when a program needs to meet minimum performance  standards. For example, the guidance does not specify whether the  performance standards must be met before entering full-rate production.  The National Security Cutter and C4ISR programs have not completed  operational testing. The Coast Guard recently conducted testing on the  National Security Cutter although seven of eight vessels are completed or  currently under construction. Based on early assessments and mission  performance of the first three National Security Cutters, the Coast Guard  has determined that design changes costing at least $140 million are  necessary to meet requirements. Lastly, due to performance,  maintenance, and obsolescence issues, the Coast Guard is replacing its  initial C4ISR software, which cost about $413 million to develop and field,  on the National Security Cutter, HC-144, and HC-130J.
subsections: section_title: Operators Report That New Assets Have Improved the Coast Guard’s Capabilities Compared to Legacy Assets
paragraphs: Coast Guard operators and commanding officers in several locations told  us that the National Security Cutter, Fast Response Cutter, and HC-144  are performing well during missions and are an improvement over the  vessels and aircraft they are replacing. Operators primarily attribute the  performance improvements to better endurance and communication  capabilities, which help to position and keep these assets in high threat  areas. Specifically, these new assets have greater fuel capacity and  efficiency, engine room and boat launch automation, handling/sea- keeping, and food capacity, all of which increase endurance and  effectiveness. Operators stated that these new assets, using information  technology systems, can also share pictures and locations of vessels,  and communicate more frequently and accurately with shore-based  operational commanders than the legacy vessels being replaced. For  example, operators said they now use chat rooms on secure networks in  addition to radios. These chat rooms improve communication because  multiple parties can communicate at the same time and messages remain  available on the screen for reference. Figure 1 below compares  endurance-related capabilities of the National Security Cutter, Fast  Response Cutter, and HC-144 with the assets they are replacing.
According to operators of the National Security Cutter and the Fast  Response Cutter, other new capabilities are also increasing operational  effectiveness. For example, the Fast Response Cutter has a stern launch  and recovery ramp—a space at the end of the vessel that stores and  deploys the cutter’s small boat and is open to the water. Using this ramp,  according to operators, they launch the cutter’s small boat in 10 to 15  seconds while the ship is actively pursuing a target. By comparison, the  legacy 110’ patrol boat requires a significant number of personnel to  launch the cutter’s small boat using a crane attached to the center of the  vessel—a complex process that takes significantly longer and has  potential safety risks. The National Security Cutter also has a stern  launch ramp, which, in addition to launching and recovering small boats,  was used by the ship’s crew to hold a seized boat while they dismantled it  to find drugs hidden in hard-to-reach compartments. In addition, operators  told us that the larger flight deck on the National Security Cutter allows  the Coast Guard to more safely operate the helicopter in rougher seas  than the legacy vessel and, based upon early demonstrations, conduct  unmanned aircraft system operations in conjunction with the helicopter.
These and other capability improvements allow Coast Guard operators to  more effectively accomplish their missions.
To date, the improved capabilities of the four newly fielded assets have  led to mission-related successes, according to Coast Guard asset  commanders. For example, officials from Air Station Miami reported that  since they began regularly operating the HC-144 in fiscal year 2011, the  aircraft has had a significant role in improving the effectiveness of the  Coast Guard’s counterdrug and alien migrant interdiction operations in  this area. In addition, one National Security Cutter completed a 160-day  deployment in fiscal year 2013 during which it performed 6 drug  interdictions totaling 570 kilograms of cocaine. Cutter officers stated that  the ship’s intelligence capabilities and the small unmanned aircraft  system, which are both new capabilities that are not on the 378’ High  Endurance Cutter, were crucial to these drug interdictions. In addition,  Coast Guard operators stated that the ability to interoperate with foreign  navies during joint exercises was greatly enhanced by the communication  features on the National Security Cutter.
section_title: Guidance Unclear As to When Minimum Performance Requirements Must be Demonstrated
paragraphs: DHS approved the Fast Response Cutter and HC-144 for full-rate  production in September 2013 and October 2012, respectively. However,  neither asset met all key requirements during initial operational testing.  The Fast Response Cutter partially met one of six key requirements while  the HC-144 met or partially met four of seven. The Fast Response Cutter  was found to be operationally effective (with the exception of its cutter  boat) though not operationally suitable, and the HC-144 was found to be  operationally effective and suitable. As we have previously found for  Department of Defense (DOD) programs, continuing with full-rate  production before ensuring that assets meet key requirements risks  replicating problems in each new asset until such problems are  corrected. DHS officials stated that they approved both assets for full- rate production because the programs had plans in place to address most  major issues identified during testing, such as supplying the Fast  Response Cutter with a small boat developed for the National Security  Cutter. However, DHS and Coast Guard acquisition guidance are not  clear regarding when the minimum performance standards should be  met, such as prior to entering full-rate production. For example, DHS and  Coast Guard guidance provide that the Coast Guard should determine if  the capability meets the established minimum performance standards, but  do not specify when this determination should be made. By comparison,  DOD acquisition guidance requires that specific minimum performance  standards, which are defined at the time assets are approved for system  development, be met prior to entering full-rate production.
In addition, DHS and Coast Guard acquisition guidance do not clearly  specify how agency officials determine when a breach occurs and what  triggers the need for a program manager to submit a performance breach  memo. According to DHS and Coast Guard acquisition guidance, when  programs fail to meet key performance parameters, program managers  are required to file breach memorandums stating that the program did not  demonstrate the required capability. Even though threshold key  performance parameters on the HC-144 and Fast Response Cutter were  not met during operational testing, the Coast Guard did not report that a  breach had occurred. Acquisition guidance is unclear as to whether or not  failing to meet key requirements during operational testing constitutes a  breach. According to Coast Guard officials, if the Coast Guard plans to re- test or re-design a deficiency in order to meet the threshold value, then a  breach has not yet occurred. For example, the Fast Response Cutter  small boat did not meet the threshold seakeeping requirement, but a new  cutter small boat has since been tested on its own and fielded to all Fast  Response Cutters. The Coast Guard plans to test this new cutter small  boat with the Fast Response Cutter during follow on testing. Program  officials are confident that the cutter’s new small boat meets this  requirement and that—therefore—a breach has not occurred. DHS  acquisition guidance specifies the performance criteria used to determine  whether or not a breach has occurred, but does not identify a triggering  event for determining when a breach occurs. DHS’s Program  Accountability and Risk Management officials stated that a program  breach is not necessarily related to its performance during initial  operational testing, which they state is a snapshot of a single asset’s  performance during a defined test period. Without clear acquisition  guidance, it is difficult to determine when or by what measure an asset  has breached the threshold values of its key performance parameters  and—therefore—when to notify DHS and certain congressional  committees.
