Coast Guard: Key Management and Budget Challenges for Fiscal Year 2005 and Beyond
Published: 2004-04-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As the lead federal agency for maritime homeland security within the Department of Homeland Security, the Coast Guard is facing extraordinary, heightened responsibilities to protect America's ports, waterways, and waterside facilities from terrorist attacks. At the same time, the Coast Guard remains responsible for many other programs important to the nation's interests, such as conducting search and rescue and protecting important fishing grounds. Its expanded responsibilities come at a time when budget resources are increasingly constrained, making prioritization among competing agencies and programs an even more critical factor in congressional decision-making. This testimony specifically addresses (1) the most recent trends in both resource usage and performance results for the Coast Guard's homeland security and non-homeland security programs; (2) challenges the agency faces as it proceeds with its Deepwater acquisition program to replace or modernize its key legacy cutters and aircraft; and (3) an overview of the President's fiscal year 2005 budget request for the Coast Guard, focusing on several areas of particular congressional interest.
section_title: What GAO Found
paragraphs: Resource usage for Coast Guard assets--its cutters, boats, and aircraft-- was up almost 40 percent from the pre-September 11th baseline. Homeland security programs, such as the ports, waterways, and coastal security program, have been more likely to see increases in usage, while nonhomeland security programs, such as living marine resources, remain below pre-September 11th levels. Although resource usage changed substantially for many of these programs, performance results generally improved or remained largely the same. The stable or improved performance results were attributed mainly to operational efficiencies (e.g., improved technology, improved tactics, stronger partnerships, and improved intelligence). However, the Coast Guard has limited data and no systematic approach to explain or account for the effects of these factors. Without such an approach and supporting data to link its resources and performance results, the agency may be missing further opportunities to increase productivity and efficiency to ensure best use of its funds. Some of the Coast Guard's legacy Deepwater cutters, patrol boats, and aircraft are increasingly unreliable and costly to maintain, and timely and effective implementation of the agency's ongoing Deepwater acquisition program to modernize these assets is crucial in order to reverse this trend. However, the Coast Guard faces serious challenges to keep the Deepwater program on schedule and within planned budget estimates. We estimate that to return the program to its original 20-year completion schedule will cost about $2.2 billion more than the Coast Guard estimated when the program was implemented in 2002. Also, available program funding, which has been less than the Coast Guard planned, may have to be used, in part, to address critical maintenance needs of the legacy assets, diverting funds otherwise intended for future Deepwater replacements and upgrades. Moreover, recent GAO work raised serious concerns about the management and oversight of the program, including the quality of the Coast Guard's assessment of the program contractor's performance and the uncertainty as to whether the Coast Guard would be able to effectively control costs. The President's fiscal year 2005 budget request of about $7.5 billion for the Coast Guard represents about an 8 percent increase over last year. It includes $5.2 billion in operating expenses and $943 million for its capital acquisition budget. Most of the new initiatives outlined in its operating expense budget are targeted for homeland security initiatives, including $102 million for implementation of the Maritime Transportation Security Act of 2002. Aside from the new initiatives, two other efforts in the budget request may require further attention. The Coast Guard's multi-mission stations are still experiencing a heavy workload for station personnel because of increased homeland security responsibilities. Also, the Coast Guard's Rescue 21 program, which will replace the Coast Guard's current antiquated communication system, faces possible delays because of software system development problems.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the President’s fiscal year 2005  budget request for the Coast Guard and key management and operational  challenges the agency faces in this and future budgets. As the lead federal  agency for maritime homeland security within the Department of  Homeland Security (DHS), the Coast Guard is facing extraordinary,  heightened responsibilities to protect America’s ports, waterways, and  waterside facilities from terrorist attacks and from becoming an avenue  for terrorists to bring weapons of mass destruction into the country. The  Coast Guard also remains responsible for many other programs important  to the nation’s interests, such as helping stem the flow of illegal drugs and  illegal migration, protecting important fishing grounds, and responding to  marine pollution. These expanded responsibilities come at a time when  budget resources are increasingly constrained, making prioritization  among competing agencies and programs an even more critical factor in  congressional decision-making.
To help meet its increased homeland security responsibilities and restore  activity levels for its traditional programs, the Coast Guard received  substantial budget increases from fiscal years 2001 to 2004. This trend  continued with the President’s fiscal year 2005 budget request for the  Coast Guard of about $7.5 billion, an 8 percent increase over the previous  year. Still, despite the large budget increases since September 11, there is  much congressional concern about whether the Coast Guard can continue  to meet all of its responsibilities, given both the increased emphasis on  and additional resources required for homeland security, and the agency’s  heavy reliance on its fleet of larger ships and mainstay aircraft, many of  which are now aged and technologically obsolete. In addition, our past  work has shown that notwithstanding substantial increases in the Coast  Guard’s budget to accommodate its increased responsibilities, the Coast  Guard’s emphasis on homeland security reduced the level of resources  devoted to non-homeland security programs.
