Homeland Security: Observations on the Department of Homeland Security's Acquisition Organization and on the Coast Guard's Deepwater Program
Published: 2007-02-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In January 2003, GAO designated the Department of Homeland Security's (DHS) implementation and transformation as high risk because of the size and complexity of the effort and the existing challenges faced by the components being merged into the department. The success of the effort to integrate numerous agencies and organizations into one cabinet-level department rests in large part on DHS's ability to effectively acquire the wide range of goods and services it needs to achieve its mission of protecting the nation from terrorism. DHS is undertaking a number of large, complex investments as the federal government increasingly relies on contractors for roles and missions previously performed by government employees. One of the department's largest investments--the Deepwater program, now estimated to cost $24 billion--is the Coast Guard's major effort to replace or modernize its aircraft and vessels. Rather than using a traditional acquisition approach, the Coast Guard is using a system integrator to design, construct, deploy, support, and integrate the Deepwater assets. In this testimony, the Comptroller General discussed (1) the overarching challenges DHS faces in establishing an effective acquisition organization, (2) GAO's prior work on Coast Guard and contractor management of the Deepwater program, and (3) the status of GAO's ongoing reviews.
section_title: What GAO Found
paragraphs: GAO has reported in the past on acquisition management at several components of DHS and has assessed the department's overall acquisition management and oversight efforts. A common theme in these reports is DHS's struggle, from the outset, to provide adequate support to its mission components in acquiring goods and services and to provide departmentwide oversight of its acquisition function. DHS has a stated goal of integrating the acquisition function more broadly across the department. GAO has reported that this goal has not yet been accomplished and has identified key impediments to achieving it. A management directive intended to integrate the acquisition line of business did not provide the Chief Procurement Officer with the enforcement authority needed in practice, and it does not pertain to all component agencies. Also, the procurement organizations within the department remained somewhat autonomous, and centralized acquisition oversight had not been implemented. While DHS's review process for major investments adopts some best practices, key decision-making reviews at certain points are not required. Investments that are not reviewed at the appropriate points can face a range of problems--such as redesign--resulting in significant cost increases and schedule delays. The Coast Guard's Deepwater program illustrates problems that can occur when effective program management and contractor oversight are not in place. In 2001, GAO described the Deepwater project as "risky" due to the unique, untried acquisition strategy for a project of this magnitude within the Coast Guard--a system-of-systems approach with the contractor as the integrator. In 2004, GAO reported that well into the contract's second year, key components needed to manage the program and oversee the system integrator's performance had not been effectively implemented. For example, integrated product teams, comprised of government and contractor employees, are the Coast Guard's primary tool for managing the program and overseeing the contractor. GAO found that the teams had not been effective due to changing membership, understaffing, insufficient training, lack of authority for decision-making, and inadequate communication among members. GAO also reported that, despite documented problems in schedule, performance, cost control, and contract administration throughout the first year of the Deepwater contract, the contractor had received a rating of 87 percent, which fell in the "very good" range and resulted in an award fee of $4.0 million. GAO's more recent work found that, while the Coast Guard had taken steps to address some of the problems, concerns remained about program management and contractor oversight. In addition to these overall management issues, there have been problems with the design and performance of specific Deepwater assets. Given the size of DHS and the scope of its acquisitions, GAO is continuing to assess the department's acquisition oversight process and procedures in ongoing work. GAO is also currently reviewing the status of the Deepwater program's implementation and contractor oversight.

section_title: Letter
paragraphs: Thank you for inviting me here today to discuss our reviews of the  Department of Homeland Security’s (DHS) acquisition organization and  the U.S. Coast Guard’s Deepwater program. When it was established in  March 2003, DHS faced the challenge of integrating 22 separate federal  agencies and organizations with multiple missions, values, and cultures  into one cabinet-level department. The success of this mammoth task— one of the biggest mergers ever to take place within the federal  government—rests in large part on DHS’s ability to implement the  necessary management structure and processes for effectively acquiring  goods and services. A wide range of contractor-provided products,  technologies, and services are critical to the department’s ability to  achieve its mission of protecting the nation from terrorism. For example,  DHS has purchased increasingly sophisticated screening equipment for air  passenger security, acquired technologies to secure the nation’s borders,  and is upgrading the Coast Guard’s offshore fleet of surface and air assets.