Specific information on testing outcomes for each asset follows.
subsections: section_title: Fast Response Cutter
paragraphs: COTF determined in July 2013 that the Fast Response Cutter, without the  cutter’s small boat, is operationally effective—meaning that testers  determined that the asset enables mission success. The cutter’s small  boat was determined to not be seaworthy in minimally acceptable sea  conditions and—therefore—could not support the cutter’s mission set.  Further, COTF determined that the Fast Response Cutter is not  operationally suitable because a key engine part failed, which lowered the  amount of time the ship was available for missions to an unacceptable  level. Despite the mixed test results, COTF and DHS testers as well as  Coast Guard program officials all agree that the Fast Response Cutter is  a capable vessel. Ultimately, COTF recommended that the Coast Guard  proceed to field the vessel, but also recommended that the issues with  the cutter’s small boat be remedied expeditiously and that follow-on  operational testing be conducted once corrective actions have been  implemented. Since the test, the Coast Guard has delivered a new small  boat that meets the Fast Response Cutter’s needs and determined that  the engine part failure was an isolated event.
The Navy also examined the extent to which the Fast Response Cutter  meets key requirements. The test demonstrated that it partially met only  one out of its six key requirements; the other five requirements did not  meet minimum performance levels or were not tested. Table 2 displays  each key performance parameter for the Fast Response Cutter, the test  results, and a discussion of these results.
The Coast Guard proactively sought to test the Fast Response Cutter  early in the acquisition process, but early testing limited the ability to fully  examine the vessel. For example, the Coast Guard did not test the top  speed of the vessel due to a fuel oil leak. As noted above, DHS approved  the Fast Response Cutter for full-rate production, but directed the  program to develop corrections for the issues identified during operational  testing and to verify those corrections through follow-on operational  testing by the end of fiscal year 2015.
section_title: Maritime Patrol Aircraft (HC- 144)
paragraphs: In July 2012, COTF determined the HC-144 to be operationally effective  and operationally suitable and recommended that the Coast Guard  continue to field the aircraft. Even though testers expressed confidence in  the aircraft to meet its missions, the test also showed that the HC-144  achieved—or partially achieved— four out of seven key requirements.  Table 3 contains each key performance parameter for the HC-144, the  test results, and a discussion of these results.
The Coast Guard did not test all key performance parameters, but is  pursuing corrections following approval for production. The HC-144 did  not meet the minimum performance level for detecting targets at sea with  its radar and C4ISR mission system. While the mission system did not  meet requirements, the aircraft was considered operationally effective  because operators can supplement these systems by looking out of the  windows of the aircraft. DHS approved the HC-144 for full-rate  production, but directed the program to develop a plan to correct  deficiencies. Coast Guard program officials told us that they are  addressing the deficiencies discovered through the test as funding  becomes available and through changes in operational tactics. According  to the officials, the HC-144 program will likely be truncated because the  Coast Guard is receiving similar assets (C-27 aircraft) from the Air Force  at no cost, which would render the production decision of the HC-144  inconsequential.
section_title: National Security Cutter
paragraphs: The Coast Guard has some knowledge about the performance of the  National Security Cutter, gained through operational deployments and  preliminary test events, and the field portion of operational testing was  recently conducted. The Coast Guard has been operating the vessel  since 2008, conducted a preliminary operational test in 2011, and has  received certifications to fully operate and maintain helicopters as well as,  according to officials, to use the cutter’s information technology systems  on protected networks. In addition, Coast Guard program officials stated  that the National Security Cutter has demonstrated most of its key  performance parameters through a myriad of non-operational tests and  assessments, but a few key performance parameters, such as those  relating to the endurance of the vessel and its self-defense systems have  yet to be assessed. Verification of an asset’s ability prior to operational  testing may be beneficial, but, as we have previously found, only  operational testing can ensure that an asset is ready to meet its  missions.
Prior to testing, the Coast Guard encountered several issues that require  retrofits or design changes to meet mission needs based upon  operations, certifications, and non-operational testing. The total cost of  these changes is not yet known, but changes identified to date have  totaled approximately $140 million, about one-third of the production cost  of a single National Security Cutter. The Coast Guard must pay for all of  these and future changes due to the contract terms under which the first  three ships were constructed and because the warranty on the remaining  ships does not protect the Coast Guard against defects costing more than  $1 million. Table 4 lists the retrofits and design changes costing more  than $1 million. The table does not include all changes because the Coast  Guard did not have data for some of the modifications. In addition to the  $140 million in identified changes, the Coast Guard has established a  program to supply the National Security Cutter with cutter small boats for  an additional $52.1 million because the small boats originally planned to  be delivered with the vessel did not meet requirements.
Additional changes may be needed because the Coast Guard has not  fully validated the capabilities of the National Security Cutter, though  seven vessels have been delivered or are in production. This situation  could result in the Coast Guard having to spend even more money in the  future, beyond the current changes, to ensure the National Security  Cutter fleet meets requirements and is logistically supportable. For  example, the cutter is experiencing problems operating in all intended  environments. The National Security Cutter requirements document  states that the cutter will conduct assigned missions in a full spectrum of  climate and maritime weather conditions, to include tropical, dry,  temperate, and arctic climates. This document adds that although the  National Security Cutter will operate in regions in which ice is frequently  encountered, it will not have an ice-breaking mission. However, Coast  Guard engineering reports from December 2012 discuss problems  operating in both warm and cold climates. These reports discuss several  warm weather problems, including cooling system failures, excessive  condensation forming “considerable” puddles on the deck of the ship, and  limited redundancy in its air conditioning system—which, among other  things, prevents the use of information technology systems when the air  conditioning system needs to be serviced or repaired. In addition,  according to operational reports, during a recent deployment, the  Commanding Officer of a National Security Cutter had to impose speed  restrictions on the vessel because of engine overheating when the  seawater temperature was greater than 77 degrees. Cold climate issues  include the National Security Cutter not having heaters to keep oil and  other fluids warm during operations in cold climates, such as the arctic.  Further, Coast Guard operators state that operating near ice must be  done with extreme caution since the ice can move quickly and can “spell  disaster” if the National Security Cutter comes in contact with it. Senior  Coast Guard officials acknowledged that there are issues to address and  stated that the Coast Guard has not yet determined what, if any, fixes are  necessary and that it depends on where the cutter ultimately operates.