My testimony today, which is based on recently completed work,  addresses three topics: (1) the most recent trends in both resource usage  and performance results for the Coast Guard’s homeland security and non- homeland security programs; (2) challenges the agency faces as it  proceeds with its Deepwater acquisition program to replace or modernize  its key legacy cutters and aircraft; and (3) an overview of the President’s  fiscal year 2005 budget request for the Coast Guard, focusing on several  areas of particular congressional interest. We conducted our work from  March 2004 to April 2004 in accordance with generally accepted  government auditing standards.
In summary, our work shows the following:    Resource usage—as measured by the number of hours the Coast  Guard’s cutters, boats, and aircraft were used to perform its missions— were up almost 40 percent from the pre-September 11 baseline.  Resource hours for homeland security programs benefited most, while  hours for non-homeland security programs generally declined. In  contrast, performance results for both homeland and non-homeland  security programs generally improved or remained largely unchanged.  The Coast Guard believes that the lack of a clear relationship between  resource use and performance results is attributable to both internally  and externally driven factors. According to the Coast Guard, the use of  new technologies, better operational tactics, improved intelligence, and  stronger partnering efforts have contributed to stable or improving  performance results despite declines in resource hours used for some  programs. The Coast Guard also pointed to external factors beyond the  agency’s control, such as a surge of undocumented migrants attempting  to enter the United States by maritime routes, as affecting the results.  Although our work lends some support to these explanations, the  Coast Guard has limited data and no systematic approach to explain or  account for the effects of these factors. Without such an approach and  supporting data to link its resources and performance results, the  agency may be missing further opportunities to increase productivity  and efficiency to ensure the best use of its funds.
The most significant challenge the Coast Guard faces as it moves  forward with its Deepwater program is keeping the program on  schedule and within planned budget estimates through a well-managed  and adequately funded effort. Adding to the challenge is the fact that  key legacy assets are becoming increasingly unreliable and costly to  maintain. This could put the Coast Guard at risk of expending funds to  repair deteriorating legacy assets that otherwise had been planned for  Deepwater modernization initiatives. This action could potentially  further delay the program and increase total program costs. For  example, the Coast Guard is using Deepwater funds to address recent  engine system problems on mainstay helicopters used for search and  rescue, and law enforcement. More attention to contract management  and oversight, and stable funding will be needed if the Coast Guard is  to successfully manage these risks. During the first 2 years of the  Deepwater program, after the contract was signed, the Coast Guard did  not get the funding originally planned, and now the program is behind  schedule. The Coast Guard estimates that a sustained funding level of  $795 million over the remaining years of the program will be necessary  to get the program back onto its original 20-year schedule. In nominal  dollars, this amount represents about a $2.2 billion escalation in costs  over the earlier $15 billion estimate. Aside from funding issues and  problems with legacy assets, our recent work has also raised concerns  about the Coast Guard’s management of the program. Among the  issues we identified were problems with the quality of the Coast  Guard’s assessment of the contractor’s performance and the  uncertainty as to whether the Coast Guard would be able to effectively  control costs.
The President’s fiscal year budget request for the Coast Guard  represents an 8 percent increase over last year, and new initiatives  continue to focus on the Coast Guard’s homeland security programs.  Of the new initiatives outlined in its operating expense budget, for  example, about 90 percent of the funding was for homeland security  initiatives. The largest, totaling almost $102 million, is targeted for the  cost of implementing the Maritime Transportation Security Act of 2002.  This money would add about 500 new personnel (full-time-equivalent)  to approve vessel and facility security plans, ensure plans are being  followed, and perform various other inspection and intelligence  activities. Aside from the new initiatives, two other efforts may require  special attention in the budget request. One of these areas, the  readiness of its multi-mission stations, has been a congressional  concern in recent years. Since 2002, the Congress has earmarked  additional funding to provide more personnel, equipment, and training  for multi-mission stations. While personnel have increased by about  1,100 between fiscal years 2001 and 2003, the workload of these  stations is still a major concern. For example, station personnel are  currently averaging an 83-hour workweek, which is virtually unchanged  from 2001, and well beyond the Coast Guard’s standard of 68 hours per  week. Rescue 21, the Coast Guard’s second largest procurement effort,  will replace the Coast Guard’s current antiquated communication  system that is key to carrying out its search and rescue functions. This  program, which is estimated to cost $953 million, has encountered  delays related to software integration problems. Currently, Coast  Guard officials are unsure whether Rescue 21 will be completed on  time at the end of fiscal year 2006, but they do not anticipate any cost  escalation in the program.
subsections: section_title: Background
paragraphs: Now a part of DHS, the Coast Guard has experienced substantial budget  growth since the terrorist attacks of September 11. The agency’s operating  budget in fiscal year 2004 was $4.7 billion—an increase of 31 percent in  nominal dollars over its fiscal year 2001 operating budget. The Coast  Guard spends the bulk of this money on 11 programs—5 related to its  homeland security mission and 6 related to its non-homeland security  mission. (See table 1.)