In January 2003, we designated DHS’s implementation and transformation  as high risk because of the size and complexity of the effort and the  existing challenges faced by the components being merged into the  department. Although DHS has made some progress transforming its  components into a fully functioning department, this transformation  remains high risk. DHS has yet to implement a corrective action plan that  includes a comprehensive transformation strategy, and its management  systems—including those related to acquisition—are not yet integrated  and wholly operational. DHS’s acquisition systems will require continued  attention to help prevent waste and ensure that DHS can allocate its  resources efficiently and effectively.
In fiscal year 2006, DHS reported obligating $15.6 billion in acquisitions,  making it the third largest federal department in spending taxpayer  dollars. DHS is undertaking large, complex investments as the federal  government increasingly relies on contractors for roles and missions  previously performed by government employees. Contractors have an  important role to play in the discharge of the government’s  responsibilities, and in some cases the use of contractors can result in  improved economy, efficiency, and effectiveness.  At the same time, there  may be occasions when contractors are used to provide certain services  because the government lacks another viable and timely option. In such  cases, the government may actually be paying more than if such services  were provided by federal employees.  In this environment of increased  reliance on contractors, sound planning and contract execution are critical  for success. We have previously identified the need to examine the  appropriate role for contractors to be among the challenges in meeting the  nation’s defense needs in the 21st century.
My statement today will focus on the overarching challenges DHS faces in  creating an effective, integrated acquisition organization and will discuss  our prior work on one of the department’s most complex programs—the  Coast Guard’s Deepwater program.  I will also discuss areas where we  have related ongoing work.
This testimony is based on our work on DHS’s acquisition organization  and the Deepwater program. That work was conducted in accordance with  generally accepted government auditing standards.
subsections: section_title: Challenges to Creating an Integrated Acquisition Function at DHS
paragraphs: We have reported in the past on acquisition management at several  components of DHS. We have also assessed the department’s overall  acquisition management efforts.  A common theme in these reports is  DHS’s struggle, from the outset, to provide adequate procurement support  to its mission components and to provide departmentwide oversight of its  acquisition function. Of the 22 components that initially joined DHS from  other agencies, only 7 came with their own procurement support. An  eighth office, the Office of Procurement Operations, was created anew to  provide support to a variety of DHS entities—but not until January 2004,  almost a year after the department was created. DHS has established a  goal of aligning procurement staffing levels with contract spending at its  various components by the last quarter of fiscal year 2009.
DHS has set forth a stated goal of integrating the acquisition function more  broadly across the department. However, the goal has not been  accomplished. In March 2005, we identified key factors impeding  accomplishment of the department’s objective, including limitations of a  2004 management directive and lack of departmentwide oversight of  component acquisition organizations.  We also identified potential gaps in  the department’s knowledge-based approach for reviewing its major,  complex investments.  On a related issue, a number of systemic  acquisition challenges we have identified at the Department of Defense  could apply equally to DHS.
subsections: section_title: Management Directive Has Limitations
paragraphs: In October 2004, the Secretary of DHS signed a management directive  entitled “Acquisition Line of Business Integration and Management,” the  department’s principal guidance for leading, governing, integrating, and  managing the acquisition function. It directs managers from each  component organization to commit resources to training, development,  and certification of acquisition professionals. It also highlights the Chief  Procurement Officer’s broad authority, including management,  administration, and oversight of departmentwide acquisition.