section_title: C4ISR Information Technology Systems
paragraphs: The Coast Guard does not plan to operationally test the C4ISR system’s  key performance parameters. The Coast Guard initially planned to test  the C4ISR system separately from the operational testing of its planes  and vessels, such as the HC-144 and Fast Response Cutter. Coast  Guard officials then decided to test the C4ISR system in conjunction with  the planes and vessels to save money and avoid duplication. However,  the C4ISR system was not specifically evaluated during the HC-144 and  Fast Response Cutter tests because testing the effectiveness and  suitability of the C4ISR system was not fully integrated into the assets’  test plans. For example, the HC-144 was unable to meet its key  requirement for detection, which uses the C4ISR software in conjunction  with the HC-144’s radar and other sensors. In addition, COTF found that  the HC-144’s ability to detect and share target data was cumbersome and  time-consuming. These results were not evaluated against the C4ISR  system’s requirements. While testing the C4ISR system at the same time  as the assets can work, this strategy is not consistent with Coast Guard  acquisition guidance if the C4ISR system’s key performance parameters  are not tested. Acquisition guidance states that the Coast Guard should  test the C4ISR system, as it does with all major acquisitions, to ensure it  is operationally effective, operationally suitable, and meets its basic  requirements. By not testing the system, the Coast Guard has no  assurance that it is purchasing a system that meets its operational needs.  In responding to a draft of this report, the Coast Guard stated that it now  plans on testing the C4ISR system’s key performance parameters during  follow on testing for the National Security Cutter.
The Coast Guard has also encountered several issues with the C4ISR  system that have required significant and costly changes, including  replacing the original system. The original C4ISR system, which cost  $413 million to develop and field, was designed and built as a tightly  integrated system bundling large commercial and government software  programs with contractor-proprietary software, which made it difficult and  costly to maintain—primarily due to its unique characteristics and large  size. For example, according to program officials, the Coast Guard relied  on the contractor to conduct even basic system updates, which required  new software code because of how the system was integrated.
As a result, in 2010, the Coast Guard began replacing the C4ISR  software in two steps. First, to address immediate issues, the Coast  Guard separated the weapons and command and control/navigation  portions of the software but maintained the ability to share data between  these portions of the system. Second, the Coast Guard has developed  and is now installing a new software package that shares data between  proven systems, which makes the system easier to maintain. For  example, the communication/navigation system is largely based upon the  Navy’s Global Command and Control System, a long-standing system  maintained by DOD. In addition, the combat system is adapted from the  Navy’s Aegis system. While the previous version of the C4ISR system  also contained this software, the Coast Guard’s new configuration keeps  these systems independent to improve performance and maintenance,  while still allowing data to be passed back and forth between the software  packages within the system.
The Coast Guard has spent nearly $2 million to develop this new system,  called Seawatch, which will have to be further developed for each asset  on which it is fielded. For example, it will cost an additional $88.5 million  in acquisition funds to purchase the software and hardware needed to  field the system on the National Security Cutters. In addition, the Coast  Guard is replacing the mission systems on the HC-144 and HC-130J  airframes with a proven Navy system to address obsolescence,  maintenance, and performance issues. Initial cost estimates are being  developed for this project.
section_title: Cost Increases Are Consuming Funding and Affordability Issues Have Not Been Addressed or Accurately Represented
paragraphs: As acquisition program costs increase across the portfolio, consuming  significant amounts of funding, the Coast Guard is farther from fielding its  planned fleet today than it was in 2009, in terms of the money needed to  finish these programs. In 2009, we found that the Coast Guard needed  $18.2 billion to field its original baseline, but it now needs $20.7 billion to  finish fielding these same assets. For example, the estimated funding  needed to complete the National Security Cutter increased by $2.2 billion  since original estimates. Given these cost increases and funding  constraints, the Coast Guard and key stakeholders have acknowledged  that the Coast Guard’s acquisition portfolio is not affordable but, thus far,  efforts to address this issue have not led to the significant trade-off  decisions needed to improve its affordability. To balance its portfolio,  Coast Guard budget officials stated that they use the 5-year Capital  Investment Plan. However, this plan presents data in a manner that  makes the portfolio appear more affordable than it really is. For example,  in the Fiscal Years 2014 through 2018 Capital Investment Plan, the Coast  Guard proposed purchasing two Fast Response Cutters per year, instead  of four or six per year, but did not capture the up to $800 million in total  cost increases associated with this reduced quantity.
subsections: section_title: Cost Increases Are Consuming Funding
paragraphs: As program cost increases consume significant amounts of funding, the  Coast Guard is farther from fielding its planned fleet today than it was in  2009, in terms of the money needed to finish these programs. Figure 2  shows the total cost of and cost to complete the Coast Guard’s original  2007 baseline in 2009 and 2014.
This is the result of $11.3 billion in cost increases realized since 2007 for  these programs, according to the most recent program baselines. For  example, the Coast Guard experienced a $2.2 billion cost increase to the  National Security Cutter project since the 2007 estimate. In addition, the  anticipated cost to complete the Offshore Patrol Cutter has increased by  $4 billion since 2007 and, therefore, will also consume a significant  portion of future funding. Since our last review, the Coast Guard, in  conjunction with DHS, has updated many of its cost estimates. Senior  Coast Guard acquisition officials told us that many of the cost increases  are due to changes from preliminary initial estimates and that they expect  to meet their current cost estimates. However, the Coast Guard has yet to  construct the largest asset in the portfolio—the Offshore Patrol Cutter— and if the planned costs for this program increase, difficulties in executing  the portfolio as planned will be further exacerbated.
section_title: Decision Makers Have Yet to Address Ongoing Affordability Concerns
paragraphs: Coast Guard, DHS, and OMB officials have acknowledged that the Coast  Guard cannot afford to recapitalize and modernize its assets in  accordance with the current plan at current funding levels. According to  budget documents, Coast Guard acquisition funding levels have been  about $1.5 billion for each of the past 5 years and the President’s budget  requests $1.1 billion for fiscal year 2015. At the same time, DHS is  struggling to match acquisition needs with available resources across all  of its component agencies, including the Coast Guard. Coast Guard  acquisitions comprise about 16 percent of the total DHS acquisition  budget. In a December 2012 memo signed by the Chief Financial Officer,  DHS estimated that funding requirements for all of its major acquisitions  exceed available resources by 30 percent.us that they recognize that the Coast Guard’s acquisition portfolio is not  affordable at current funding levels given the fiscal constraints faced by all  federal agencies.