To carry out these responsibilities, , the Coast Guard had almost 44,500  full-time military and civilian positions at the end of fiscal year 2003— about 9 percent more than it had in fiscal year 2001. Also, the Coast Guard  operates a fleet of more than 200 cutters and patrol boats, about 1,600  smaller boats, and almost 200 aircraft—mainly helicopters. Several efforts  are under way to replace, modernize, or add to these assets. The major  one, the Deepwater program, was begun in 1996, to replace or modernize  the Coast Guard’s existing ships and aircraft, as well as make use of  innovative technology such as satellites and improved detection  capabilities to carry out its varied mission responsibilities. Deepwater  involves the modernization and replacement of over 90 ships and 200  aircraft used for missions that generally occur beyond 50 miles from shore.
The Deepwater program has been in development for a number of years.  Between 1998 and 2001, three industry teams competed to identify and  provide Deepwater assets needed to transform the Coast Guard. In June  2002, the Coast Guard awarded a contract to Integrated Coast Guard  Systems (ICGS) as the system integrator for the Deepwater program to  develop and deliver an improved, integrated system of ships, aircraft,  unmanned aerial vehicles, command, control, communications, computer,  intelligence, surveillance, and reconnaissance, and supporting logistics.  During the first 3 years of the program (fiscal years 2002-2004), the  Congress appropriated about $1.5 billion for the program.
subsections: section_title: Resource Hours Have Changed Substantially for Many Programs, While Performance Results Have Largely Remained Stable
paragraphs: Total Coast Guard resource hours devoted to its various programs have  increased by 39 percent since the September 11 terrorist attacks. Among  the various Coast Guard programs, however, there is a marked difference  in the degree to which resource levels rose or declined. Of the various  programs, the ports, waterways, and coastal security program saw by far  the largest increase—more than 1,200 percent. Before the September 11  attacks, this program was a small component of the Coast Guard,  accounting for less than 4 percent of total resource hours. By the end of  fiscal year 2003, the program accounted for 34 percent. As figure 1 shows,  resource hours were up in 4 programs and down in 5. Homeland security  programs have been more likely to see increases in hours, while non- homeland security programs have been more likely to see decreases.
While resource hours changed substantially for many of these programs,  their corresponding performance results did not necessarily reflect the  direction of these changes. Most Coast Guard programs have key  indicators—such as the percentage of distressed mariners’ lives saved— that the Coast Guard uses to report program performance. Seven of the   9 programs we reviewed had information on these indicators over the   3-year period. Of these, only 1—defense readiness—showed a consistent  relationship between resources and performance results. (See table 2.) For  that program, resources increased and performance results improved. For  the others, performance either remained stable despite changes in  resources, or they actually improved even though resources decreased.
Another way that the Coast Guard assesses its performance is by  determining whether programs have achieved their performance targets  each year. These targets—which represent the goals that the programs aim  to achieve each year—were met in fiscal year 2003 by 5 of the 8 programs  we reviewed. (See app. III for a detailed summary of performance  targets.)
Coast Guard officials acknowledged the apparent disconnect between  resource hours expended and performance results achieved and offered  two explanations for it. The first involved operational efficiencies—Coast  Guard-driven strategies that essentially allowed the agency to accomplish  the same or greater results with fewer resources. These efficiencies were  of four main types—improved technology, improved tactics, stronger  partnerships, and improved intelligence. Table 3 contains an example of  each type.
The Coast Guard’s second explanation involved external events or  developments that were largely beyond the Coast Guard’s control but had  an influence on the amount of work the Coast Guard had to confront. In  fiscal year 2003, these events and developments included such things as  “surge” demands related to the Iraq War, a large increase in the number of  undocumented migrants attempting to enter the United States by maritime  routes, and poor weather conditions that, for example, increased  icebreaking needs. According to Coast Guard officials, these externalities  had a negative effect on performance results—that is, they made it more  difficult for the Coast Guard to meet its goals, even when more resources  were added. For example, according to Coast Guard officials, while the  percentage of migrants interdicted showed an overall increase from fiscal  years 2002 to 2003, a large increase in illegal immigrants seeking to enter  the United States by sea during fiscal year 2003 reduced the performance  results percentage from fiscal year 2002 levels.