However, we have reported that the directive may not achieve its goal of  creating an integrated acquisition organization because it creates unclear  working relationships between the Chief Procurement Officer and heads  of DHS’s principal components. For example, the Chief Procurement  Officer and the director of Immigration and Customs Enforcement share  responsibility for recruiting and selecting key acquisition officials,  preparing performance ratings for the top manager of the contracting  office, and providing appropriate resources to support procurement  initiatives. The policy leaves unclear how the responsibilities will be  implemented or what enforcement authority the Chief Procurement  Officer has to ensure that initiatives are carried out.
Further, the directive does not apply to the Coast Guard or Secret Service,  two entities that are required by the Homeland Security Act of 2002 to be  maintained as distinct entities within DHS. According to the directive, the  Coast Guard and Secret Service are exempted by statute. We are not  aware of any explicit statutory exemption that would prevent the  application of this directive. Nothing in the document would reasonably  appear to threaten the status of these entities as distinct entities within the  department or otherwise impair their ability to perform statutory missions.  DHS’s General Counsel has agreed, telling us that the applicability of the  directive is a policy, not legal, matter. Excluding certain components from  complying with management directives regarding the acquisition function  hampers efforts to integrate the acquisition organization. The Coast Guard,  for example, is one of the largest organizations within DHS.
section_title: Procurement Organizations are Somewhat Autonomous and Lack Departmentwide Oversight
paragraphs: We have reported that DHS’s principal organizations are, to a large extent,  still functioning much as they did in pre-merger days with regard to  acquisition-related functions. Embedded within the seven procurement  organizations that came to DHS were, for the most part, the same  contracting staffs that joined the department from their former agencies.  In addition, the Chief Procurement Officer, who is held accountable for  departmentwide management and oversight of the acquisition function,  lacks the enforcement authority and has limited resources to ensure  compliance with acquisition policies and processes. As of August 2006,  according to DHS officials, only five staff were assigned to  departmentwide oversight responsibilities. The officials told us that,  because their small staff faces the competing demands of providing  departmentwide oversight and providing acquisition support for urgent  needs at the component level, they have focused their efforts on  procurement execution rather than oversight. Our prior work shows that  in a highly functioning acquisition organization, the chief procurement  officer is in a position to oversee compliance by implementing strong  oversight mechanisms. Adequate oversight of acquisition activities across  DHS is imperative, in light of the department’s mission and the problems  that have been reported by us and inspectors general for some of the large  components within the department.
section_title: Knowledge-based Acquisition Review Process
paragraphs: Some DHS organizations have large, complex, and high-cost acquisition  programs—such as the Coast Guard’s Deepwater program—that need to  be closely managed. DHS’s investment review process involves several  different levels of review, depending on the dollar threshold and risk level  of the program. Deepwater, for example, has been designated as a level 1  investment, meaning that it is subject to review at the highest levels within  the department. We reported in 2005 that DHS’s framework for reviewing  its major investments adopts several best practices from lessons learned  from leading commercial companies and successful federal programs that,  if applied consistently, could refine its ability to reduce risk to meet cost  and delivery targets. One of these best practices is a knowledge-based  approach for managers to hold reviews at key decision points in order to  reduce risk before investing resources in the next phase of a program’s  development. For example, DHS’s investment review policy encourages  program managers to demonstrate a product’s design with critical design  reviews prior to a production decision.
However, we have found that, based on our extensive body of work on this  knowledge-based approach, additional program reviews could be  incorporated into the process as internal controls to better position DHS  to make well-informed decisions on its major, complex investments. For  example, DHS does not require a review to ensure that an investment’s  design performs as expected before investing in a prototype. We also  reported that DHS review processes permitted low-rate initial production  to be well underway before a mandatory review gave the go-ahead to  proceed to production. A review prior to initiating low-rate initial  production was not mandatory; rather, it was held at the discretion of the  Investment Review Board (IRB). Our best practices work shows that  successful investments reduce risk by ensuring that high levels of  knowledge are achieved at these key points of development. We have  found that investments that were not reviewed at the appropriate points  faced problems—such as redesign—that resulted in cost increases and  schedule delays. It is not clear how the Deepwater acquisition has been  influenced by the department’s investment review process.  According to a  DHS official, an IRB review of the Deepwater acquisition program  baseline, scheduled for January 2007, was postponed.
