Coast Guard Cutters: Depot Maintenance Is Affecting Operational Availability and Cost Estimates Should Reflect Actual Expenditures
Published: 2017-03-02T00:00:00

Fast Facts:
The Fast Response Cutter (FRC) and the National Security Cutter are two of the newest and most vital cutters in the Coast Guard's fleet—but both have had engine trouble. We found that both cutters have required a lot of maintenance, making them less available to conduct critical missions than the Coast Guard had planned. However, due to the FRC warranty, as well as how the Coast Guard calculates its average maintenance needs for both cutters, the agency's maintenance cost estimates are much higher than recent actual costs.
We recommended that the Coast Guard periodically evaluate and update its maintenance cost estimates for these ships.

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Coast Guard is procuring the FRC and NSC to replace its aging cutters. Both cutters have had operational problems—such as propulsion system issues—that are being addressed through maintenance. Prior GAO work identified issues related to performance and maintenance of these vessels, particularly related to the main diesel engines on both cutters.
The House Subcommittee on Coast Guard and Maritime Transportation, Committee on Transportation and Infrastructure asked that GAO examine maintenance of the FRC and NSC. This report addresses the extent to which (1) maintenance issues are affecting FRC's and NSC's operational status, (2) design changes affect the maintenance of the cutters, and (3) the Coast Guard's cost estimates reflect actual expenditures for maintenance for the FRC and NSC.
To conduct this work, GAO analyzed data on cutter maintenance and operations; analyzed the costs and timing of design changes; reviewed Coast Guard budgets and compared GAO best practices in cost estimating to the Coast Guard's process for estimating depot maintenance costs; and interviewed Coast Guard officials.
section_title: What GAO Found
paragraphs: Maintenance work for the Fast Response Cutter (FRC) and National Security Cutter (NSC) has lowered the operational availability of each fleet. Although both cutters on average have met their minimum mission capable targets over the long term, increased depot maintenance has more recently reduced each cutter's rates below targets. The FRC's rate is lower, in part, because of a series of unanticipated drydock periods to correct issues covered by its 12-month warranty. The NSC's lower rate is primarily because of anticipated 2-year maintenance and system upgrade periods performed on each newly delivered NSC. Both cutters have experienced problems with the diesel engines, which caused lost operational days and hindered operations while underway.
The Coast Guard's 154-foot Fast Response Cutter and 418-foot National Security Cutter
The Coast Guard has initiated design changes on the FRC and NSC, but some of the NSC's changes to address maintenance problems will not be installed until after each cutter is delivered. While the Coast Guard plans at least $17 million on FRC design changes, officials estimate the warranty has helped avoid $77 million for repaired systems. This includes about $52 million to replace 20 diesel engines that have degraded FRC operations since first discovered in July 2013. Design changes on the NSCs are expected to cost the Coast Guard at least $260 million. In order to maintain production schedules, several changes will be completed after delivery of each NSC, including the ninth NSC, which has not yet begun construction. Thus, systems with known deficiencies are being installed, only to be replaced later. Officials stated this approach is more cost effective; however, the Coast Guard did not document its cost analyses, in accordance with GAO cost estimating best practices. Without such documentation, the Coast Guard cannot demonstrate that it is making cost-effective decisions.
Since 2010, depot maintenance expenditures for the FRC and NSC have been $106.6 million less than the Coast Guard estimated. This amount remains in a centrally managed account and is made available for other surface assets, such as aging, legacy vessels. Coast Guard officials stated that depot maintenance estimates are not adjusted or updated over the service life of an asset class. Periodically updating depot maintenance cost estimates—in accordance with GAO cost estimating best practices—for each asset class could provide decision makers with much needed information with which to determine future budgets.
section_title: What GAO Recommends
paragraphs: To ensure that it effectively uses its resources, the Coast Guard should document cost analyses on the cost and timing of engineering design changes and periodically evaluate and update its depot maintenance cost estimates. The Department of Homeland Security agreed with both recommendations and provided timeframes for actions to address them.

section_title: Letter
paragraphs: The acquisition of the Fast Response Cutters (FRC) and National  Security Cutters (NSC) is an integral part of the Coast Guard’s plan to  modernize its aging fleet of cutters to perform its missions that are vital to  the security of the United States. These cutters are intended to be more  capable than their predecessors—the 110-foot Island Class Patrol Boats  and 378-foot High Endurance Cutters—with increased deployments and  endurance and enhanced communications and surveillance systems. We  reported on the condition of the legacy cutters in July 2012 and found that  they had exceeded their expected service lives and their material  condition was declining, which resulted in increased maintenance costs  and a burden on the Coast Guard’s budget. The declining condition of its  legacy cutters highlights the need for the Coast Guard to maintain its  newer cutters on schedule and within budget so that they are available to  conduct operations when needed and can meet or exceed their expected  service lives. In May 2016, we found that deferring maintenance can lead  to declining ship conditions and longer maintenance periods that can  reduce a ship’s operational availability.
While the Coast Guard tracks metrics related to the operations of the  FRC and NSC, such as days away from home port, those metrics do not  shed light on the maintenance issues that have plagued these cutters.  We reported on the status of the FRC and NSC in June 2014 and found  that problems with the FRC’s main diesel engines during initial testing  had limited the amount of time that the cutter was available to conduct  operations to an unacceptable level. In January 2016, we found that  maintenance issues with the NSC fleet had caused operational  challenges for which the Coast Guard had not yet identified corrective  actions. These included problems with the cutter’s main diesel engines,  which could not reach full power in warm waters, and generators that  were overheating. We also found that the Coast Guard planned to  conduct retrofits and design changes on the NSC fleet for problems  identified during testing and operations.
Given these concerns, you requested that we examine the Coast Guard’s  maintenance of the FRC and NSC. This report examines the extent to  which (1) maintenance issues, equipment failures, and spare parts  availability are affecting the asset status of the FRC and NSC; (2) design  changes affect the maintenance of the FRC and NSC; and (3) the Coast  Guard’s cost estimates reflect actual expenditures for maintenance for the  FRC and NSC.
To assess the extent to which maintenance issues, equipment failures,  and spare parts availability are affecting the asset status of the FRC and  NSC, we reviewed Coast Guard mission capability data for both cutters  and compared their rates to the target ranges established by the Coast  Guard. We also gathered data on the Coast Guard’s top operational  degraders and top maintenance cost drivers from 2014 to 2016 for the  FRC and NSC and reviewed their engineering reports from 2012 to 2015  to determine the top equipment issues the cutters were experiencing from  the perspective of the cutter captains. To assess the Coast Guard’s  design changes and how they are affecting maintenance, we reviewed  the planned Coast Guard design changes for both cutters and spoke with  program and engineering officials to understand the cost implications of  these design changes and how decisions are made regarding when the  changes are installed on the cutters. To assess how the Coast Guard’s  cost estimates reflect actual maintenance expenditures, we reviewed the  Coast Guard’s standard support levels, which are the estimated costs for  depot-level maintenance each year over the course of an asset’s life  cycle. We compared this information to actual depot-level maintenance  expenditures from 2012 to 2016 for the FRC and 2010 to 2016 for the NSC. In addition, we spoke with Coast Guard officials to understand how  these support levels are determined and what role they have in  developing the budget. Appendix I contains more information regarding  our scope and methodology.
We conducted this performance audit from February 2016 to March 2017  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
subsections: section_title: History of the Fast Response Cutter and National Security Cutter
paragraphs: The Coast Guard began a recapitalization effort in the late 1990s to  modernize a significant portion of its entire surface and aviation fleets by  rebuilding or replacing assets. This effort was formerly known as  Deepwater, and included the FRC and NSC programs, among others. 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. The Coast Guard reorganized the programs that comprised  Deepwater and since 2012 has referred to them broadly as the Coast  Guard’s recapitalization.