While the factors cited by the Coast Guard likely have an effect on mission  performance, the extent of that effect is largely unknown. The Coast  Guard does not have a mechanism in place to systematically determine the  extent to which these factors affect performance. For instance, the Coast  Guard does not have data on search and rescue cases handled by local  responders; as a result, it cannot determine the extent to which this  assistance has reduced the Coast Guard’s own search and rescue  workload.
Coast Guard officials agree on the value of taking a more systematic  approach to assessing performance, including better understanding of the  effects of internal and external factors that affect their performance, and  they have begun a number of steps directed at improving various aspects  of performance assessment. For example, they are developing a procedure  for capturing operating costs on a program-by-program basis, as well as a  system for assessing the agency’s ability to respond to mission  requirements. These steps are still in their early stages, and while they  represent a good beginning, it is not yet clear when they will be completed  and whether they will tie together to address the weaknesses we have  identified. Without a clear understanding of this linkage or a timeframe to  ensure that it gets completed, the agency is at risk of misdirecting  resources and missing further opportunities to increase productivity and  efficiency to ensure the best use of its funds. A clear understanding is also  needed to better allow the Congress to make informed budget decisions  for the Coast Guard.
In discussions with us, the Coast Guard has not clearly articulated a  strategy for how these various efforts will weave together. However, Coast  Guard officials told us that more information regarding these efforts will  be included in the agency’s strategic blueprint, which has yet to be  finalized.
section_title: Reliability and Cost Issues Associated with Key Deepwater Assets Heighten Program Funding and Management Challenges
paragraphs: Under the Deepwater program, the Coast Guard’s legacy assets are  expected to remain in service until they are replaced or modernized  through the Deepwater acquisition program. The maintenance costs to  keep many of these assets operational have been more than the amounts  the Coast Guard budgeted for these repairs, and the gap between these  two is widening.
subsections: section_title: Coast Guard Reports Increasing Problems and Rising Costs with Assets
paragraphs: As early as the mid-1990s, the Coast Guard identified problems with its  aging fleet and cited the need to upgrade or replace many of its cutters and  aircraft. The deteriorating condition of some of its deepwater assets has  resulted in increasing operational problems and limitations, escalating  maintenance needs and downtime of assets, and increasing maintenance  costs over the past few years.
Increased Operational Problems and Limitations for Some  Deepwater Legacy Assets  One key indicator of the deterioration of the Coast Guard’s legacy assets is  the increasing lost operational days—that is, days in which Coast Guard  cutters could not conduct their normal mission activities. Although the  Coast Guard was unable to provide complete historical data for this trend  among all of its deepwater assets, it could provide data for some of its  major deepwater cutters operating in the Atlantic region. As figure 2  shows, between fiscal year 2000 and fiscal year 2003, there is an increase  in lost operational days—from 60 to 165 lost days—between fiscal year  2002 and fiscal year 2003 for these key deepwater assets.
The Coast Guard provided the following examples of these problems and  restrictions:    An increasing number of in-flight safety-related incidents for the HH-65  helicopter. These incidents have resulted in the Coast Guard placing  increased restrictions on the HH-65’s operations, including a reduced  flight range and a reduced passenger/crew level to help reduce safety  risks for these assets and the personnel flying them.
A large number of hull incidents on a class of key Coast Guard patrol  boats. To date, 20 of the Coast Guard’s 110-foot patrol boats have  experienced significant levels of deterioration that have resulted in hull  breaches requiring emergency repairs. To repair these hull breaches,  each of these vessels were removed from service for an average of   3 months.
An increasing need to implement special safety response measures  aboard the fleet of 378-foot high endurance cutters. These ships—the  largest of the Coast Guard’s offshore cutters—have had to regularly  implement fire team response procedures when on patrol due to  numerous fuel or lube oil leaks. These procedures entail having the  crew perform critical safety and fire response actions, such as  evacuating the engineering space, donning firefighting gear, and  investigating the cause of the engineering casualty, while the ship’s  systems are shut down and the cutter is “dead in the water”—for a  period of time.
In addition to lost operational days, unscheduled maintenance days are  also a concern. That is, when a cutter is undergoing unscheduled  maintenance, it is also likely to be out of operation as well. However,  Coast Guard officials noted that unscheduled maintenance days do not  always result in lost operational days because they are sometimes able to  schedule additional operational days for another cutter to make up for lost  days from the cutter undergoing unscheduled maintenance. As figure 3  shows, the cumulative number of unscheduled maintenance days for the  Coast Guard’s mainstay cutters and a key patrol boat (the 210-foot, 270- foot, and 378-foot cutters and the 110-foot patrol boat)—have increased  since fiscal year 2002.
The Coast Guard provided us with examples of some of the more  significant unscheduled maintenance events that its legacy cutters have  experienced in recent years that resulted in lost operational days for the  affected cutters. Because these cutters are typically scheduled to operate  on average about 175 to185 days per year, a loss of 20 or more days in a  year can be significant. These examples included:    Twenty-eight lost operational days in fiscal year 2003 for the 36-year  old high endurance cutter, Chase, due to main engine and boiler  casualties; 84 lost operational days so far in fiscal year 2004 due to  additional mechanical problems.