OMB officials have also told  Efforts are underway to address this issue, but, so far, these efforts have  not led to the significant trade-off decisions needed to improve the  affordability of the Coast Guard’s portfolio. A senior Coast Guard official  recently stated that external reviews of the Coast Guard’s planned  acquisitions have been conducted by DHS and White House  organizations, such as the President’s Policy Councils, and, often,  additional demand for Coast Guard missions is identified, rather than  deciding upon reductions. OMB officials stated that these reviews are not  conducted in conjunction with budget policy and do not incorporate capital  investment strategies. Examples of the steps OMB, DHS, and the Coast  Guard have taken to address the affordability of the Coast Guard’s  acquisition portfolio are described below:
OMB conducts annual performance and mission based reviews of the  Coast Guard, in conjunction with other White House staff, as part of  the annual budget process. OMB officials told us that there has been  little progress in efforts to identify the trade-offs that would make the  recapitalization portfolio more affordable, such as adjusting the  quantities or capabilities of assets needed to meet mission needs.  The officials stated that reviews regarding the fiscal year 2015 budget  process were focused heavily on the sequestration funding caps and,  therefore, did not focus on long term issues.
DHS has conducted two annual Coast Guard acquisition portfolio  reviews, but according to DHS program reviewers, the most recent  review—scheduled for September 2013—was cancelled as a result of  the lapse in federal government appropriations. According to a DHS  official who led the reviews, the earlier reviews provided updates to  DHS leadership on the status of the Coast Guard’s acquisitions and  efforts to address affordability, but no trade-off decisions were made  to reduce planned quantity or capability. DHS officials told us that the  Secretary recently directed a review of the Coast Guard’s acquisition  portfolio over the next 20 years. We have previously reported that  DHS has taken steps to address affordability issues at acquisition  decision events, but it has rarely directed affordability trade-offs. In  the case of the Fast Response Cutter, DHS approved the vessel for  full-rate production in September 2013 even while acknowledging that  the cutter faces affordability challenges and that the program did not  meet DHS’s requirement to verify that sufficient funding is available.  DHS has proposed two consecutive budgets, one before and one  after the production decision, with a funding level for the Fast  Response Cutter that supports purchasing two cutters per year rather  than the four cutters per year that form the basis for the cost and  schedule estimates in the asset’s acquisition program baseline.
We have previously reported on the Coast Guard’s efforts to address  affordability and recommended that the Coast Guard develop a plan  to match needs and resources. In response to our recommendation  in September 2012, DHS stated that the Coast Guard is developing a  process to make trade-off decisions that will result in a portfolio that  contains a balanced mix of assets that meets mission needs within  affordability constraints. However, the Coast Guard has yet to  document how this new process will work and it is not clear who in the  Coast Guard has the authority to make trade-off decisions. Officials  who support the Executive Oversight Council stated that the goal is to  better inform Council members so that they understand the full  consequences of annual budget decisions. These officials told us that  they are striving to establish this process in time to inform the fiscal  year 2016 budget. While the Coast Guard continues to concur with  our previous recommendation that the Executive Oversight Council  should be closely involved in making trade-off decisions to balance  the portfolio, the Coast Guard could not provide documentation that  this group has made any decisions to balance needs and funding as  of May 2013. In addition, Coast Guard budget officials told us that the  Executive Oversight Council does not have full authority to make  these decisions, as final decisions are made by the Commandant, in  conjunction with the Investment Review Board.
section_title: Capital Investment Plan Does Not Capture the Full Effect of Annual Budget Decisions
paragraphs: The Coast Guard’s Fiscal Years 2014 through 2018 Capital Investment  Plan complies with the law specifying its contents. Each year, the Coast  Guard is required to submit a 5-year Capital Investment Plan to certain  congressional committees when the President’s budget is submitted. This  plan is required to include, among other things, the appropriations in the  current budget, projected funding levels for each of the next five fiscal  years, and estimated total cost and schedule in current program  baselines. To date, the Coast Guard has not submitted the Fiscal Years  2015 through 2019 plan, which was due in conjunction with the  President’s Budget delivered in March 2014.
The law does not require the Coast Guard to include total cost of its  projects at planned funding levels. In the Fiscal Years 2014 through 2018  Capital Investment Plan, cost and schedule totals did not match the  funding levels presented for many programs. For example, the plan  proposed lowering the Fast Response Cutter procurement to two per year  but still showed the total cost and schedule estimates for purchasing  three or six per year—suggesting that this reduced quantity would have  no effect on the program’s total cost and schedule. Given that decreasing  the quantity purchased per year would increase the unit and total  acquisition cost, the Coast Guard estimated that the decision to order  fewer ships will likely add $600 million to $800 million in cost and 5 years  to the cutter’s final delivery date, but this was absent from the plan. Coast  Guard officials stated that they are required to report the assets’ cost and  schedule per the acquisition program baseline. However, these officials  also acknowledged that this plan does not consistently reflect current cost  and schedule estimates or the effects of the trade-offs that are made as  part of the annual budget cycle. Reporting total cost and delivery dates  that do not reflect funding levels could lead to incorrect conclusions about  the effect of these decisions on the program’s total cost and schedule.  That is, Congress may conclude that the Coast Guard’s acquisition  portfolio is more affordable than it actually is.
section_title: Future Capabilities Uncertain as Coast Guard Makes Annual Budget Decisions; Alternatives Could Improve Outlook
paragraphs: The Coast Guard is repeatedly delaying and reducing its capability  through its annual budget process, but does not know the extent to which  its mission needs can be tailored and still achieve desired results. Thus,  its ability to meet future needs is uncertain. For example, the Coast Guard  has already experienced a gap in heavy icebreaking capability and is  falling short of meeting current and future major cutter operational hours.  These capability gaps may persist as funding replacement assets will  remain difficult at current funding levels. A key indication of this situation  is that several current and additional acquisitions will have to compete for  a small percentage of the Coast Guard’s acquisition funding between  2018 and 2032 while the Offshore Patrol Cutter is being built. This asset  will likely absorb about two-thirds of the Coast Guard’s acquisition funding  during this timeframe. The Coast Guard does not have a long term plan  that demonstrates how it will maintain today’s service level and meet  identified needs. While making annual budget decisions, the Coast Guard  is pursuing some cost effective means of providing specific capabilities,  though it has yet to fully realize potential savings.
subsections: section_title: Gaps Are Materializing as the Coast Guard Shapes Its Capability through the Budget Process
paragraphs: As the Coast Guard continues to make decisions through the budget  process, it is experiencing capability gaps in the following areas:  Icebreakers—According to program officials, due to funding  constraints, the Coast Guard chose not to invest in either of its heavy  icebreakers as they approached the end of their service lives. Thus,  both heavy icebreakers were out of service from 2010 to 2013 and the  Coast Guard could not complete missions, such as resupplying a  science laboratory in Antarctica. The Coast Guard has recently  returned one of these heavy icebreakers back to service, but still has  one fewer heavy icebreaker than it has historically operated and  several fewer than it needs, according to the Coast Guard’s June  2013 heavy icebreaker mission need statement.