The FRC and the NSC are two of the newest assets in the Coast Guard’s  fleet. First delivered in 2012 and 2008, respectively, the cutters were  designed to provide additional capability beyond that possessed by their  predecessors. The FRC is intended to replace the current fleet of 49 110- foot Island Class Patrol Boats—which were first built in the 1980s—with  58 FRCs that provide the Coast Guard with additional capabilities, such  as advanced intelligence, surveillance, and reconnaissance technology,  and cutter boat deployment. The NSC is intended to replace the 12 High  Endurance Cutters—which were first built in the 1960s—with a smaller  fleet of NSCs that provides the Coast Guard with additional capabilities,  such as the ability to collect, analyze, and transmit classified information  as well as to carry, launch, and recover unmanned aerial vehicles, among  others. The Coast Guard originally planned eight NSCs to fulfill the  capability gap left by retiring the High Endurance Cutter fleet, but  Congress directed, in December 2015, that of the funds provided by the  Consolidated Appropriations Act, 2016, not less than $640 million be  immediately available and allotted to contract for the production of the  ninth NSC. Appendix II provides the current delivery schedule of FRCs  and NSCs.
The FRCs conduct operations in coastal and high seas conditions up to  200 nautical miles from the coast, enabling them to respond quickly to  emerging situations. These cutters are expected to spend no more than  185 days away from their homeport and conduct 2,500 operational hours  each year, with each patrol lasting roughly 5 to 7 days.
Due to its larger crew—126 for the NSC compared to 24 for the FRC— and size—418 feet for the NSC compared to 154 feet for the FRC—the  NSC is able to patrol worldwide and conduct extended operations beyond  the capabilities of the FRC. The NSCs are expected to conduct  operations from at least 50 nautical miles from shore including in extreme  climates, such as the Arctic. Coast Guard standards dictate that the  NSCs will spend no more than 210 days away from their homeport and  conduct 3,780 operational hours each year, with each patrol lasting  longer than 60 days. Appendix III provides more detail of the FRC and  NSC’s operational capabilities.
section_title: Maintenance of Coast Guard Cutters
paragraphs: The Coast Guard defines the goal of cutter maintenance as ensuring  optimal readiness to perform missions at the lowest cost over the asset’s  service life. As with any ship, maintenance is a major portion of the total  ownership costs for Coast Guard cutters. Unnecessary maintenance  increases ownership costs and limits a cutter’s availability to conduct  missions, decreasing its readiness.
In order to optimize the cutter fleet’s mission availability and decrease  ownership costs, the Coast Guard employs Reliability Centered  Maintenance (RCM), a process used to determine maintenance needs  and ensure that maintenance is applicable and effective. RCM is at the  center of the Coast Guard’s maintenance philosophy and guides  maintenance decisions, determining scheduling and resource  requirements. The RCM analysis, which is initiated during the program’s  acquisition phase, is unique to each cutter class and is used to determine  preventative maintenance requirements by identifying the likely functional  failures of hardware and the failures’ impacts. Maintenance procedure  cards, which provide detailed instructions on how to complete each  maintenance task, including the expected amount of time the task will  take to complete as well as the needed tools and parts, are one outcome  of the RCM analysis.
The Coast Guard employs a bi-level maintenance strategy to meet the  preventative maintenance requirements derived from the RCM analysis.  Tasks are separated into either organizational-level maintenance or  depot-level maintenance.
Organizational-level maintenance: Maintenance that is performed  by the operating units—i.e., the cutter crews. The Coast Guard  assigns maintenance requirements at the operating unit level only if it  has been determined that the task is within the ability of the crew to  complete, taking into account additional demands such as training,  and the availability of tools onboard to complete the assigned task.
Depot-level maintenance: Maintenance that is beyond the capability  of the crew, including changes and modifications to the cutters  deemed too extensive to be performed by the crew.
The Surface Forces Logistics Center (SFLC), in Baltimore, MD, is  responsible for completing the RCM analysis and determining the  responsibility of maintenance tasks for the boats and cutters, including  the FRC and NSC, in sustainment. In addition, SFLC is responsible for  managing the supply of spare parts and developing maintenance  schedules for each fleet. SFLC is divided into five distinct product lines,  each of which acts as the point of contact for various maintenance needs  of the Coast Guard fleets. Figure 1 shows the organizational structure of  SFLC.
The product lines were created after SFLC was established in 2009 to  optimize the technical, logistical, and depot-level maintenance support for  surface assets. Each product line is intended to provide complete naval  engineering and logistics support for all assigned surface assets. In order  to plan for the individual maintenance needs of each cutter, SFLC  generates and maintains a 5-year maintenance plan for each asset class  depicting the major depot-level maintenance tasks. Each year, SFLC  updates each cutter’s 5-year maintenance schedule to formulate short-  and long-term budgets, project shortfalls, and interface with operational  commanders for scheduling purposes. Appendix IV shows the timeline of  scheduled major maintenance events for the NSC and FRC.
The Coast Guard also performs unplanned maintenance, which occurs  largely as a result of equipment failures, and is corrective in nature.  Unplanned maintenance is performed as necessary by the crew, if  possible; dockside by shore technicians; or if the unplanned maintenance  is beyond the capabilities of the crew and dockside technicians or  requires the cutter to be taken out of the water for repair, the cutter will  undergo an emergency dockside or drydock event.
In addition to established maintenance procedures, the Coast Guard has  several processes by which it can address problematic equipment  systems. One such process is the Engineering Change Process, or  design change. This process is governed by a process guide that  provides detailed instructions on how the Coast Guard should initiate and  implement an engineering design change. The Engineering Change  Process is the vehicle for implementing changes to assets across the  fleet to improve operational capabilities and increase supportability. This  process is intended to facilitate configuration control of systems and  equipment on all surface assets in an effort to reduce total operating cost  over the life of the asset class. The Engineering Change Process includes  numerous reviews of relevant product designs, budgets, and procedures  and facilitates the delivery of engineering and/or logistics actions to the  field.
section_title: Mission Capable Rates for Cutters
paragraphs: The Coast Guard uses the Electronic Asset Logbook (EAL) program to  record all maintenance and operational activities for surface assets, such  as the FRC and NSC, among others. EAL records and tracks equipment  failures and mission capable statuses, and is updated in real time by  cutter crews to allow for total asset visibility across a cutter class. The  EAL process is governed by a process guide that provides detailed  instructions to product lines and cutter crews to ensure the EAL system is  used uniformly across the fleets. The EAL program provides the product  lines insight into the percentage of time each cutter is capable of  conducting missions by using five ratings: partially mission capable, not mission capable due to maintenance, not mission capable due to supply, and not mission capable due to depot maintenance.
Each cutter class has an acceptable target range for the percentage of  time that the Coast Guard expects the asset to be mission capable. The  target ranges are determined during the acquisition phase for each fleet  using the Coast Guard’s employment standards, which dictate the limits  for Days Away From Home Port and operational hours as well as the  minimum number of depot-level maintenance time needed per year.  Figure 2 depicts a notional visualization as to how asset status data is  used to assess the health of the fleet from an engineering perspective.
The FRCs are expected to be mission capable 48 to 60 percent of the  time, while the NSCs are expected to be mission capable 49 to 61  percent of the time. In order to be considered fully mission capable, the  cutter must be able to support all of its assigned missions. In order to be  considered partially mission capable, the cutter must be able to effectively  execute some of its assigned missions, but be unable to fully respond to  at least one assigned mission due to an equipment system failure. Taken  together, the fully mission capable status and the partially mission  capable statuses comprise the cutter’s mission capable rate.