Twenty-four lost operational days in fiscal year 2003 for the 36-year old  high endurance cutter, Gallatin, due to a shaft coupling failure.
Increasing Maintenance Costs for Cutters and Patrol Boats  Unscheduled maintenance costs have also increased significantly over the  past few years. According to our analysis of Coast Guard data on some of  its major cutters and patrol boats, these maintenance expenditures have  increased 79 percent—from about $522,000 to almost $934,000 per  vessel—between fiscal year 2000 and fiscal year 2003. As a result, the  Coast Guard is finding that in recent years it has spent much more on  maintaining its aging assets, than it had planned. To determine how much  to budget for asset maintenance, the Coast Guard determines what is  known as the “standard support level” (SSL) for each of its vessels when  they are commissioned. This budgetary estimate is equal to the amount of  funding provided each year for vessel casualty support and maintenance  needs, according to a Coast Guard official.  The estimate is increased each  year based on certain cost of living adjustments, and the support level can  vary according to the estimated operating days for the class of the vessel.  According to the Coast Guard, when maintenance expenditures exceed  the SSL for a class of vessels, a budget deficit is created that must be filled  with funds from other vessels, or from outside sources. In fiscal year 2003,  the gap between the Coast Guard’s planned and actual maintenance  expenditures for key legacy assets was about almost $500,000 per vessel.  (See fig. 4.)
Escalating maintenance costs and their effects are evident in the following  examples:  In fiscal year 2002, the Coast Guard removed from service two of its  210-foot medium endurance cutters because, according to Coast Guard  officials, they had become too costly to maintain. According to a  knowledgeable Coast Guard official, these two cutters were both over  35 years old, and the Coast Guard estimated that it would have cost  about $1 million per year, per vessel to keep them in service, if they had  not been decommissioned.
Returning from a 2-month patrol on a 20-year old 270-foot medium  endurance cutter, the ship’s commander reported that even after  completing $1 million in repairs and maintenance in the past year, the  vessel still had a tremendous backlog of critical maintenance that  continued to grow exponentially. In addition, the commander reported  that during this particular patrol, the cutter had experienced numerous  debilitating vessel maintenance problems—or casualties—resulting in   5 lost cutter days. He also noted that the cutter would require 30 or  more days of repair upon its return. The commander further reported  that he believed the vessel casualties encountered on this patrol  foreshadowed the long-term impact that continued deferral of major  maintenance actions would have on overall operational readiness.
The Coast Guard was unable to attribute specific mission performance  deterioration to these types of incidents; however, reduced operating  availability time and increasing maintenance downtime for these assets  would likely adversely affect mission performance results in the future.  Given these maintenance costs and reliability problems, it is unclear what  the actual service life might be for some of these assets, particularly the  cutters and the HU-25 fixed wing aircraft, according to Coast Guard  officials. And certainly, decisions to overhaul or upgrade assets would  affect their longevity as well. However, Coast Guard officials said that it is  unclear at this time as to when these Deepwater assets will become so  costly to maintain that the Coast Guard would have no other logical choice  but to retire them. This type of analysis would be valuable to the Coast  Guard and the Congress in determining the priority order for future asset  replacements and upgrades.
section_title: Coast Guard Is Facing Serious Challenges to Keep the Program on Schedule and within Budget Projections
paragraphs: The Coast Guard’s Deepwater program—which uses a unique contracting  approach requiring steady funding over 20 years—is facing serious  challenges to keep the program on schedule and within budget estimates.  Now, almost 2 years after the contract for the Deepwater program was  awarded, cost estimates to complete the program have increased by about  $2.2 billion in nominal terms, and key components necessary to manage  the program effectively have not been rigorously implemented. In addition,  new homeland security requirements, which have not yet been defined or  approved, and necessary major modifications to key legacy assets make  keeping the program on track that much harder.
Under current funding plans, the Coast Guard continues to face potential  cost increases in its $17 billion Deepwater program. The Coast Guard  chose a unique contracting approach that requires steady funding for the  program over its 20-year life. Under this approach, the Coast Guard has  started on a course potentially expensive to alter and one that carries  some risks. In a 2001 report, we expressed concern that the Coast Guard  risked schedule slippages and cost escalation if project funding fell short  of planned funding levels. Now, very early in the program our concerns  are being realized. Program funding in the first 2 years was less than the  agency planned by about $125 million. This resulted in delays in the  scheduled delivery of key deepwater assets, such as the maritime patrol  aircraft. The Congress appropriated more than the requested funding in  fiscal year 2004, and if the agency receives the $678 million funding level  requested in the fiscal 2005 budget proposal, the Deepwater program will  have cumulatively received $46 million more than planned levels for the  first 4 years. However, according to the Coast Guard, the program’s  acquisition schedule has been lengthened and higher funding levels, ($795  million per year over the remaining years of the program), will be needed  to restore this schedule to its original 20-year completion pace.