River Buoy Tenders—The Coast Guard is also facing a gap in its  river buoy tender fleet and the Coast Guard has yet to formalize an  acquisition project to replace this fleet, which is estimated to cost over  $1.5 billion.
Drug Interdiction Performance—The Coast Guard and DHS  Inspector General recently reported that the Coast Guard was not  able to meet the target for its drug interdiction mission performance  measure for four of the last five years because of potential factors  including the advancing age and deteriorating condition of the Coast  Guard’s cutter fleet. report this spring that discusses the resources provided by the Coast  Guard for drug interdiction operations.
For more information, we will be issuing a
2013 Major Cutter and Patrol Boat Hours—The Coast Guard is also  currently experiencing a performance gap in its major cutter and patrol  boat fleets. The Coast Guard’s major cutter fleet—comprised of the  National Security Cutter and the in-service high and medium  endurance cutters—must operate 136,620 hours per year to meet its  missions. In fiscal year 2013, partly due to sequestration, the Coast  Guard’s major cutter fleet operated 99,342 hours—falling 27 percent  short of its goal. The Coast Guard estimates that it would have been  6,078 hours short of its needs even if sequestration was not in effect.  The Coast Guard’s patrol boat fleet operated for 178,000 hours last  year, falling short of its 247,000 hour goal. The Coast Guard would  have also fallen short of this goal even if sequestration were not in  effect.
In addition, there is little room in its budget to deal with unexpected  developments in operations. For example, in 2012, the Commandant  wrote about the emerging need for established forces in the Arctic, but  the Coast Guard’s major cutters may need additional equipment to  operate in these areas.
The Coast Guard may fall even further below its operational hour goal for  major cutters as the Offshore Patrol Cutter is being built. The Coast  Guard has stated that delays in the delivery of the Offshore Patrol Cutter  will lead to greater operational capacity shortfalls due to increased  downtime for maintenance and other issues that reduce the current  medium endurance cutters’ operational availability. For example, in  2013, three 210’ medium endurance cutters had to be put in a dry dock  for emergency hull repairs. Coast Guard engineers stated that repairs like  these are likely to become more frequent as these assets age.
Even after the Coast Guard builds the Offshore Patrol Cutter, it may not  achieve the 136,620 hour goal. To meet this goal, the Coast Guard needs  the National Security Cutter and the Offshore Patrol Cutter to operate for  a total of 4,140 hours each year. The National Security Cutter is currently  operating 3,330 hours per year and the Coast Guard has a plan to  increase this to 3,830 per year by fiscal year 2017. However, Coast  Guard operators have significant concerns about maintaining the vessel  at this high tempo, primarily due to logistics and personnel concerns.  According to officials, the Coast Guard is still planning to operate the  National Security Cutter and Offshore Patrol Cutter 4,140 hours per year  by using a crew rotation concept. We are currently conducting a review of  National Security Cutter operations, including the status of implementing  rotational crewing.
As the budget process takes the place of a knowledge-based acquisition  process, the Coast Guard is repeatedly delaying and reducing its portfolio  on an annual basis to address budget constraints, rather than pursuing an  affordable set of long-term needs.future budgets and delays fielding capability, which may reduce planned  performance. Despite these delays, the Coast Guard continues to follow  its current plan, but does not know the extent to which this plan can be   This approach puts pressure on  tailored through the budget process and still achieve desired results.  Thus, the Coast Guard does not know what capability it will be able to  provide and whether or not this capability will meet mission needs. We  have previously found that by continuing to pursue only a portion of  planned capability without re-evaluating the portfolio as a whole, the  Coast Guard further increases the risk that it may not accomplish its  mission needs. According to best practices, agencies should implement  a knowledge-based acquisition approach to pursue a long term set of  affordable needs. We have previously found that acquisitions that  continue without this knowledge frequently experience poor outcomes.  Without such an approach, the Coast Guard does not have reasonable  assurance that its assets are planned to meet established cost, schedule,  and performance baselines, in turn leading to sound investment  decisions.
section_title: The Coast Guard Has No Long-Term Plan as Cutter Delays Bring About an Era of Continuous Acquisition
paragraphs: If funding levels remain constant, several current and additional  acquisitions will have to compete for a small percentage of the Coast  Guard’s acquisition funding between 2018 and 2032 while the Offshore  Patrol Cutter is being built. According to current funding levels and cost  and schedule estimates, the Offshore Patrol Cutter will absorb about two- thirds of the Coast Guard’s acquisition funding during this timeframe.  Primarily due to a 14 year delay to the Offshore Patrol Cutter and a 10  year delay to the Fast Response Cutter realized since 2007, the Coast  Guard is now in the position of having to continually rebuild its assets  rather than rapidly modernize as was originally planned. Thus, the Coast  Guard has a number of significant additional programs that will require  funding while the Offshore Patrol Cutter, Fast Response Cutter, and other  assets in the current portfolio are still being built. The Coast Guard is in  the process of assessing its needs in many of these areas. These  potential acquisitions fit into three categories:
Surface Fleet Recapitalization—This project includes conducting a  service life extension program for the 13 270’ medium endurance  cutters, replacing or extending the Coast Guard’s 87’ coastal patrol  boat fleet (73 cutters), and funding other sustainment projects for  vessels that are in-service, such as the Coast Guard’s large fleet of  river buoy tenders. As discussed earlier, the Coast Guard is also  looking into additional icebreaker investments beyond the current  single heavy icebreaker program, as the medium icebreaker will also  need to be replaced or extended during this period.
Aircraft Recapitalization—The primary aircraft need will be replacing  or extending the MH-60 and MH-65 helicopter fleets, which approach  a life-limiting milestone between 2022 and 2026. Regardless of the  future path, significant acquisition dollars will be required to maintain  annual flight hours for the next 20 years, according to Coast Guard  program officials. Another significant project, these officials added, will  be replacing the C4ISR system on the Coast Guard’s aircraft—some  of which need new systems while other systems need to be replaced  due to obsolescence. According to Coast Guard program officials, the  prototypes are planned to be completed by the end of fiscal year  2016, at which point the new mission systems will need funding for  production.