Influencing the mission capable rates are the three “not mission capable”  statuses. A cutter is considered not mission capable due to maintenance  if it has an equipment failure that requires the cutter to return to port for  maintenance during the period that the cutter was originally scheduled to  be conducting operations. Once the source of the equipment failure has  been determined and if the Coast Guard has to wait for a spare part, the  cutter will be placed into the not mission capable due to supply status  until the spare part is received and the correction can be implemented.  The cutter will be placed in not mission capable due to depot-level  maintenance status if the cutter is unavailable to conduct operations due  to planned depot maintenance (i.e., non crew conducted maintenance).  This can include conducting both anticipated and unanticipated  maintenance.
section_title: A Warranty or Guaranty Can Affect Program Costs
paragraphs: Warranties and guarantees are contract mechanisms to address the  correction of shipbuilder-responsible defects, but they differ in key ways.  Warranty provisions are outlined in the Federal Acquisition Regulation  and were used for the FRC, whereas the Navy typically uses guaranty  provisions, as did the Coast Guard for the NSC contract. We reported  on the differences of the FRC’s warranty and the NSC’s guaranty in  March 2016 and found that the FRC’s warranty resulted in improved cost  and quality by requiring the shipbuilder to pay to repair defects. In  contrast, guarantees—such as that for the NSC—did not help improve the  cost or quality outcomes of shipbuilding and the government generally  paid the shipbuilder to correct problems. Table 1 outlines the differences  between a warranty and a guaranty.
section_title: Depot-Level Maintenance Is Lowering the Mission Capable Rates of the Fast Response Cutter and National Security Cutter
paragraphs: Over the past few years, when the FRC and NSC began using their  current mission capable metrics, they have both met their minimum  targets on average. However, from October 2015 to September 2016,  both cutters fell below their minimum targets due to depot-level  maintenance. During this time frame, the FRC program began a phased  drydock maintenance period for the first 13 cutters, which is primarily  intended to address problems with equipment systems still covered by its  12-month warranty. From January 2016 to November 2019, at least one  FRC will be completely unavailable to conduct missions at any given time.  For the NSCs, an approximate 2-year post-delivery maintenance period is  affecting mission capable rates. During this period, the NSCs undergo a  series of depot-level maintenance events and system upgrades to bring  the cutter to full operational capability, but will limit their ability to conduct  missions. Since the Coast Guard will be receiving NSCs until at least the  end of year 2020, these post-delivery maintenance periods are expected  to affect the NSC’s mission capable rates until at least the end of year  2022. In addition, both the FRC and NSC have experienced numerous  equipment problems that have hindered operations, but these have not  substantially lowered the average fleet mission capable rates.
subsections: section_title: FRCs Are Meeting Minimum Mission Capable Rates on Average, but Recent Unanticipated Warranty Depot-Level Maintenance Is Affecting Mission Capable Rates
paragraphs: Since March 2012, when the Coast Guard began tracking this metric for  the FRC, the cutters have met their minimum mission capable target rate  (48 percent), on average. However, from October 2015 to September  2016, the cutters have demonstrated an average mission capable rate  below the minimum target. According to Coast Guard officials, this is  primarily because of an increase in the amount of time the first 13 cutters  are spending in depot maintenance for warranty drydock work, which has  reduced the FRC’s ability to conduct operations. Table 2 shows the asset  status for the FRCs from March 2012 to September 2016.
According to Coast Guard data, from March 2012 to September 2016, the  FRC fleet had a cumulative average mission capable rating of 49.3  percent, just above the minimum goal of 48 percent. See figure 3.
A cutter is deemed mission capable if it operates in either a fully mission  capable or partially mission capable status. The FRCs have operated in a  partially mission capable status 2.3 percent of the time since March 2012.  This is at least partially due to the short duration of the FRC’s patrol  schedule of roughly 5 to 7 days at sea and the capabilities of the cutter.  Additionally, the smaller size of the FRCs as compared to the NSCs limits  both the crew size and capabilities aboard the cutter making it less likely  that the FRC will be able to meet the criteria for partially mission capable,  which is the ability to fulfill at least one of its designated missions. For  example, the FRC holds one cutter boat, and Coast Guard safe-to-sail  equipment requirements dictate that this cutter boat must be operational  or the FRC is deemed not mission capable.
subsections: section_title: Recent Unanticipated Depot- Level Maintenance Is Causing FRC Mission Capable Rates to Fall below Target
paragraphs: While the cumulative average monthly mission capable rate for the FRC  is above the target since March 2012, when we eliminated prior years and  analyzed the FRC’s cumulative average monthly mission capable rate  over a more recent time period—October 2015 to September 2016—we  found that the average mission capable rate was 42.8 percent, which is  below its minimum target (48 percent). This lower rate can be attributed to  increased time spent in depot-level maintenance. Figure 4 shows the  monthly mission capable rates for the FRC from October 2015 to  September 2016 as well as the Coast Guard’s target range.
According to Coast Guard officials, the decrease in monthly mission  capable rates below the minimum target is primarily because of a phased  warranty repair drydock period that was not initially anticipated. These  warranty repair drydocks, affecting cutters 1 through 13, began in January  2016 and are scheduled to conclude in November 2019. The average  drydock period will last approximately 15 weeks, with at least one FRC  not mission capable due to depot-level maintenance at all times from  January 2016 to November 2019. Coast Guard officials stated that while  these warranty repair drydock periods are scheduled in advance, the  repairs were not anticipated when the planned major maintenance  schedule was first established for the fleet during the acquisition process.  Instead, these drydocks were triggered by continuing structural and  equipment problems installed during production, including unreliable  connectors that provide the structural integrity of the cutter and continued  failures with the main diesel engine. The FRCs will undergo repairs on  systems that are still covered by the FRC’s warranty and remain the  financial responsibility of the shipbuilder, Bollinger Shipyards. According  to the FRC’s contracting officer, Bollinger Shipyards and the FRC  program decided to schedule these drydock periods in order to complete  several warranty items at one time for each of the 13 cutters. Given that  only a few FRCs have completed the warranty drydock to date, it is  difficult to determine whether the overall fleet’s mission capable rate will  meet its target range once the drydocks are completed.
Additionally, Coast Guard officials said that they negotiated an agreement  with Bollinger Shipyards to allow the Coast Guard to conduct routine  maintenance during these warranty repair drydocks at the Coast Guard’s  expense. This routine maintenance includes, for example, a main diesel  engine overhaul that is scheduled to occur roughly every 6,000  operational hours. According to Coast Guard officials, the Coast Guard  plans to complete this overhaul even though, as of July 2016, the engines  have yet to be accepted as contractually compliant. Coast Guard officials  explained that routine preventative maintenance on warranty covered  systems, such as the main diesel engine overhaul, is the responsibility of  the Coast Guard so as to not void the FRC’s warranty.
section_title: Equipment Failures and Difficulties Obtaining Spare Parts Are Minimally Impacting Mission Capable Rates
paragraphs: The time spent correcting equipment failures and awaiting spare parts  has been minimal and, unlike depot maintenance, has not significantly  affected the FRC’s mission capable rate. The FRC’s not mission capable  rates due to maintenance (equipment failures) and supply have been  below the Coast Guard’s target of no more than 12 percent on average  since March 2012. Figure 5 shows the average rates for these not  mission capable rates from March 2012 to September 2016 as well as a  breakout of the last year of this time frame.
The Coast Guard has managed its not mission capable rates due to  maintenance (equipment failures) by utilizing the RCM approach, which  includes a failure analysis used to develop the required maintenance list.  According to Coast Guard officials, the required maintenance list is  updated if directed by the results of a maintenance effectiveness review,  which is completed on a rolling basis for each equipment system aboard  the cutter. From the required maintenance list, maintenance procedure  cards are developed that ensure maintenance is conducted uniformly  across the fleet. Regarding not mission capable for supply, Coast Guard  officials stated that the industry standard is 5 percent or less. In order to  meet the industry standards, Coast Guard officials report using a complex  algorithm to determine the appropriate level of inventory for each spare  part, which takes into account failure rates, time required to obtain the  part, and Navy historical data for similar fleets. In addition to this  algorithm, the Coast Guard ensured the parts needed to complete  scheduled maintenance were available to the maintainers, which involved  packaging all necessary tools and parts for an upcoming scheduled  maintenance event on a particular FRC from the central inventory  warehouse at SFLC. These packages, according to Coast Guard officials,  were then shipped in advance of the maintenance to the home port of the  cutter. Coast Guard officials expect the percentage of time the FRC fleet  spends not mission capable due to supply to increase slightly once the  warranty expires, as the Coast Guard will have to rely on the commercial  market to obtain parts as opposed to these parts being provided by  Bollinger Shipyards. Coast Guard officials noted however, that they do  not expect this increase to exceed the industry standard of 5 percent.
section_title: Equipment Failures Have Resulted in Lost Operational Days for the FRC
paragraphs: The three equipment systems with the most problems from 2014 to 2016  resulted in about 827 combined lost operational days and partially  mission capable days for the FRC. These three equipment systems  include:  the main diesel engine,  the C4ISR system, and  the ventilation system.