In its Performance and Accountability Report for fiscal year 2006, DHS  stated that it has improved its process for investment reviews by providing  greater clarity on DHS policies and procedures. It acknowledges that  developing and maintaining the capability needed to achieve DHS missions  requires a robust investment program. DHS also states that its components  are now required to report on the status of major investments on a  quarterly basis and to submit information to ensure that investments are  staying within established baselines for cost, schedule, and performance.  The report says that the department will identify and introduce acquisition  best practices into the investment review process by the first quarter of  fiscal year 2008.
section_title: Systemic Acquisition Challenges
paragraphs: We have identified a series of systemic acquisition challenges for complex,  developmental systems, based mostly on our reviews of Department of  Defense programs.  In principle, many may apply equally to DHS as it  moves forward with its major, complex investments. Some of these  challenges include:    Program requirements are often set at unrealistic levels, then changed  frequently as recognition sets in that they cannot be achieved. As a result,  too much time passes, threats may change, and/or members of the user  and acquisition communities may simply change their minds.  The  resulting program instability causes cost escalation, schedule delays,  fewer quantities, and reduced contractor accountability.
Program decisions to move into design and production are made without  adequate standards or knowledge.
Contracts, especially service contracts, often do not have measures in  place at the outset in order to control costs and facilitate accountability.
Contracts typically do not accurately reflect the complexity of projects or  appropriately allocate risk between the contractors and the taxpayers.
The acquisition workforce faces serious challenges (e.g. size, skills,  knowledge, succession planning).  Incentive and award fees are often paid based on contractor attitudes and  efforts versus positive results, such as cost, quality, and schedule.  Inadequate government oversight results in little to no accountability for  recurring and systemic problems.
section_title: Deepwater Program Is Illustrative of Problems Stemming from Lack of Effective Program Management and Contractor Oversight
paragraphs: The Deepwater program is the Coast Guard’s major effort to replace or  modernize its aircraft and vessels. It has been in development for a  number of years. Between 1998 and 2001, three industry teams competed  to identify and provide the assets needed to transform the Coast Guard. In  2001, we described the Deepwater project as “risky” due to the unique,  untried acquisition strategy for a project of this magnitude within the  Coast Guard. Rather than using the traditional approach of replacing  classes of ships or aircraft through a series of individual acquisitions, the  Coast Guard chose to use a system-of-systems acquisition strategy that  would replace its deteriorating assets with a single, integrated package of  aircraft, vessels, and unmanned aerial vehicles, to be linked through  systems that provide C4ISR, and supporting logistics.
subsections: section_title: System Integrator Concept and the Role of Contractors
paragraphs: In June 2002, the Coast Guard awarded the Deepwater contract to  Integrated Coast Guard Systems (ICGS). ICGS—a business entity jointly  owned by Northrop Grumman and Lockheed Martin—is a system  integrator, responsible for designing, constructing, deploying, supporting,  and integrating the Deepwater assets to meet Coast Guard requirements.  The management approach of using a system integrator has been used on  other government programs that require system-of-systems integration,  such as the Army’s Future Combat System, a networked family of weapons  and other systems. This type of business arrangement gives the contractor  extensive involvement in requirements development, design, and source  selection of major system and subsystem subcontractors.