Additional Costs for New Assets—As with other cutter classes, the  Fast Response Cutter and the National Security Cutter will need to  undergo planned repair and maintenance work when the respective  fleets reach their service life midpoints beginning in 2025 and 2028,  respectively. The Coast Guard cannot skip these maintenance  periods; they are needed to overhaul major components because  older equipment is not supported over a cutter’s 30 year service life.  In addition, the future operational bases from which the Offshore  Patrol Cutter will operate need an estimated $431 million for upgrades  to intended home ports.
The Coast Guard is not currently required to develop a long-term fleet  modernization plan that considers its current service levels for the next 20  years in relation to its expected acquisition funding. Without such a plan,  the Coast Guard does not have a mechanism to aid in matching its  requirements and resources. For example, the Coast Guard does not  know if it can meet its other acquisition needs while the Offshore Patrol  Cutter is being built, which according to current plans will conclude in  about 20 years. In addition, as we have previously found, the Coast  Guard is deferring costs—such as purchasing unmanned systems or  replacing its Buoy Tender fleet—that could lead to an impending spike in  the requirement for additional funds.place to capture the effects of deferring such costs on the future of the  acquisition portfolio.
The Coast Guard has no method in  The Coast Guard’s acquisition guidance supports using a long range  capital planning framework. According to OMB capital planning guidance  referenced by the Coast Guard’s Major Systems Acquisition Manual,  each agency is encouraged to have a plan that defines its long-term  capital asset decisions. This plan should include, among other things, (1)  an analysis of the portfolio of assets already owned by the agency and in  procurement, (2) the performance gap and capability necessary to bridge  the old and new assets, and (3) justification for new acquisitions proposed  for funding. OMB officials stated that they support DHS and the Coast  Guard conducting a long term review of the Coast Guard’s acquisitions to  assess the capabilities it can afford.
Examples of other fleet modernization plans include the Navy’s annual  naval vessel construction plan (also known as the Navy’s long range  shipbuilding plan), which reflects the quantity and categories of assets  that the Navy needs to buy as well as the total number of assets in  operation for each year. While we have previously noted challenges  associated with the Navy’s plan, we also observed that such a plan is  beneficial in that it lays out a strategic approach for decision making. A  long-term plan can enable trade-offs to be seen and addressed in  advance, leading to better informed choices and making debate possible  before irreversible commitments are made to individual programs.  Without this type of plan, decision makers do not have the information  they need to better understand the Coast Guard’s long term outlook. In  its naval vessel construction plan, the Navy also assesses capability gaps  and planned construction over the short term, middle term and long  term—each 10-year periods in the plan. The Secretary of Defense  transmits the plan to Congress to aid in decision making. As a result,  the Navy has some knowledge of its future funding challenges. For  example, the Congressional Budget Office estimates that if the Navy  continues to receive the same percentage of DOD funds for shipbuilding  as it has in the past, the Navy can only fund 70 percent of the current long  range plan. When we discussed such an approach with the Coast Guard,  the response was mixed. Some Coast Guard budget officials stated that  such a plan is not worthwhile because the Coast Guard cannot predict the  level of funding it will receive in the future. However, other Coast Guard  officials support the development of such a plan, noting that it would help  to better understand the effects of funding decisions. Without such a plan,  it will remain difficult for the Coast Guard to fully understand the extent to  which future needs match the current level of resources and its expected  performance levels—and capability gaps—if funding levels remain  constant.
section_title: The Coast Guard Has Been Pursuing Less Expensive Means of Filling Some Capability Gaps
paragraphs: The Coast Guard is currently pursuing cost effective alternatives that  could begin the process of building a viable long term modernization plan.
Cutter-Based Unmanned Aircraft Systems—The Coast Guard is in  the process of demonstrating a small unmanned aircraft system on  the National Security Cutter and, to date, these demonstrations have  shown that a smaller system is feasible. As opposed to the 2007  estimate of $503 million, the Coast Guard preliminarily estimates that  it can outfit each of the planned eight National Security Cutters with  two unmanned aircraft and a control station on each vessel for $48  million. However, according to Coast Guard officials, it is too early to  fully understand the costs. Once this system is purchased, the Coast  Guard still plans to pursue a bigger solution in conjunction with the  Navy that meets all of the Coast Guard’s requirements.
Land-Based Unmanned Aircraft System—The Coast Guard has  also begun a partnership with U.S. Customs and Border Protection to  share and operate that component’s 10 land-based unmanned aircraft  systems. In the past year, the Coast Guard has been able to use this  asset to conduct over 500 hours of surveillance for Coast Guard  missions and officials expect that this number may increase. While  this program is growing, the Coast Guard continues to pursue its own  land-based unmanned aircraft.
Heavy Icebreaker—The Coast Guard is working closely with  international and U.S. agency partners in gaining knowledge to  support its heavy icebreaker acquisition. So far, while there are more  than 10 U.S. agencies that have requirements for a heavy icebreaker,  such as the Navy and National Science Foundation, no plans have  emerged for funding this vessel.
section_title: Conclusions
paragraphs: As the Coast Guard’s newest assets move through operational testing  they are demonstrating capability, but problems have been identified. This  is not unexpected; identifying problems is the purpose of the testing. In  general, project and acquisition oversight officials evaluate these test  results, among other data, and make a business case as to whether the  government is taking on undue risk by mass producing these assets. This  approach can be reasonable, but the parameters for making this case— including defining when an asset must meet a minimum level of  acceptable performance prior to this decision and determining at what  point a breach occurs—are not clearly set forth in Coast Guard or DHS  guidance. Moreover, without a defined point in the acquisition process by  which the Coast Guard must satisfy minimum requirements, the breach  process, with regards to performance, loses meaning. Further, the Coast  Guard no longer plans to operationally test the C4ISR system—always  intended to be a linchpin of the recapitalization program—even though  such testing is required of all major acquisitions. Without testing to ensure  that these systems meet minimum performance standards, the Coast  Guard cannot ensure that they meet mission needs and that the taxpayer  receives a good value for the investment.
As the Coast Guard has continued to refine cost estimates for its major  acquisitions, it is realizing that the cost of its acquisition portfolio has  grown and is now much greater than initially planned. This increased cost  is consuming a large portion of the Coast Guard’s acquisition budget. Our  previous recommendations, regarding the need for a process to make the  trade-off decisions needed to balance resources and needs, still stand.  In the meantime however, the extent of expected costs—and how the  Coast Guard plans to address them through budget trade-off decisions— is not being clearly communicated to Congress. The mechanism in place  for reporting to certain congressional committees, the Capital Investment  Plan, does not reflect the full effects of these trade-off decisions on the  total cost and schedule of its acquisition programs. This information is not  currently required by statute, but without it, decision makers are unable to  understand the full extent of funding that will be required to complete the  Coast Guard’s planned acquisition programs.