While the not mission capable rates due to maintenance—from  equipment failures—and supply are important metrics in understanding  the effectiveness of the Coast Guard’s maintenance planning, they alone  do not convey the complete health of the FRC fleet. As such, the Coast  Guard tracks the equipment systems that result in lost operational days  for the cutters. Failures associated with the main diesel engine have been  particularly problematic. The engine is still covered by the warranty clause  for each FRC, but problems resulted in roughly 355 days spent not  mission capable due to maintenance. The FRC’s contracting officer  stated that as of October 2016, all of the 18 operational FRCs have  undergone various corrective repairs on their main diesel engines,  including replacing engines on 6 of the cutters. While Coast Guard  officials report that Bollinger Shipyards has resolved many of the  concerns surrounding the main diesel engines, design changes to satisfy  unresolved problems are ongoing. One such problem is the harmful  buildup of soot in the exhaust while traveling at low speed. Once an  acceptable solution has been determined, the new equipment will be  retrofitted onto the other FRCs at the shipbuilder’s expense. Coast Guard  officials have not identified an anticipated timeframe for a solution.
In addition to tracking the systems that resulted in lost operational delays,  the Coast Guard also solicits feedback annually from each cutter’s crew  in an engineering report to identify trends in equipment systems that are  hindering the cutters while underway. The engineering reports provide a  forum for the cutter’s commanding officer to provide his or her opinion of  the cutter’s top equipment issues, overall summary of the cutter’s  structural condition, and the top human performance problems  experienced by the cutter over the preceding 12 months. Officials at the  Patrol Boat Product Line review all of the FRC’s engineering reports for  the fleet to identify trends and to take corrective action where necessary.  The Patrol Boat Product Line then consolidates the top 5 equipment  concerns noted by the FRC commanding officers and provides a  response explaining the corrective actions to be taken or the rationale for  inaction.
Our analysis of FRC engineering reports from 2012 through 2015 found  that the top three equipment concerns that occurred most frequently were a lack of maintenance procedure cards,  issues with the Machinery Control and Monitoring System, and paint and corrosion on board the cutters.
For example, the engineering reports mentioned that inaccurate or  incomplete maintenance procedure cards interfered with the crew’s ability  to complete maintenance as these maintenance procedure cards provide  detailed instructions on how to complete maintenance activities for each  of the equipment systems. Coast Guard officials noted that inaccuracies  found in maintenance procedure cards are largely due to incorrect part  numbers for pieces of equipment as these numbers can change, for  example, due to obsolescence. According to Coast Guard officials, as of  July 2016, 89 percent of the maintenance procedure cards for the FRC  have been published and the majority of those unpublished are  conditional cards that have not been published because the triggering  condition, most likely a system failure, has not yet occurred in order to  validate the maintenance procedure cards.
section_title: NSCs Are Meeting Minimum Mission Capable Rates on Average, but Post-Delivery Depot-Level Maintenance Period Has Recently Led to a Downward Trend
paragraphs: Similar to the FRCs, the NSCs have met their minimum mission capable  target range (49 percent) on average since the Coast Guard began  tracking this metric in November of 2013 until September of 2016.  However, over the last 12 months of this timeframe, from October 2015 to  September 2016, the cutters demonstrated an average mission capable  rate below the minimum target. This is primarily due to the increase in  depot maintenance associated with post shakedown availabilities on the  newly delivered NSCs (Hamilton and James). See table 3.
According to Coast Guard data, from November 2013 until September  2016, the NSC fleet had a cumulative average mission capable rating of  54.2 percent, above the minimum goal of 49 percent. See figure 6.
A cutter is deemed mission capable if it operates in either a fully mission  capable or partially mission capable status. The NSCs have operated in a  partially mission capable status 22.4 percent of the time since November  2013, which is more than the FRC. This is at least partially due to the  complexity of the NSC’s mission set and operational schedule. For  example, the NSC was designed to support 8 of the 11 Coast Guard  statutory missions and, if even 1 of the 8 missions is unable to be  performed, the NSC will operate under the partially mission capable  status. Additionally the NSCs are scheduled for patrols lasting roughly 2  to 3 months in duration as opposed to the FRCs, which are scheduled for  patrols lasting about 5 to 7 days, making it much more likely that the  NSCs will be conducting missions in a partially mission capable status at  some point during their lengthy patrol. The size of the NSC allows for  additional capabilities to be available during patrols. For example, the  NSC is equipped with three cutter boats, and known failures with the  dual-point davit crane launch system frequently render at least one of the  three cutter boats inoperable, causing the NSC to become not fully  mission capable. Instead, the NSC becomes partially mission capable as  it is able to conduct operations with the remaining two cutter boats.
subsections: section_title: Recent Anticipated Post Delivery Depot-Level Maintenance Is Reducing the NSC’s Mission Capable Rates
paragraphs: While the cumulative average monthly mission capable rate for the NSC  is above the target since November 2013, when we eliminated prior years  and analyzed the NSC’s cumulative average monthly mission capable  rate over a more recent time period—October 2015 to September 2016— we found that the NSC’s average mission capable rate was 37.2 percent,  which is below its minimum target of the range of 49 percent. Figure 7  shows the monthly mission capable rates for the NSC from October 2015  to September 2016.
From October 2015 to September 2016, the not mission capable rate due  to depot maintenance was 60 percent. While both the FRC’s and NSC’s  inability to meet its mission capable target rate is attributable to the  increase in depot-level maintenance, the cause differs. Unlike the FRC’s  mission capable rates, which are influenced by the warranty repair  drydock periods, the NSCs mission capable rates are influenced by the  roughly 2-year post-delivery period called the post shakedown availability,  which is scheduled for each newly delivered NSC. During this time the  cutters will undergo depot-level maintenance and other activities to bring  the cutter to full operational capability. Further, whereas the FRC’s  warranty repair drydock periods were unanticipated, the NSC’s  shakedown periods were planned during the acquisition phase.
During this shakedown period, the NSC will be rendered not mission  capable due to depot-level maintenance for a majority of its time. For  example, from January 2015 until September 2016, the NSC Hamilton  spent 70.9 percent of its time in depot-level maintenance, and the NSC  James spent 82.6 percent of its time in depot-level maintenance from  September 2015 to September 2016. With only five NSCs in operation as  of September 2016, having two cutters spend the majority of their time  not mission capable due to depot-level maintenance is having a negative  effect on the overall fleet’s mission capable rates. This will continue as  the Coast Guard introduces new NSCs into the fleet and the last cutter  completes its 2-year post shakedown period—scheduled for 2022 as the  ninth cutter is scheduled for delivery in 2020. While the first three NSCs  achieved their mission capable rate targets on average from January  2014 to September 2016, it is uncertain if the overall fleet mission  capable rate will increase once all NSCs complete their post shakedown  availabilities.
section_title: Equipment Failures and Difficulties with Obtaining Spare Parts Have Marginal Effect on NSC Mission Capable Rates
paragraphs: The average time spent correcting equipment failures or waiting for  supplies has been below the Coast Guard’s target of no more than 12  percent since November 2013. Figure 8 shows the average not mission  capable rates due to maintenance— from equipment failures— and  supply from November 2013 to September 2016 as well as the last 12  months of this time frame.
From November 2013 to September 2016, the NSC fleet achieved an  average not mission capable rate due to maintenance (equipment  failures) of 2.1 percent. In the last year of this time frame, the average not  mission capable rate due to maintenance (equipment failures) was 2.8  percent. The Coast Guard keeps this metric low by using its RCM  analysis and by arranging for the NSC’s drydock periods to conduct  preventative maintenance based on equipment failure risk. This enables  the cutter to receive maintenance that potentially avoids equipment  failures while conducting missions. According to the Coast Guard, this is  accomplished by performing the drydock in such a way that equipment  systems not believed to be in need of repair are included as optional  items in the depot maintenance contract. These optional items can be  exercised as needed at a previously negotiated fixed price.