Government agencies have turned to the system integrator approach when  they believe they do not have the in-house capability to design, develop,  and manage complex acquisitions. Giving contractors more control and  influence over the government’s acquisitions in a system integrator role  creates a potential risk that program decisions and products could be  influenced by the financial interest of the contractor (who is accountable  to its shareholders), which may not match the primary interest of the  government--maximizing its return on taxpayer dollars.  The system  integrator arrangement creates an inherent risk, as the contractor is given  more discretion to make certain program decisions.  Along with this  greater discretion comes the need for more government oversight and an  even greater need to develop well-defined outcomes at the outset.
The proper role of contractors in providing services to the government is  currently the topic of some debate.  I believe there is a need to focus  greater attention on what type of functions and activities should be  contracted out and which ones should not.  There is also a need to review  and reconsider the current independence and conflict of interest rules  relating to contractors.  Finally, there is a need to identify the factors that  prompt the government to use contractors in circumstances where the  proper choice might be the use of civil servants or military personnel.   Possible factors could include inadequate force structure, outdated or  inadequate hiring policies, classification and compensation approaches,  and inadequate numbers of full-time equivalent slots.
section_title: Performance-based Acquisition
paragraphs: The Deepwater program has also been designated as a performance-based  acquisition. When buying services, federal agencies are currently required  to employ—to the maximum extent feasible—this concept, wherein  acquisitions are structured around the results to be achieved as opposed  to the manner in which the work is to be performed. That is, the  government specifies the outcome it requires while leaving the contractor  to propose decisions about how it will achieve that outcome.  Performance-based contracts for services are required to include a  performance work statement; measurable performance standards (i.e., in  terms of quality, timeliness, quantity, etc.) and the method of assessing  contractor performance against these standards; and performance  incentives, where appropriate.  If performance-based acquisitions are not  appropriately planned and structured, there is an increased risk that the  government may receive products or services that are over cost estimates,  delivered late, and of unacceptable quality.
section_title: Assessments of Deepwater Program
paragraphs: In 2001, we reported that the Deepwater project faced risks, including the  ability to control costs in the contract’s later years; ensuring that  procedures and personnel were in place for managing and overseeing the  contractor; and minimizing potential problems with developing unproven  technology. We noted that the risks could be mitigated to varying  degrees, but not without management attention. Our assessment of the  Deepwater program in 2004 found that the Coast Guard had not effectively  managed the program or overseen the system integrator. We reported last  year that the Coast Guard had revised its Deepwater implementation plan  to reflect additional homeland security responsibilities as a result of the  September 11, 2001, terrorist attacks. The revised plan increased overall  program costs from the original estimate of $17 billion to $24 billion.  Overall, the acquisition schedule was lengthened by 5 years, with the final  assets now scheduled for delivery in 2027.
Our reported concerns in 2004 and in subsequent assessments in 2005 and  2006 have centered on three main areas:  program management, contractor  accountability, and cost control through competition. While we recognize  that the Coast Guard has taken steps to address our findings and  recommendations, aspects of the Deepwater program will require  continued attention, such as the risk involved in the system-of-systems  approach with the contractor acting as overall integrator. A project of this  magnitude will likely continue to experience other problems as more  becomes known.
section_title: Program Management
paragraphs: In 2004, we reported that more than a year and a half into the Deepwater  contract, the key components needed to manage the program and oversee  the system integrator had not been effectively implemented. For example,  integrated product teams, comprised of government and contractor  employees, are the Coast Guard’s primary tool for managing the program  and overseeing the contractor. We found that the teams had not been  effective due to changing membership, understaffing, insufficient training,  lack of authority for decision making, and inadequate communication  among members.