Currently, Coast Guard officials believe that a continuing stream of  funding at $795 million (adjusted for inflation) would put the project back  onto its original 20-year time schedule. However, on this funding schedule,  total costs for the Deepwater program, assuming no additional changes,  would reach $17 billion—in nominal terms—about $2.2 billion more than  the Coast Guard’s earlier estimate.  Because of time constraints for  completing work for this statement, we could not assess the reasons for  the cost escalation. Coast Guard officials attributed the increased costs, so  early in the program, to the following factors.
Under-funding in the first 2 years put the program behind schedule and  resulted in lost efficiency and flexibility that they believe would have  been realized by acquiring multiple assets in a more coordinated way.  They believe that this coordinated approach would have offered  efficiencies. For example, they said that acquiring multiple assets  simultaneously or in their planned sequence would allow for more  efficient logistical support with respect to training, and infrastructure  planning for such things as facility and pier space for personnel and  assets. However, they believe that these efficiencies were lost when  these assets could not be purchased simultaneously.
The maintenance costs associated with sustaining legacy assets have  increased more than anticipated as these assets deteriorated faster  than expected. As a result, available future funding may have to be  used, in part, to address critical maintenance needs of the legacy  Deepwater assets, diverting funds otherwise intended for future  Deepwater replacements and upgrades. In addition, Coast Guard  officials indicated that maintenance schedules for some vessels were  perhaps not kept according to plan in anticipation of these assets being  replaced or overhauled through the Deepwater program.
Delays have resulted in increased costs due to normal price inflation.
Because the contract for acquiring Deepwater assets has a price  adjustment factor that allows asset prices to be adjusted for inflation,  costs for these assets have increased over time.
Due to revised homeland security requirements, some redesign of the  national security cutter has occurred. These modifications, made to  ensure the vessel would accommodate DHS needs included such things  as lengthening the vessel to accommodate DHS aircraft, installing an  onboard intelligence center, and making modifications to allow  sustainability in an environment tainted by chemical, biological and  radiological agents. According to Coast Guard officials, these  modifications resulted in additional costs for the Deepwater program.
In recent discussions with Coast Guard officials about the Deepwater  program, they were not able to explain in more detail the reasons for the  escalation in the program costs and did not provide additional information  to us before we completed our work. However, officials indicated that  they would provide additional information in the future.
section_title: Increased Management and Oversight Attention Needed to Successfully Complete the Deepwater Program
paragraphs: While expeditiously completing the Deepwater program is important to  the ability of the Coast Guard to effectively fulfill its responsibilities in the  future, the agency must also be diligent in managing the contract, and  ensuring necessary competition among contractors to prevent additional  cost increases in the program. As we have recently reported we have  concerns regarding the management and oversight of the project to date.  Almost 2 years after the contract was awarded for implementation of the  Deepwater program, the key components needed to manage the program  and oversee the system integrator’s performance have not been  effectively implemented in the following areas:    The effectiveness of the Integrated Project Teams—established as the  main tool for managing the program and overseeing the contractor— has been weakened due to changing membership, understaffing,  insufficient training, lack of authority for decision making, and  inadequate communication among members.
Although delivery of some of the first assets is imminent, the Coast  Guard has not effectively communicated to its operational personnel  decisions on how new and old assets will be integrated and how  maintenance responsibilities will be divided between government and  contractor personnel.
The Coast Guard has not developed quantifiable metrics or adhered to  effective procedures for holding the system integrator accountable for  its ongoing performance, resulting in a process for assessing  performance that lacked rigor.
The Coast Guard has not yet begun to measure the system integrator’s  performance on the three overarching goals of the Deepwater  program—operational effectiveness, minimizing total ownership cost,  and customer satisfaction. This information will be essential to the  Coast Guard’s decision about whether to extend the system integrator’s  contract after the first 5 years.
We have concerns about the Coast Guard’s efforts to measure the  extent of competition among the suppliers of Deepwater assets, or hold  the system integrator accountable for doing so to achieve this  competition. The Coast Guard’s “hands-off” approach in this area raises  questions about whether the government will be able to control costs  in the Deepwater program. Concerns about the Coast Guard’s ability to  rely on competition as a means to control future costs contributed to  our description of the Deepwater program in 2001 as “risky.” Three  years later, these concerns remain.
section_title: Unplanned Legacy Asset Modifications and Updated Deepwater Requirements Pose Potential Additional Challenges
paragraphs: In addition to funding and contract management concerns, there are other,  as yet relatively unknown, but potentially significant factors that could  affect the Coast Guard’s Deepwater program. Recent discoveries about the  condition of some legacy assets, and corresponding actions taken,  combined with anticipated updates in the Coast Guard’s mission  requirements, may give the Coast Guard additional reasons to re-think its  prioritization for obtaining or upgrading certain Deepwater assets.