The NSC fleet has met the industry standard of less than 5 percent for not  mission capable rates due to supply. The Coast Guard employs the same  algorithm and pre-positioning of parts as discussed above with regard to  the FRC to meet both its internal and industry standards for not mission  capable due to supply rates.
section_title: Equipment Failures Have Resulted in Lost Operational Days for the NSC
paragraphs: The three equipment systems with the most problems from 2014 to 2016  resulted in 993 combined lost operational days and partially mission  capable days for the NSC over this period of time. These systems include  the cutter boat launch and recovery system and the reliability of the ship  service diesel generator and the main diesel engine. Unlike the FRC’s  warranty, the Coast Guard is required to pay a portion of the cost for  equipment problems corrected under the NSC’s guaranty. Nearly all of  these lost operational days resulted from the NSCs operating in a partially  mission capable status due to the equipment problems. The cutter boat  launch and recovery system, which includes the gantry crane and dual  point davit, have rendered the fleet in a partially mission capable status  for 278 days from 2014 to 2016. Across the fleet, overheating bearings  in the ship service diesel generator have resulted in the crew’s inability to  use one or more of the generators. According to the Coast Guard policy,  the NSC requires at least two (one specific generator and either of the  remaining two) of its three generators to be operational in order to  conduct missions. The cost to repair this issue is substantial, with each  bearing costing roughly $100,000 to resolve.
In addition, the NSCs continue to experience failures associated with the  main diesel engines. The main diesel engines used by the NSCs are  manufactured by MTU, the same manufacturer responsible for the main  diesel engines employed on the FRCs, and have been problematic since  the NSC fleet became operational. As we found in January 2016, the  engines overheat in waters above 74 degrees Fahrenheit, which  constitutes a portion of the NSC’s operating area given that they are  intended to be deployed worldwide. This can cause the cutters to  operate 2 to 4 knots below their top speed of 28 knots, which could hinder  the cutter in successfully conducting operations. The NSC’s inability to  achieve top speed in warm waters has inhibited the cutters’ ability to  complete their regularly scheduled full power trials, which are periodic  tests of the propulsion plant operated at maximum rated power. Figure 9  depicts the number of attempted and successful full power trials  conducted by the NSCs from 2012 to 2015.
The full power trial results advise operating and maintenance personnel  of the cutter’s full power performance characteristics and the results can  provide the basis for maintenance activity. From 2012 to 2015, the  operational NSCs conducted 7 full power trials out of 14 total possible  tests. Of those 7 tests, 4 were considered successful. In order for a full  power trial to be considered successful, the cutter must complete the trial  requirements, which include testing at a specific engine speed and  minimum water depth, while not exceeding design pressures,  temperature, and other operating parameters. Performance issues or  equipment failures with the propulsion system were listed as the most  frequent cause for not conducting the full power trial or for unsuccessful  tests.
We previously recommended in January 2016 that the Department of  Homeland Security (DHS) conduct an acquisition review board once the  Coast Guard concludes a root cause analysis on both the main diesel  engines and the generators. DHS concurred with this recommendation  and plans to hold an acquisition review board no later than December  2017. In an attempt to resolve the continued propulsion plant problems,  DHS issued an Acquisition Decision Memorandum to the Coast Guard in  April 2016 directing, among other actions, that the Coast Guard conduct a  propulsion study to develop a permanent solution to the main diesel  engine failures by December 2017. The Coast Guard has a propulsion  study underway with MTU America, Inc. that is on track to meet the  Acquisition Decision Memorandum’s deadline according to program  officials.
Pending the completion of the propulsion study and identification of  corrective actions, the Coast Guard issued an engineering advisory to the  NSCs in January 2016 in an effort to ensure the main diesel engine  service life expectations are met, improve the engine’s operational  reliability, maximize the engine’s performance, and minimize the engine’s  maintenance costs. This advisory provides actionable steps the NSC  crews can take while underway to achieve the aforementioned goals,  such as to ensure the quality of the lubricating oil used and monitored  regularly, to use harbor mode—which only engages one of the two diesel  engines when operating below 10 knots—and to minimize engine idle  time, to name a few. The Coast Guard is also in the process of  developing prototype components to address issues with the main diesel  engine in advance of the completion of the propulsion study.
Similar to the FRC, the Coast Guard also solicits feedback annually from  each NSC’s crew in an engineering report to identify trends in equipment  systems that are hindering the cutters while underway. Officials at the  Long Range Enforcer Product Line review all of the engineering reports  for the NSC fleet to identify any trends and to take corrective action where  necessary. This product line then provides a response to each of the  commanding officers’ equipment concerns explaining the corrective  actions to be taken or the rationale for inaction. The top three equipment  problems that occurred most frequently in the NSC’s engineering reports  from 2012 to 2015 are the Auxiliary Seawater System (ASW), the  propulsion plant reliability, and the stern doors/gantry crane. For example,  issues with the ASW included piping failures, ill-fitting valves, and  corrosion. To address these issues, the Coast Guard has begun an  engineering design change to reduce the flow rate throughout the ASW  system that it plans to implement in three phases due to the dispersed  nature of the system throughout the cutter.
section_title: The Coast Guard Is Addressing Some Maintenance Problems through Engineering Design Changes, but Has Not Documented Key Cost Analysis
paragraphs: During operations and testing, the FRC and NSC have experienced  problems that require engineering design changes or repairs. Some of  these design changes are being implemented to correct issues  discovered during testing, while others are being conducted to make  systems less maintenance-intensive or to increase the reliability of the  systems. The FRC program has identified several design changes that it  is installing on the cutters at the expense of the Coast Guard. The FRC’s  warranty is also covering several repairs, which the FRC’s contracting  officer stated avoided at least $77 million in potential maintenance costs.  Replacing the FRC’s engines, which contributed to the cutter’s lost  operational days, represented about $52 million of the costs avoided. The  NSC program is also implementing several design changes, the cost of  which is the Coast Guard’s responsibility. The estimated cost for the NSC  design changes has increased $57.6 million since January 2016. In  addition, at least three design changes on the NSC are being conducted  post-delivery for all nine NSCs, meaning that the Coast Guard will have to  spend time and money conducting maintenance on systems with known  defects until the cutters are retrofitted. Further, the cost analysis  supporting the decision to install these three design changes post- delivery was not documented, which entails risk that the Coast Guard  may not be choosing the most cost effective path forward.
subsections: section_title: The FRCs Are Undergoing Several Design Changes and Several Repairs Covered by Warranty
paragraphs: The Coast Guard has encountered several issues on systems aboard the  FRC that were discovered during operations and testing and require  design changes and retrofits to correct. Some of these design changes  are being conducted during the FRC’s ongoing warranty repair drydock.  According to Coast Guard documentation, the Coast Guard is responsible  for paying for these design changes as they are outside the scope of the  program’s warranty. Table 4 shows the list of design changes for the FRC  valued at $1 million or greater.
The cost for some of these design changes, such as the structural  enhancements, has already been incurred, while other design changes  have only recently begun to be incurred. According to program officials,  the structural enhancements were identified early in the production of the  FRCs during a review of the standards that were used to build the cutter,  which resulted in the Coast Guard increasing the strength of the hull by  installing extra supports to ensure its safety. These enhancements were  retrofitted on the first seven FRCs and were then included in production  beginning with the eighth FRC. The rudder replacement is intended to  reduce fuel consumption, reduce paint failures, and lengthen the part’s  lifespan, which will reduce sustainment costs. This design change is  planned to be retrofitted on the first 20 FRCs and then incorporated into  production with subsequent cutters.
In addition to the design changes listed above, repairs are being  conducted on the FRC that are covered by the program’s warranty and  are being performed at no additional cost to the Coast Guard. According  to the FRC’s contracting officer, as of August 2016 the FRC’s warranty  has avoided about $77 million in potential maintenance costs for the  Coast Guard. Table 5 shows the systems on the FRC that have been  repaired or replaced under the warranty at no additional cost to the Coast  Guard.