Although some efforts have been made to improve the effectiveness of the  integrated product teams, we have found that the needed changes are not  yet sufficiently in place. In 2005, we reported that decision making was to  a large extent stove-piped, and some teams lacked adequate authority to  make decisions within their realm of responsibility. One source of  difficulty for some team members has been the fact that each of the two  major subcontractors has used its own management systems and  processes to manage different segments of the program. We noted that  decisions on air assets were made by Lockheed Martin, while decisions  regarding surface assets were made by Northrop Grumman. This approach  can lessen the likelihood that a system-of-systems outcome will be  achieved if decisions affecting the entire program are made without the  full consultation of all parties involved. In 2006, we reported that Coast  Guard officials believed collaboration among the subcontractors to be  problematic and that ICGS wielded little influence to compel decisions  among them. For example, when dealing with proposed design changes to  assets under construction, ICGS submitted the changes as two separate  proposals from both subcontractors rather than coordinating the separate  proposals into one coherent plan. According to Coast Guard performance  monitors, this approach complicates the government review of design  changes because the two proposals often carried overlapping work items,  thereby forcing the Coast Guard to act as the system integrator in those  situations.
In addition, we reported in 2004 that the Coast Guard had not adequately  communicated to its operational personnel decisions on how new and old  assets would be integrated and how maintenance responsibilities would be  divided between government and contractor personnel. We also found that  the Coast Guard had not adequately staffed its program management  function. Despite some actions taken to more fully staff the Deepwater  program, we reported that in January 2005 shortfalls remained. While 244  positions were assigned to the program, only 206 were filled, resulting in a  16 percent vacancy rate.
section_title: Contractor Accountability
paragraphs: In 2004, we found that the Coast Guard had not developed quantifiable  metrics to hold the system integrator accountable for its ongoing  performance and that the process by which the Coast Guard assessed  performance after the first year of the contract lacked rigor. For example,  the first annual award fee determination was based largely on  unsupported calculations. Despite documented problems in schedule,  performance, cost control, and contract administration throughout the  first year, the program executive officer awarded the contractor an overall  rating of 87 percent, which fell in the “very good” range. This rating  resulted in an award fee of $4.0 million of the maximum of $4.6 million.
We also reported in 2004 that the Coast Guard had not begun to measure  the system integrator’s performance on the three overarching goals of the  Deepwater program—maximizing operational effectiveness, minimizing  total ownership costs, and satisfying the customers. Coast Guard officials  told us that metrics for measuring these objectives had not been finalized;  therefore they could not accurately assess the contractor’s performance  against the goals. However, at the time, the Coast Guard had no time frame  in which to accomplish this measurement.
section_title: Cost Control through Competition
paragraphs: In 2004, we reported that, although competition among subcontractors  was a key vehicle for controlling costs, the Coast Guard had neither  measured the extent of competition among the suppliers of Deepwater  assets nor held the system integrator accountable for taking steps to  achieve competition. As the two major subcontractors to ICGS, Lockheed  Martin and Northrop Grumman have sole responsibility for determining  whether to provide the Deepwater assets themselves or to hold  competitions—decisions commonly referred to as “make or buy.” We  noted that the Coast Guard’s hands-off approach to make-or-buy decisions  and its failure to assess the extent of competition raised questions about  whether the government would be able to control Deepwater program  costs.
Failure to control costs can result in waste of taxpayer dollars. Along with  my several colleagues in the accountability community, I have developed a  definition of waste.  As we see it, waste involves the taxpayers in the  aggregate not receiving reasonable value for money in connection with  any government funded activities due to an inappropriate act or omission  by players with control over or access to government resources (e.g.,  executive, judicial or legislative branch employees, contractors, grantees  or other recipients).  Importantly, waste involves a transgression that is  less than fraud and abuse and most waste does not involve a violation of  law.  Rather, waste relates primarily to mismanagement, inappropriate  actions, or inadequate oversight.
section_title: Status of Recommendations
paragraphs: We made 11 recommendations in 2004 in the areas of management and  oversight, contractor accountability, and cost control through  competition. In April 2006, we reported that the Coast Guard had  implemented five of them. Actions had been taken to  revise the Deepwater human capital plan;    develop measurable award fee criteria;  implement a more rigorous method of obtaining input from Coast Guard  monitors on the contractor’s performance;  include in the contractor’s performance measures actions taken to  improve the integrated product teams’ effectiveness; and  require the contractor to notify the Coast Guard of subcontracts over $10  million that were awarded to the two major subcontractors.