A pressing concern the Coast Guard faces is that the growing affordability  gap for its major acquisitions will be exacerbated by impending  requirements and capability needs. Annual budget decisions and the cost  saving measures the Coast Guard is pursuing may be sufficient for the  short term, but they do not position the Coast Guard to address future  needs. In other words, short term budget decisions may not amount to a  good long term investment strategy. Without a long term plan that sets  forth needed capabilities and the funding it will take to meet them, the  Coast Guard is not well positioned to identify how it will meet these  mission needs. A long term plan of this nature is particularly critical in light  of the looming Offshore Patrol Cutter procurement, which is currently  estimated to account for about two-thirds of the acquisition budget.
section_title: Matter for Congressional Consideration
paragraphs: To help ensure that it receives accurate information on the full effect of  funding decisions on acquisition programs, Congress should consider  amending the law that governs the 5-year Capital Investment Plan to  require the Coast Guard to submit cost and schedule information that  reflects the impact of the annual President’s budget request on each  acquisition across the portfolio—in addition to the current practice of  reporting the cost and schedule estimates in current program baselines.
section_title: Recommendations for Executive Action
paragraphs: To ensure that Congress and other decision makers are properly  informed regarding the status of programs, we recommend that the  Secretary of Homeland Security and the Commandant of the Coast  Guard revise their acquisition guidance by taking the following two  actions:
Specify when minimum performance standards should be met, such  as prior to entering into full-rate production.
Clarify the performance data that should be used to assess whether  or not minimum performance criteria have been met, prior to full-rate  production, to determine whether a performance breach has occurred.
To ensure that the Coast Guard’s C4ISR system meets mission needs,  we recommend that the Commandant of the Coast Guard take the  following action:
Assess the operational effectiveness and suitability of the C4ISR  system by fully integrating this assessment into other assets’  operational test plans or by testing the C4ISR program on its own.
To help the Coast Guard improve the long-term outlook of its portfolio, we  recommend that the Commandant of the Coast Guard take the following  action:
Develop a 20-year fleet modernization plan that identifies all  acquisitions needed to maintain the current level of service and the  fiscal resources necessary to build the identified assets. The plan  should also consider trade-offs if the fiscal resources needed to  execute the plan are not consistent with annual budgets.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DHS for review and comment. In its  comments, DHS concurred with all of our recommendations. DHS’s  written comments are reprinted in appendix II. We also provided draft  sections of the report to OMB and COTF, which provided us with  technical comments via email; we incorporated their comments as  appropriate.
Regarding the first two recommendations, on the timing of reporting and  actions to be taken when assets do not meet performance standards in  testing, DHS stated that it plans to make changes to its acquisition  guidance by June 30, 2015.
In concurring with the third recommendation, regarding the testing of the  C4ISR system, DHS noted that it plans to provide clearer guidance in the  next update of its acquisition policy, currently scheduled for June 30,  2015. Additionally, DHS stated that it still plans to test the C4ISR system  in conjunction with the vessels and aircraft on which the system is  installed. This strategy would be acceptable as long as the Coast Guard  incorporates the key performance parameters specifically related to the  C4ISR system into the vessel and aircraft test plans. In its response, DHS  disagreed in general with our description of the C4ISR system as not  meeting goals, noting that, according to the Coast Guard, the original  system was closed as a result of obsolescence and not due to  performance and maintenance problems. While it is true that much of the  original system—developed as part of Deepwater—is obsolete because it  was inextricably linked to the commercial vendor’s proprietary software,  performance problems were also an issue. We have previously reported  on these problems, such as assets not having the capability to share data  as envisioned and the system needing to be restarted during operations.   In short, the system of systems capability that was the original intent has  not been achieved. While DHS states that the C4ISR program is one  example of where the Coast Guard made tough decisions to provide the  greatest capability of equipment while using the least amount of dollars,  the Coast Guard invested $413 million to develop and field the original  system that is now being replaced with Seawatch.
While DHS concurred with our fourth recommendation to develop a 20- year fleet modernization plan, the response does not fully address our  concerns or set forth an estimated date for completion, as the response  did for the other recommendations.  DHS stated that the Coast Guard  values long term planning and can assemble a profile of the anticipated  service lives of the various assets and project this information to the  future.  However, the response also reaffirmed the very reason we made  this recommendation—that trade-off decisions considering the cost,  schedule, and performance of acquisitions are made during the annual  budget process. There is no evidence that these short-term budget  decisions will amount to a good long-term strategy and, as we have  previously noted, the Coast Guard’s annual, budget-driven approach  creates continual churn as program baselines must continually re-align  with budget realities instead of budgets being formulated to support  program baselines. In the case of the Coast Guard, this budget-driven  process is pushing tough trade-off decisions—between capability and  cost—into the future. Without a long-term plan, as we have  recommended, no one knows what taxpayers are ultimately going to get  for their approximately $1.5 billion annual investment in Coast Guard  acquisitions. We continue to believe that a properly constructed 20-year  plan is necessary to illuminate what is feasible in the long term and will  also provide a basis for informed decisions that align the Coast Guard’s  needs and resources.
DHS and the Coast Guard also provided technical comments that we  incorporated into the report as appropriate.
We are sending copies of this report to the Secretary of the Department  of Homeland Security, Commandant of the Coast Guard, and Director of  the Office of Management and Budget. In addition, the report is available  on our website at http://www.gao.gov.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 13 days from the  report date. At that time, we will send copies to your offices. In addition,  the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or mackinm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: In conducting this review, we relied in part on the information and analysis  in our past work, including reports completed in 2008 through 2012.  Additional scope and methodology information on each objective of this  report follows.