As was mentioned previously, issues with the FRC’s main diesel engines  were one of the systems that led to the most lost operational days. This  problem was first reported in the cutter’s Initial Operational Test and  Evaluation report in July 2013. The Navy’s Commander of Operational  Test and Evaluation Force, which serves as the Coast Guard’s  independent test agent, found multiple problems with the main diesel  engines that resulted in 275 lost operational hours during the test event.  These problems have continued, with a total of 20 diesel engines being  replaced as of August 2016. Most recently, the diesel engines were  replaced on the Joseph Tezanos (the 18th FRC) and the Benjamin Dailey  (the 23rd FRC) in May 2016 during production, indicating that the  problems with the diesel engines are ongoing. Additionally, the problems  with the diesel engines have varied widely, making it difficult and time- consuming for MTU and the Coast Guard to identify a definitive root  cause that could solve the issues fleet-wide. Most issues have required  fleet-wide retrofits, which can reduce the cutters’ mission capable rates  due to the increased depot maintenance work required to install  corrections. According to Coast Guard officials, the FRC contracting team  holds monthly meetings with MTU to review the corrective actions and  hold this manufacturer accountable. The program estimates that 60  percent of the current problems have been resolved with retrofits  complete. However, the variation in the issues experienced thus far make  it difficult for the Coast Guard to predict future failures, and the problem  may continue to affect the operational availability of the FRC.
section_title: The Coast Guard Is Conducting Design Changes on the NSC, but Not All Design Changes Will Be Incorporated during Production
paragraphs: The NSC is also undergoing several design changes for issues  discovered during operations and testing, including those that require  additional maintenance above what was expected. The total cost of these  changes has increased $57.6 million from the amount we found in  January 2016, for a total of almost $260 million. Program officials  attributed the increase to the revised cost of structural enhancements on  NSCs 1 and 2 based on actual contract values and the addition of the  ninth NSC. Table 6 shows the list of design changes for the NSC  estimated to cost at least $1 million.
The design change with the largest cost increase is the structural  enhancements, with a cost estimate of $70.6 million. This involves cutting  into large sections of the hull in order to add reinforcing metal so that the  first two NSCs are more likely to meet their full 30-year service life. This  design change was incorporated into production on the third NSC. The  original estimate of $38 million for this work was established in January  2014, and the Coast Guard awarded the contract in February 2016. The  current contract value of over $70 million represents a cost increase of  about 86 percent from the original estimate. According to NSC program  officials, the large cost increase is due to a better understanding of the  work that would be required to complete this effort, such as the costs  associated with getting the cutter into a drydock, removing sensitive  equipment, and the technical complexity of the task. They also stated that  the contractor factored risk into its bid for completing this technically  difficult work. In order to complete this work, the Coast Guard will place  the first two NCSs in a not mission capable due to depot maintenance  status for at least 11 months each to correct structural deficiencies. The  Coast Guard plans to conduct additional design changes, such as the  gantry crane and single-point davit replacements, during this period as  well to save money.
In order to minimize the cost increase for some of these design changes  and to adhere to their production schedule, the Coast Guard plans to  maintain the original equipment during production for all NSCs and then  later conduct retrofits after accepting delivery of the cutters. This means  that systems with known defects or deficiencies will be installed during  production only to be replaced later, requiring maintenance on some of  these systems until the retrofits are complete. Figure 10 shows selected  systems that will require retrofits after all nine cutters are built.
The following equipment will be included on the cutters currently being  built or under contract and later removed or upgraded:
Gantry Crane Replacement: The gantry crane was not designed for  a maritime environment and is inadequately sealed to prevent water  intrusion, leading to accelerated corrosion and the need for excessive  repairs that are not considered sustainable over the NSC’s life cycle.  Post-operational reports stated that the gantry crane requires  hundreds of man-hours to keep it operational. This design change  was initiated in January 2010 and, according to Coast Guard officials,  the new crane system has been successfully prototyped on the  Stratton and has been approved for fleet-wide replacement. However,  all of the remaining NSCs to be produced will be built with the gantry  crane installed and will then have it removed during their post- shakedown periods when the new crane system will be installed.  Problems with the gantry crane have plagued the NSC since it began  operations and are expected to continue until all cutters have their  gantry crane replaced, which is not planned to be completed for  several years. The fleet-wide replacement of the gantry crane is  anticipated to cost $34.9 million, which represents a cost increase of  about 13 percent since January 2016.
Single-Point Davit Replacement: The single-point davit, which is  used to lift cutter boats for launch and recovery from the starboard  side of the cutters, is unable to reliably lift the cutter boats in high  seas. This has caused the crews of the NSC to express concern  about the safety of the single-point davit system when operating in  higher sea state conditions. All of the NSCs have been or will be  delivered from the shipbuilder with the single-point davit system  installed, despite this design change being initiated in March 2010.  The replacement of the single-point davit will be installed during the  remaining cutters’ post-shakedown period and is expected to cost the  Coast Guard $14.0 million, which includes a cost increase of about 12  percent since January 2016.
Upgrades to Two Ammunition Hoists: According to Coast Guard  officials, the ammunition hoists are difficult to use in their current  configuration, and the crew of the NSC prefers to carry ammunition for  the Close-in Weapon System by hand rather than use the hoist. As a  result, the Coast Guard plans to modify the design of this equipment.  Despite the Coast Guard initiating this design change in October  2012, beginning with NSC 4, the remaining NSCs are being built  without ammunition hoists and instead are delivered with a vacant  space, which officials stated resulted in savings to the Coast Guard.  The Coast Guard is installing the new ammunition hoists post-delivery  on all NSCs. These changes are expected to cost the Coast Guard a  total of $7.0 million, which represents a cost increase of about 11  percent since January 2016.
section_title: The Coast Guard Did Not Document a Key Cost Analysis for Its Design Changes
paragraphs: Coast Guard officials stated that no formal analysis is developed or  documented to determine whether a design change should be installed  during production or post-delivery. Instead, they used the professional  judgment of Coast Guard and shipyard officials to determine the most  cost efficient timing of when to install design changes. Keeping the NSC  delivery dates on schedule was one of the primary reasons officials gave  for not installing the three design changes noted above during production  on the NSCs that have not yet been delivered (NSC 6-9). Given that the  program has been aware of these three design changes for many years,  the Coast Guard had an opportunity to install the design changes during  production instead of during the post delivery period.
According to Coast Guard officials, one hindrance to installing systems  during production is that the shipyard would likely want to revalidate any  engineering work on the design change that was conducted by Coast  Guard officials since the shipyard is responsible for delivering a ship that  meets the specifications of the contract. This revalidation work could  delay the production schedule and lead to cost increases. They also  stated that it is more cost effective to install these three design changes  post-delivery for all NSCs, but were unable to produce any documents  supporting this claim. For example, officials explained that installing  replacement systems for the gantry and single-point davit cranes during  production would have cost an additional $7 million to $10 million per  cutter. This is compared to their estimates of $4.5 million to $5 million to  conduct these changes post-delivery. However, officials could not provide  documentation supporting their analysis. Further, the Coast Guard’s Joint  Surface Engineering Change Process Guide, which governs the design  change process and provides instructions for how design changes should  be planned and installed, does not require such cost analyses to be  documented. Federal internal control standards state that significant  decisions should be documented in a manner that allows documentation  to be available for examination. In addition, GAO best practices state  that cost estimates should be documented for management to make an  informed decision regarding a program’s affordability. With the Joint  Surface Engineering Change Process Guide not requiring that a cost  analysis be performed and documented to support its decision on when to  install design changes, the Coast Guard cannot be certain that it is  making the most cost-effective decision when determining the optimal  time to install design changes.
section_title: Cost Estimates for FRC and NSC Depot Maintenance Do Not Reflect Actual Expenditures and Estimates Are Not Regularly Updated
paragraphs: The FRC’s and NSC’s annual depot-level expenditures have generally  been well below their estimated levels since 2010. Combined, these  cutters have used $106.6 million less than estimated since 2012 and  2010, respectively. The Coast Guard has used this $106.6 million to pay  for maintenance on legacy vessels and other assets. The Coast Guard  uses its standard support level to estimate the annual depot-level  maintenance needs of each asset. However, officials stated that standard  support levels are not updated on a regular basis with information on  actual expenditures, which can hinder the Coast Guard’s ability to  determine what its actual depot budget needs are.
subsections: section_title: Coast Guard’s Annual Depot-Level Maintenance Estimates Do Not Match Expenditures for the FRC and NSC
paragraphs: The Coast Guard’s annual estimates for depot-level maintenance— known as standard support levels—consistently do not reflect actual  expenditures for the FRC and NSC. Depot maintenance expenditures  from 2012 to 2016 for the FRC and 2010 to 2016 for the NSC were  $106.6 million less than estimated. Figure 11 shows the estimated and  actual maintenance expenditures for the FRC and NSC since 2012 and  2010, respectively.