The Coast Guard had begun to address five other recommendations by  initiating actions to establish charters and training for integrated product  teams;  improving communications with field personnel regarding the transition to  Deepwater assets;    devising a time frame for measuring the contractor’s progress toward    establishing criteria to determine when to adjust the project baseline; and    developing a plan to hold the contractor accountable for ensuring  adequate competition among suppliers.
We determined that, based on our work, these recommendations had not  been fully implemented.
The Coast Guard disagreed with and declined to implement one of our  recommendations, to establish a baseline to determine whether the  system-of-systems acquisition approach is costing the government more  than the traditional asset replacement approach.  While we stand behind  our original recommendation, the Coast Guard maintains that the cost to  implement this recommendation would be excessive.
section_title: Performance and Design Problems
paragraphs: In addition to overall management issues discussed above, there have  been problems with the design and performance of specific Deepwater  assets. For example, in February 2006, the Coast Guard suspended design  work on the Fast Response Cutter (FRC) due to design risks such as  excessive weight and horsepower requirements. The FRC was intended  as a long-term replacement for the legacy 110-foot patrol boats. Coast  Guard engineers raised concerns about the viability of the FRC design  (which involved building the FRC’s hull, decks, and bulkheads out of  composite materials rather than steel) beginning in January 2005. In  February 2006, the Coast Guard suspended FRC design work after an  independent design review by third-party consultants demonstrated,  among other things, that the FRC would be far heavier and less efficient  than a typical patrol boat of similar length, in part, because it would need  four engines to meet Coast Guard speed requirements.
In moving forward with the FRC acquisition, the Coast Guard will end up  with two classes of FRCs. The first class of FRCs to be built would be  based on an adapted design from a patrol boat already on the market to  expedite delivery. The Coast Guard would then pursue development of a  follow-on class that would be completely redesigned to address the  problems in the original FRC design plans. Coast Guard officials now  estimate that the first FRC delivery will slip to fiscal year 2009, at the  earliest, rather than 2007 as outlined in the 2005 Revised Deepwater  Implementation Plan.
In addition to problems with the FRC design, problems have also been  discovered with the long-term structural integrity of the National Security  Cutter’s (NSC) design, which could pose operational and financial impacts  to the Coast Guard. The Commandant of the Coast Guard recently stated  that internal reviews by Coast Guard engineers, as well as by independent  analysts have concluded that the NSC as designed will need structural  reinforcement to meet its expected 30-year service life. In addition, a  recent report by the DHS Inspector General indicated that the NSC design  will not achieve a 30-year service life based on an operating profile of 230  days underway per year in General Atlantic and North Pacific sea  conditions and added that Coast Guard technical experts believe the  NSC’s design deficiencies will lead to increased maintenance costs and  reduced service life.
In an effort to address the structural deficiencies of the NSC, the  Commandant has stated that the Coast Guard is taking a two-pronged  approach. First, the Coast Guard is working with the contractors to  enhance the structural integrity of hulls three through eight that have not  yet been constructed. Second, after determining that the NSC’s structural  deficiencies are not related to the safe operation of the vessel in the near  term, the Coast Guard has decided to address the deficiencies of hulls one  and two as part of depot-level maintenance, planned for several years after  they are delivered. The Commandant stated that he decided to delay the  repairs to the first two NSC hulls in an effort to prevent further cost  increases or delays in construction and delivery.