In recent years, the Coast Guard has had to make major unplanned  upgrades on some of its Deepwater assets. Most recently, the Coast Guard  decided to replace its HH-65 helicopter engines because of serious safety  and reliability issues with that aircraft. Modernization of this helicopter is  planned as part of the Deepwater program beginning in 2007, but for safety  and reliability reasons, the existing engine on this helicopter needed to be  replaced much sooner. The HH-65 is the Coast Guard’s mainstay  helicopter, serving such missions as search and rescue, drug and migrant  interdiction, and homeland security. Problems with the current engine and  related components have been occurring for a number of years, affecting  the amount of power available for hovering, lifting, and other operations.
To address these problems, the Coast Guard plans to take action along  two tracks. First, until the replacement engines are installed, they plan to  upgrade the existing engines. Second, they plan to install new engines in  the entire HH-65 fleet within 24 months. However, there are potential  consequences for the Deepwater acquisition process associated with this  early replacement decision. Funds to pay for the replacement engine are  to be diverted from other Deepwater projects—a factor that could  exacerbate further schedule delays. Also, the alignment between  deepwater requirements—which have not yet been finalized—and those  for the replacement engine cannot be determined. If the requirements are  not in alignment, the Coast Guard faces significant cost and schedule risks  because another engine replacement could be required to meet new  mission requirements. Irrespective of these concerns, the Coast Guard’s  decision to re-engine these helicopters, in and of itself, provides reason for  the agency to reassess its planned schedule for upgrading this asset under  the Deepwater program.
Coast Guard officials also anticipate that updated agency requirements— engendered by homeland security needs that were not known and,  therefore, not factored into the original mission requirements developed  prior to the September 11 attacks—also need to be considered. According  to Coast Guard officials, they are currently in the process of re-examining  the agency’s Deepwater mission requirements to ensure that they align  with DHS’ strategic goals, and that the agency is able to meet increased  mission demands and higher performance targets in a post September 11  environment. The Coast Guard’s review of its Deepwater mission needs  statement is expected to be completed by April or May 2004 and submitted  to DHS for approval at that time.
This continually evolving information flow challenges the Coast Guard  even further to ensure that funds are wisely spent. As a result, as interim  asset decisions, discoveries, and evolving mission priorities are identified,  it becomes even more imperative that the Coast Guard continually updates  its acquisition schedule and decision making to ensure that choices are  made based on timely and accurate information.
section_title: Overview of Fiscal Year 2005 Budget and Funding for Several Areas of Particular Congressional Interest
paragraphs: The President’s fiscal year budget request for the Coast Guard of nearly  $7.5 billion represents an increase of about $534 million, or about   8 percent in nominal dollars over the enacted budget for fiscal year 2004.  It includes almost $5.2 billion in operating expenses and $943 million for  its capital acquisition budget. The majority of the increase covers pay  increases for current and retired employees or continues certain programs  already underway, such as follow-on funding for construction projects at  Coast Guard shore-side facilities, the Great Lakes Icebreaker construction,  and information technology projects. About $115 million of the increase  would fund new initiatives, about 90 percent of which relate to homeland  security. The most significant new initiative at $102 million would be used  to implement the Maritime Transportation Security Act (MTSA) of 2002.
This funding would be used to add about 500 new personnel (full-time- equivalent) who will perform various security-related and other  functions. An additional $2.2 million is being requested to fund a new  initiative for increasing maritime domain awareness—another homeland  security function.
One area of particular interest to the Congress over the last several years  is the readiness of its multi-mission stations. In September 2001, the  Department of Transportation, Office of Inspector General, reported that  readiness at multi-mission stations was deteriorating. For example, staff  shortages at most stations required crews to work an average of 84 hours  per week, well above the standard (68 hours maximum) established to  limit fatigue and stress among personnel. Subsequently, the Congress  appropriated funding totaling about $50 million for fiscal years 2002-2004  specifically to pay for increased staff, training, and equipment at stations  and command centers. However, the degree that readiness has improved,  if any, is unclear. For example, according to the Coast Guard, the average  workweek at the multi-mission stations is still about 83 hours per week,  even though about 1,100 personnel were added between fiscal years 2001  and 2003. According to a Coast Guard official, one main reason for this  high work week, is that these stations have taken on a major homeland  security role since September 11, resulting in a heavier workload for  station personnel carrying out functions, such as vessel escorts and port  security patrols.