Expenditures for the FRC program from 2012 to 2016 were $66.4 million  less than expected for depot maintenance—85 percent under its standard  support level—and expenditures for the NSC program from 2010 to 2016  were $40.1 million less—26 percent under its standard support level.  Coast Guard officials stated that early in a cutter’s life cycle, the depot- level expenditures are expected to be less than what is planned for in the  standard support level since the cutters are not conducting all of their  regularly scheduled depot-level maintenance yet. Then, as an asset ages,  its expenditures will gradually meet or exceed its standard support level in  certain years when a cutter has an increased amount of planned depot- level maintenance. The FRC has yet to meet or exceed its estimates and  officials attributed the large disparity between the FRC’s expenditures and  its standard support level to the program’s warranty, saying that they are  not fully responsible for conducting all maintenance yet. The Coast Guard  does not expect the FRC’s depot-level expenditures to match its  estimates until after the 15-week warranty repair drydock for the first 13  cutters is complete in late 2019.
The NSC exceeded its estimates only one time—in 2014—which  coincided with the first scheduled drydock event on the Bertholf. NSC  officials stated that drydocks are the most expensive depot-level  maintenance event. However, the Stratton had its first scheduled drydock  in fiscal year 2016 and the NSC expenditures did not exceed its standard  support level in that fiscal year, indicating that the NSCs estimates may  have excess capacity that is not needed in order to conduct all depot  maintenance. The NSC fleet had its largest difference between its  estimates for depot-level maintenance and actual expenditures in fiscal  year 2016, which was also the first year that all five operational NSCs  were included in the program’s standard support level.
The difference in funds from a cutter’s standard support level and its  actual expenditures is used by the Coast Guard to help cover the depot  maintenance costs of legacy assets. According to Coast Guard officials,  the combined difference of $106.6 million in depot maintenance funds  from the FRC and NSC remained in a centrally managed surface asset  depot maintenance account, which is available for use on other Coast  Guard surface assets, such as the High Endurance Cutter, which officials  explained requires additional maintenance funding over what was  originally planned.
section_title: Standard Support Levels Are Not Updated on a Regular Cycle
paragraphs: The standard support levels used to create an asset’s annual estimates  for depot-level maintenance are created early in an asset’s acquisition life  cycle and are established as part of the program’s life cycle cost estimate.  Once the standard support level is established, it is then used as part of  the initial budgeting process for the cutter class. However, Coast Guard  officials stated that annual depot-level maintenance budgets are based on  previous years’ enacted appropriations rather than actual expenditures or  standard support levels. The previous years’ enacted budgets are  adjusted for the assets that were added and those that were removed  from Coast Guard service and then the budget is submitted to Congress.  This means that the annual Coast Guard budgets do not reflect the actual  needs of the assets. Further, the surface asset depot-level maintenance  budget line in the annual Coast Guard budget submission does not  include the details for any asset class. Officials explained that attempting  to do so would be unnecessarily difficult and would not help the Coast  Guard manage its depot maintenance funds. Officials further explained  that the Coast Guard manages its surface asset depot maintenance as a  portfolio. The diverse portfolio of surface assets includes brand new  vessels under warranty as well as 50-year old vessels that often demand  significant unplanned maintenance to keep them operational.
While standard support levels are created early in an asset’s acquisition  life cycle, Coast Guard officials stated that they are not normally adjusted  or updated over the lifespan of an asset class except for major program  events, such as a service life extension program. In July 2012, we found  that the standard support levels for at least two legacy cutter classes had  not been updated in more than 20 years while another cutter’s standard  support level had not been updated in almost 50 years. According to  Coast Guard officials, they plan to update the NSC’s standard support  level to account for the addition of a ninth NSC, which was not a part of  the original program of record. In July 2012 we also found that the Coast  Guard’s process to create standard support levels did not fully meet best  practices. We recommended that this process conform to cost-estimating  best practices, with which the Coast Guard concurred. DHS’s response  raised three issues that we found could limit the Coast Guard’s  implementation of the recommendation. First, DHS stated that cost  estimating best practices are most applicable to new acquisitions. We  disagreed, stating that our cost estimating guide is intended to be  applicable to programs and assets in all stages of their life cycles,  including maintenance and support. Updating standard support levels  periodically would lower the Coast Guard’s budgetary risk by using actual  data to better inform future depot maintenance estimates. Second, DHS  described how sustainment and maintenance costs can be uncertain and  challenging to estimate, which the Coast Guard mitigates through  centralized management of its depot-level maintenance funds for all  assets. We again disagreed, stating that best practices can help ensure  that cost estimates are comprehensive and accurate, which can help  ensure that funds will be available when needed. Third, DHS explained  that given the fiscal environment, the Coast Guard would focus on  improvements that do not require additional resources. We stated that a  well-documented cost estimating process and the use of accurate  historical data should enable the Coast Guard to operate more efficiently.
By not updating the standard support levels with information on actual  expenditures, the Coast Guard does not know what the actual depot-level  maintenance needs are of its assets. GAO best practices state that  programs should be monitored continuously for their cost effectiveness by  comparing planned and actual performance against the approved  baseline. Effective program and cost control requires ongoing revisions  to the cost estimate, budget, and projected estimates at completion.  Further, a competent cost estimate is the key foundation of a sound  budget. Not updating the estimated costs with actual expenditures could  lead to ineffective planning by those responsible for conducting depot- level maintenance. Coast Guard officials stated that they do not update  their depot maintenance estimates with actual expenditures because  doing so would cause individual budget line items to constantly change.  Nonetheless, by not reviewing and updating the standard support levels  for the FRC and NSC, the Coast Guard cannot accurately know what the  actual depot maintenance needs are for each asset class. This can hinder  decision makers as they seek to wisely spend scarce taxpayer dollars in  support of more modern and capable Coast Guard assets.
section_title: Conclusions
paragraphs: As the Coast Guard continues to field FRCs and NSCs with improved  capabilities over legacy cutters in an effort to modernize its fleet, it is  important that these cutters are ready to support the Coast Guard’s  missions when needed and with the capabilities expected when they were  developed. The FRC and NSC both have met their mission capable target  rates over the long term, and there are factors that explain the recent  declines below their respective target ranges. While Coast Guard officials  have stated that these factors are temporary, it is too soon to tell whether  the FRC’s and NSC’s mission capable rates will meet their target ranges  once these temporary periods are complete. Further, while maintaining  production schedules for the NSC is important, this should not be the  overriding factor when considering when to implement design changes.  Rather, the Coast Guard should take into account all factors and costs  when considering its options. Visibility into decisions on how and when to  implement planned design changes on the NSCs—including those not yet  constructed—is currently limited because the Coast Guard’s guidance  does not require programs to perform and document cost analyses that  support the cost and timing of when the changes should be incorporated.
The Coast Guard’s estimates for depot-level maintenance costs are out of  step with actual spending. The difference in estimated and actual depot  maintenance costs realized from the FRC and NSC fleets since 2012 and  2010, respectively, indicates that standard support levels should be  reviewed and updated to more closely reflect the actual expenditures. Not  having an updated assessment of depot maintenance costs for each  asset limits the information decision makers have to determine future  budget needs, and limits transparency into which of the Coast Guard’s  many surface assets, such as aging legacy assets that require additional  maintenance funding, are benefitting from any differences between depot- level maintenance estimates and actual costs. A more thorough  accounting for both the potential costs of design changes and the actual  costs of keeping these cutters in service could improve information used  by decision makers on how to spend scarce taxpayer dollars in support of  a modern, capable Coast Guard surface fleet.
section_title: Recommendations for Executive Action
paragraphs: To ensure that the Coast Guard makes effective use of its resources,  specifically regarding its budget, we recommend the Secretary of DHS  direct the Commandant of the Coast Guard to take the following two  actions:
Update the Joint Surface Engineering Change Process Guide to  require a documented cost analysis to provide decision makers  adequate data to make informed decisions regarding the expected  costs and when it is most cost effective to install design changes.