Further, the Deepwater program’s conversion of the legacy 110-foot patrol  boats to 123-foot patrol boats has also encountered performance  problems. The Coast Guard had originally intended to convert all 49 of its  110-foot patrol boats into 123-foot patrol boats in order to increase the  patrol boats’ annual operational hours. This conversion program was also  intended to add additional capability to the patrol boats, such as enhanced  and improved C4ISR capabilities, as well as stern launch and recovery  capability for a small boat. However, the converted 123-foot patrol boats  began to display deck cracking and hull buckling and developed shaft  alignment problems, and the Coast Guard elected to stop the conversion  process at eight hulls upon determining that the converted patrol boats  would not meet their expanded post-9/11 operational requirements.
section_title: Problems Have Operational Consequences
paragraphs: The design and performance problems illustrated above have clear  operational consequences for the Coast Guard. In the case of the 123-foot  patrol boats, the hull performance problems cited above led the Coast  Guard to suspend all normal operations of the eight converted normal 123- foot patrol boats effective November 30, 2006. The Commandant of the  Coast Guard has stated that having reliable, safe cutters is “paramount” to  executing its missions, such as search and rescue and migrant  interdiction. The Coast Guard is exploring options to address operational  gaps resulting from the suspension of the 123-foot patrol boat operations.
In regard to the suspension of FRC design work, as of our June 2006  report, Coast Guard officials had not yet determined how changes in the  design and delivery date for the FRC would affect the operations of the  overall system-of-systems approach. However, because the delivery of  Deepwater assets are interdependent within this acquisition approach,  schedule slippages and uncertainties associated with potential changes in  the design and capabilities of the new assets have increased the risks that  the Coast Guard may not meet its expanded homeland security  performance requirements within given budget parameters and milestone  dates.
section_title: Additional Reviews Ongoing
paragraphs: Given the size of DHS and the scope of its acquisitions, we are continuing  to assess the department’s acquisition oversight process and procedures in  ongoing work. For example, we are currently reviewing DHS’s use of  contractors to provide management and professional services, including  the roles they are performing and how their performance is overseen. In  addition, the conference report to the Department of Homeland Security  Appropriations Act for Fiscal Year 2007 directed DHS’s Chief  Procurement Officer to develop a procurement oversight plan, identifying  necessary oversight resources and how improvements in the department’s  performance of its procurement functions will be achieved. We have been  directed to review the plan and provide our observations to congressional  committees. We are also reviewing the department’s use of performance- based acquisitions.
We will also continue to review Deepwater implementation and contract  oversight. We are currently reviewing aspects of the Deepwater program  for the House and Senate Appropriations Committees’ Subcommittees on  Homeland Security. Our objectives are to review (1) the status of the  development and delivery of the major aviation and maritime assets that  comprise the Coast Guard’s Deepwater program; (2) the history of the  contract, design, fielding, and grounding of the converted 123-foot patrol  boats and operational adjustments the Coast Guard making to account for  the removal from service of the 123-foot patrol boats; and (3) the status of  the Coast Guard’s implementation of our 2004 recommendations on  Deepwater contract management for improving Deepwater program  management, holding the prime contractor accountable for meeting key  program goals, and facilitating cost control through competition. We will  share our results with those committees in April of this year.
section_title: Concluding Observations
paragraphs: Due to the complexity of its organization, DHS is likely to continue to face  challenges in unifying the acquisition functions of its components and  overseeing their acquisitions—particularly those involving large and  complex investments. Although the Coast Guard has taken actions to  improve its management of the Deepwater program and oversight of the  system integrator, problems continue to emerge as the program is  implemented. DHS and the Coast Guard face the challenge of effectively  managing this program to obtain desired outcomes while making decisions  that are in the best interest of the taxpayer. Given its experience with  Deepwater, the department would be wise to apply lessons learned to its  other major, complex acquisitions, particularly those involving a system  integrator.
Mr. Chairman, that concludes my statement. I would be happy to respond  to any questions you or other Members of the Committee may have at this  time.
section_title: Contacts and Acknowledgements
paragraphs: For information about this testimony, contact Steve Caldwell at (202) 512- 9610 or John Hutton at (202) 512-7773. Other individuals making key  contributions to this testimony include Michele Mackin, Christopher  Conrad, and Adam Couvillion.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.