To assess how selected assets are performing operationally and to what  extent they are achieving desired performance levels in testing, we  selected key assets that are being used in operations that were a part of  the original 2007 baseline—the Maritime Patrol Aircraft (HC-144), Fast  Response Cutter, National Security Cutter, and the Command, Control,  Communications, Computers, Intelligence, Surveillance, and  Reconnaissance (C4ISR) systems—and reviewed test reports and  operational data for these assets. We also reviewed the Coast Guard’s  Major Systems Acquisition Manual and Department of Homeland Security  (DHS) Acquisition Management Directive 102-01 to review regulations  and directions for operational testing. We assessed operational test  reports for the HC-144 and Fast Response Cutter to determine what  issues were discovered during testing and interviewed officials from the  DHS’s Science and Technology directorate and the Navy’s Commander,  Operational Test and Evaluation Force (COTF) to discuss the results and  limitations of these tests and plans for future testing. For the National  Security Cutter and C4ISR programs, we reviewed preliminary tests and  changes being made to the systems as a result of knowledge gained  through early testing or operations that has led to retrofits or design  changes. We compared the results of these tests and operational data  with operational requirements documents for each program to determine  if these assets are performing as planned. We interviewed Coast Guard  officials with the capabilities and resource directorates, and officials and  operators with the National Security Cutter, Fast Response Cutter, HC- 144, and C4ISR programs to gain a greater understanding of operational  challenges and how they are being addressed. We met with National  Security Cutter operators at U.S. Coast Guard Base Alameda in  Alameda, California and we met with the District Commander for the  Coast Guard’s Seventh District, Fast Response Cutter operators at Coast  Guard Sector Miami, and HC-144 operators at U.S. Coast Guard Air  Station Miami in Miami, Florida and discussed the C4ISR operations  aboard each of these assets to discuss how these assets are performing  operationally. We interviewed contractor representatives from Huntington  Ingalls Industries for the National Security Cutter and Bollinger Shipyards  for the Fast Response Cutter and toured their respective shipyards to  discuss issues related to the production of these assets.
To determine the current cost of the Coast Guard’s acquisition portfolio as  well as plans to fund its assets, we reviewed the Coast Guard’s budget  and capital investment plan and identified the programs that are currently  in its acquisition portfolio. Based upon our definition, the Coast Guard’s  current acquisition portfolio consists of all major acquisitions that are  planned to receive funding in the current budget year and/or within the  next 5 years. We reviewed the approved acquisition program baselines  for programs currently in the portfolio to determine their cost and  schedule. We compared current baselines to previous baselines to  evaluate whether there has been any cost or schedule growth in these  programs. In comparing original costs to revised baseline costs, if a  revised baseline presents both threshold costs and objective costs,  threshold costs were used. In determining the cost to complete, we took  the total estimated cost of the acquisition in its current baseline and  subtracted the funding that the program has received as of and including  fiscal year 2014. For some assets, such as the HC-130J which received  funding not included in the Coast Guard budget, we derived the cost to  complete by totaling the funds required to finish the program based upon  the current cost estimate. We also reviewed the Coast Guard’s Major  Systems Acquisition Manual for guidance on acquisition program  baselines. We interviewed officials from the Office of Management and  Budget and the Department of Homeland Security’s Program  Accountability and Risk Management directorate and Program Analysis  and Evaluation directorate to determine what, if anything, they are doing  to balance the Coast Guard’s needs with anticipated funding.
To determine the extent to which the Coast Guard is experiencing  capability gaps, if any, given known affordability issues, we assessed the  Coast Guard’s performance targets and compared these targets with  acquisition plans. In addition, we interviewed officials from the Coast  Guard’s acquisitions and resource directorates to identify the challenges  the Coast Guard faces reaching these targets using current funding levels  and to understand actions taken by the Systems Integration Team and  Executive Oversight Council to address these challenges. We also  reviewed actions the Coast Guard is taking to improve the affordability of  recapitalizing its assets. We interviewed officials with the Coast Guard’s  acquisition directorate and the program managers for all of the programs  currently in the portfolio to discuss the cost of the portfolio and future  funding plans. To determine the condition and expected service life of  legacy assets, we reviewed Coast Guard analysis of these assets and  prior GAO work on legacy assets.
We conducted this performance audit from June 2013 to June 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Homeland Security
section_title: Appendix III: Coast Guard Acquisition Portfolio Costs
paragraphs: The Coast Guard has 11 major acquisition programs in its current  portfolio, based on the Fiscal Years 2014 through 2018 Capital  Investment Plan. Of these 11 major acquisition programs, 8 were also a  part of the 2007 recapitalization portfolio. Over time, the composition of  the portfolio has changed.  For example, since our last review in 2012,  the Coast Guard has added 3 programs to its acquisition portfolio and  another 7 programs are ending and, therefore, will no longer need  additional acquisition funding. We excluded $3.6 billion in “other costs  including project management” from our analysis of the Coast Guard’s  current portfolio of assets because these costs are not periodically re- baselined. Thus, the total cost of the original 2007 baseline excluding  these costs is $20.563 billion. Table 5 lists the total acquisition cost for  each of the programs in the Coast Guard’s current portfolio as well as the  cost increases and cost to complete for the programs in the original 2007  baseline.
section_title: Appendix IV: GAO Contact and Staff Acknowledgements
subsections: section_title: GAO Contact
paragraphs: Michele Mackin, (202) 512-4841 or mackinm@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact above, Katherine Trimble, Assistant Director;  Laurier R. Fish; Peter W. Anderson; William Carrigg; John Crawford;  Sylvia Schatz; and Lindsay Taylor all made key contributions to this  report.
section_title: Related GAO Products
paragraphs: Defense Contracting: Actions Needed to Increase Competition.  GAO-13-325. Washington, D.C.: March 28, 2013.
Coast Guard: Clarifying the Application of Guidance for Common  Operational Picture Development Would Strengthen Program.  GAO-13-321. Washington, D.C.: April 25, 2013.
Coast Guard: Portfolio Management Approach Needed to Improve Major  Acquisition Outcomes. GAO-12-918. Washington, D.C.: September 20,  2012.
Observations on the Coast Guard’s and the Department of Homeland  Security’s Fleet Studies. GAO-12-751R. Washington, D.C.: May 31, 2012.
Coast Guard: Legacy Vessels’ Declining Conditions Reinforce Need for  More Realistic Operational Targets. GAO-12-741. Washington, D.C.: July  31, 2012.
Missile Defense: Opportunity Exists to Strengthen Acquisitions by  Reducing Concurrency. GAO-12-486. Washington, D.C.: April 20, 2012.
Coast Guard: Action Needed as Approved Deepwater Program Remains  Unachievable. GAO-11-743. Washington, D.C.: July 28, 2011.
Coast Guard: Deepwater Requirements, Quantities, and Cost Require  Revalidation to Reflect Knowledge Gained. GAO-10-790. Washington,  D.C.: July 27, 2010.
Coast Guard: As Deepwater Systems Integrator, Coast Guard Is  Reassessing Costs and Capabilities but Lags in Applying Its Disciplined  Acquisition Approach. GAO-09-682. Washington D.C.: July 14, 2009.
Coast Guard: Better Logistics Planning Needed to Aid Operational  Decisions Related to the Deployment of the National Security Cutter and  Its Support Assets. GAO-09-497. Washington, D.C.: July 17, 2009.
Best Practices: High Levels of Knowledge at Key Points Differentiate  Commercial Shipbuilding from Navy Shipbuilding. GAO-09-322.  Washington, D.C.: May 13, 2009.