Periodically update standard support levels to account for actual  expenditures so that the Coast Guard follows best practices and to  provide decision makers an understanding of the actual depot-level  maintenance funds required for Coast Guard assets.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DHS for review and comment. DHS  concurred with both of our recommendations and provided a date by  which the actions will be complete. DHS’s written comments are reprinted  in appendix V. DHS and the Coast Guard also provided technical  comments that we incorporated into the report as appropriate.
As agreed with your office, unless you publically announce the contents  of the report, we plan no further distribution of it until 30 days from the  date of this letter. We are sending copies of this report to the Secretary of  Homeland Security and the Commandant of the Coast Guard. In addition,  the report is available on our website at http://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 Office  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 VI.
section_title: Appendix 1: Objectives, Scope, and Methodology
paragraphs: To examine the maintenance, equipment failures, and spare parts  availability for the Fast Response Cutter (FRC) and National Security  Cutter (NSC), we reviewed the mission capability data provided from the  Coast Guard from the Electronic Asset Logbook (EAL) database for both  cutters and compared their rates to the target ranges for each cutter  established by the Coast Guard over at least a 12-month time frame as  Coast Guard officials stated was the most meaningful use of the data. We  reviewed this data from when each cutter class first began to use the  metric (March 2012 for the FRC and November 2013 for the NSC) to  September 2016. We also assessed the reliability of the data from the  EAL system to determine the extent to which we could use the data to  support our findings and found that it was reliable for our purposes. We  gathered data on the Coast Guard top operational degraders (lost  operational days) from 2014 to 2016 and reviewed the FRC’s and NSC’s  engineering reports from 2012 to 2015 to determine the top equipment  issues the cutters experienced from the perspective of the cutter  captains. We also reviewed the Patrol Boat Product Line’s response to  the FRC’s engineering reports and the Long Range Enforcer Product  Line’s response to the NSC’s engineering reports to see how the Coast  Guard planned to remedy the issues the cutters were experiencing. We  interviewed officials with the Coast Guard Office of Naval Engineering;  the Surface Forces Logistics Center in Baltimore, MD; the Long Range  Enforcer Product Line in Alameda, CA; and the Patrol Boat Product Line  in Norfolk, VA. We also toured the NSC Stratton while it was in drydock at  Mare Island Drydock in Vallejo, CA; Coast Guard Base Miami Beach to  view FRC maintenance; and the Coast Guard Yard in Baltimore, MD to  understand the Coast Guard’s ability to conduct drydocks and to  understand how it plans for, stocks, and ships spare parts to cutters in the  deployed locations. We also interviewed officers from the NSC Stratton,  FRC Bernard Webber, FRC Margaret Norvell, and officials at Coast  Guard Base Miami Beach that operate and conduct maintenance on the  FRCs. shipbuilder or the Coast Guard was responsible for the costs of the  repairs and design changes. For the NSC, we compared the cost of the  design changes to the costs we previously found in January 2016 to  determine the extent to which costs had changed. In addition, we  reviewed the Coast Guard’s Joint Surface Engineering Change Process  Guide and interviewed officials from FRC and NSC program offices and  the Coast Guard’s Office of Naval Engineering and the Office of Budget  and Programs. We compared the Coast Guard process for designing  and implementing engineering changes to GAO’s best practices for cost  estimating and to the internal control standards for the federal  government.
To examine the extent to which the Coast Guard’s cost estimates for  depot maintenance reflects actual expenditures for the FRC and NSC, we  reviewed the Coast Guard’s standard support levels, which are the  estimated costs for depot-level maintenance each year over the course of  an asset’s life cycle, and compared that to the depot-level maintenance  expenditures for both cutters from fiscal years 2012 to 2016 for the FRC  and from 2010 to 2016 for the NSC. We also reviewed the process  whereby the Coast Guard creates standard support levels and  interviewed officials from the Coast Guard’s Office of Budget and  Programs to determine how the standard support levels are used in the  annual budget development process. We compared the Coast Guard’s  process for creating and updating standard support levels to GAO’s best  practices for cost estimating.
We conducted this performance audit from February 2016 to March 2017  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: Fast Response Cutter and National Security Cutter Names and Delivery Dates
paragraphs: As of September 2016, the Coast Guard planned to acquire a total of 58  Fast Response Cutters (FRC) and 9 National Security Cutters (NSC) in  an effort to modernize its aging fleet. The Coast Guard took delivery of  the first NSC in 2008 with the delivery of the first FRC occurring in 2012.  As of September 2016 the Coast Guard has received 5 NSCs and 19  FRCs. Tables 7 and 8 depict the anticipated delivery dates of the first 34  FRCs and all 9 NSCs.
section_title: Appendix III: Fast Response Cutter and National Security Cutter Operational Capabilities Compared to Legacy Vessels They Are Replacing
paragraphs: The Fast Response Cutters (FRC) and National Security Cutters (NSC)  were designed to provide the Coast Guard with modernized capabilities  above those already provided by aging assets. Tables 9 and 10 highlight  the capabilities of the FRCs and NSCs in comparison to the legacy vessel  the cutters are planned to replace.
section_title: Appendix IV: Major Maintenance Events for the Fast Response Cutter and National Security Cutter
paragraphs: In order to plan for the individual maintenance needs of each cutter, the  Coast Guard’s Surface Forces Logistics Center (SFLC) generates and  maintains a 5-year maintenance plan for each asset class depicting the  major depot-level maintenance tasks. Each year, SFLC updates and adds  to each cutter’s 5-year maintenance schedule to formulate short- and  long-term budgets, project shortfalls, and interface with operational  commanders for scheduling purposes. Figure 12 shows the timeline of  scheduled major maintenance events for the Fast Response Cutter (FRC)  and National Security Cutter (NSC).
Each cutter has a number of anticipated major maintenance events  throughout its life cycle. Some of those include:
Drydock: This refers to a period of time, lasting between 2 to 4  months for the FRCs and NSCs, when the cutter is hoisted out of the  water to conduct maintenance. Maintenance conducted during this  time period is only capable of being done on dry land and includes  items such as repainting of the hull and shaft removal and  reinstallation among others. Drydocks for the FRCs occur every 4  years while drydocks for the NSCs occur every 5 years.
Main Diesel Engine change out: This maintenance event involves  the replacement of the main diesel engines, which occurs every  12,000 hours of engine operations for the FRC and every 24,000  hours of engine operations for the NSC. Operating the FRCs at no  more than 2,500 hours per year would mean the cutters should expect  to undergo a main diesel engine change out at a minimum of just  under 5 years, while operating at no more than 3,780 hours per year,  the NSCs should expect to undergo a main diesel engines change out  at a minimum of just over every 6 years.
Ship Structure and Machinery Evaluation Board: This review is  designed to examine the cutter’s material condition and provide  information on the remaining service life of the cutter. The first Ship  Structure and Machinery Evaluation Board is completed when the  lead ship of the class reaches the 10-year mark and at a 5-year  interval thereafter. According to officials, one of the possible outcomes  of this review is that a midlife maintenance availability is triggered for  the cutter to enable it to reach its expected service life.
Midlife Maintenance Availability: This maintenance event is  designed to correct system obsolescence issues and maintain asset  reliability and supportability throughout the remainder of the cutter’s  service life. This is completed near a cutter’s midpoint, which would  be roughly 10 years into the FRC’s planned 20 year operational life  and 15 years into the NSC’s planned 30-year operational life.
section_title: Appendix V: Comments from the U.S. Department of Homeland Security
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
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, Richard A. Cederholm, Assistant  Director; Katherine Trimble, Assistant Director; Peter W. Anderson;  Charles W. Bausell Jr.; Erin Butkowski; John Crawford; Kristine  Hassinger; Jenna Tischler; and Roxanna T. Sun made key contributions  to this report.