Of the $943 million requested for capital projects, $839 million, or 89  percent, would be dedicated to two projects—the Deepwater program  ($678 million) and Rescue 21 ($161 million). Rescue 21, the Coast Guard’s  second largest acquisition program, provides for the modernization of the  command, control, and communication infrastructure of the National  Distress and Response System. The current system suffers from aging  equipment, limited spare parts, and limited interoperability with other  agencies. Of particular concern to the Coast Guard and the maritime  community are the current system’s coverage gaps, which can result in  missed maritime distress calls. The Congress mandated the completion of  the new system by the end of fiscal year 2006. The fiscal year 2005 request  for $161 million is aimed to keep the project progressing; however,  technical problems with software development have delayed  implementation of the first elements of the system that were scheduled for  last summer, and it is unclear to agency officials whether these issues will  prevent the agency from completing implementation of the program on  time. In recent discussions with Coast Guard officials, they said that they  do not yet know whether Rescue 21 will be completed on time at the end  of fiscal year 2006, but they currently do not anticipate any cost escalation  in the program, which is presently estimated to cost $953 million.
Madame Chair and Members of the Subcommittee, this completes my  prepared statement. I would be happy to respond to any questions that you  or other Members of the Subcommittee may have at this time.
section_title: Contacts and Acknowledgments
paragraphs: For information about this testimony, please contact Margaret Wrightson,  Director, Homeland Security and Justice Issues, at (415) 904-2200, or  wrightsonm@gao.gov. Other individuals making key contributions to this  testimony include Dawn Hoff, Joseph Kile, Dawn Locke, Stan Stenersen,  and Randall Williamson.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the most recent trends in both resource usage and  performance results for the Coast Guard’s homeland security and non- homeland security programs and the implication of these trends for Coast  Guard management and accountability, we summarized findings from a  recent GAO report.
To determine the challenges the agency faces as it proceeds with its  program to modernize its Deepwater cutters and aircraft, we summarized  briefings prepared in 2004 by the Coast Guard for the Congress and for  internal use on the Deepwater program and the HH-65 helicopters. We also  interviewed Coast Guard staff at headquarters to determine the potential  impacts of deteriorating Deepwater assets. In addition, we used current  maintenance expenditure data provided by the Coast Guard to perform an  historical analysis of maintenance costs. To assess the reliability of these  data, we interviewed knowledgeable Coast Guard officials and reviewed  existing documentation about the data and the systems that produced  them. We determined that the data were sufficiently reliable for the  purposes of this report.
To give an overview of the President’s fiscal year 2005 budget request for  the Coast Guard, focusing on several areas of particular congressional  interest, we obtained information on the average workweek of personnel  at the Coast Guard’s multi-mission stations and interviewed Coast Guard  headquarters staff to determine how the fiscal year 2005 budget will  address MTSA implementation, Rescue 21, and multi-mission stations. We  also reviewed the Coast Guard’s C-stage budget and other financial  documentation provided by the Coast Guard.
This testimony is based on published reports and briefings as well as  additional audit work that were conducted in accordance with generally  accepted government auditing standards.
section_title: Appendix II: Coast Guard Performance Results, Fiscal Years 2001-2003
paragraphs: Table 4 shows a detailed list of performance results for the 8 programs for  which we obtained data. In a recent report, we compared performance  results for our baseline year—fiscal year 2001—with the most currently  available results—fiscal year 2003. As a result, we defined programs as  “stable” or “improved” based on the known results for these 2 years. All  programs defined as stable showed a differential of less than 4 percentage  points when comparing fiscal year 2001 and fiscal year 2003 results.
section_title: Appendix III: Performance Targets for Fiscal Year 2003
paragraphs: In a recent report, we showed that another way that the Coast Guard  assesses its performance is by determining whether programs have  achieved their performance targets each year. These targets—which  represent the goals that the programs aim to achieve each year—were met  in fiscal year 2003 by 5 of the 8 programs we reviewed. (See table 5.) Two  of the programs that did not meet their performance targets were defense  readiness and undocumented migrant interdiction. Coast Guard officials  reported that the defense readiness program did not meet its target, in  part, because of equipment problems associated with operating aging  ships and unit training deficiencies, such as cutters not having sufficient  training time to perform gunnery exercises. As for the undocumented  migrant interdiction program, Coast Guard officials reported that they  consider their results to be a minimal decline, given the substantial  increase in the number of migrants they successfully interdicted during the  year. For example, of the key migrant populations tracked by the Coast  Guard, about 5,300 illegal migrants were interdicted in fiscal year 2003  compared with about 2,400 in fiscal year 2002, an increase of 120 percent.  We could not determine whether the remaining program, illegal drug  interdiction, met its performance target because the performance results  for fiscal year 2003 were not yet available at the time we conducted our  work.