Coast Guard: Progress Being Made on Addressing Deepwater Legacy Asset Condition Issues and Program Management, but Acquisition Challenges Remain
Published: 2005-07-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Coast Guard has been asserting that its deepwater legacy assets are "failing at an unsustainable rate." After the events of September 11, 2001, the Coast Guard's deepwater missions expanded to include a greater emphasis on ports, waterways, and coastal security. These heightened responsibilities required changes to the Deepwater implementation plan to provide the assets with greater operational capabilities. To address these needs, in 2002, the Coast Guard began a multiyear acquisition program to replace or modernize its deepwater assets that is currently estimated to cost $19 to $24 billion. More recently, it began studying options for replacing or modernizing the assets more rapidly in an effort to avoid some of the costs that might be involved in keeping aging assets running for longer periods. This report addresses three questions related to this effort: (1) How has the condition of the Coast Guard's deepwater legacy assets changed during fiscal years 2000 through 2004? (2) What actions has the Coast Guard taken to maintain, upgrade, and better manage its deepwater legacy assets? and (3) What are the management challenges the Coast Guard faces in acquiring new assets, especially if a more aggressive acquisition schedule is adopted?
section_title: What GAO Found
paragraphs: Available Coast Guard condition measures indicate that the condition of most Coast Guard legacy aircraft and cutters generally declined during fiscal years 2000-2004, but these measures are inadequate to capture the full extent of the decline in the condition with any precision. GAO's field visits and interviews with Coast Guard staff, as well as reviews of other evidence, showed significant problems in a variety of asset systems and equipment that are not currently captured in the Coast Guard's condition measures. The Coast Guard has already taken actions to help keep its deepwater legacy assets operational. For example, to help meet mission requirements, Coast Guard staff are performing more extensive maintenance between deployments, but even so, aircraft and cutters continue to lose mission capabilities. Responding to these continued concerns, as well as to matters raised during this review and in prior GAO reports, the Coast Guard has begun to explore additional strategies and approaches to better determine and improve the mission capabilities of its legacy assets. These actions include (1) developing a more proactive approach for prioritizing maintenance and capability enhancement projects needed on its legacy assets; (2) developing measures that more clearly demonstrate the extent to which assets' conditions affect mission capabilities; and (3) for one command, proposing a new strategy to sustain one of its oldest classes of cutters. These ongoing efforts, while promising, are too new to allow GAO to assess whether they will allow the Coast Guard to better determine and improve the mission capabilities of its legacy assets. If the Coast Guard adopts a more aggressive acquisition schedule, it will likely continue to face a number of challenges to effectively manage the Deepwater program. GAO has warned that the Coast Guard's acquisition strategy of relying on a prime contractor ("system integrator") to identify and deliver the assets needed carries substantial risks. GAO found that well into the contract's second year, key components for managing the program and overseeing the system integrator's performance had not been effectively implemented. While the Coast Guard has been addressing these problems--for example, putting more emphasis on competition as a means to control costs--many areas have not been fully addressed. A more aggressive acquisition schedule would only heighten the risks.

section_title: Letter
paragraphs: The Coast Guard’s Integrated Deepwater System (or Deepwater)  acquisition program has experienced several changes since its inception in  2002. The Deepwater program is intended to be a long-term (20-year)  replacement or modernization of certain legacy assets, many of which are  at or approaching the end of their estimated service lives. As originally  conceived, Deepwater was designed around producing aircraft and cutters  that would function in the Coast Guard’s traditional at-sea roles, such as  interdicting illicit drug shipments or rescuing mariners from difficulty at  sea. The events of September 11, 2001, changed all of that. Suddenly, the  missions for these assets expanded to include a greater emphasis on ports,  waterways, and coastal security. These heightened responsibilities forced  the Coast Guard to revise its Deepwater implementation plan to provide  the replacement assets with greater operational capabilities. Further  change has come more recently with the Coast Guard asserting that its  deepwater legacy assets are “failing at an unsustainable rate” and  examining options for accelerating their replacement, thereby avoiding  some of the costs that might be involved in upgrading these assets  sufficiently to keep them running for longer periods.
These changes have created some uncertainty about how the Deepwater  program is developing. In its fiscal year 2006 budget request, the  Administration is requesting $966 million for the Deepwater program— $242 million more than Congress appropriated for the program for fiscal  year 2005. Part of this request ($239.5 million) is for maintenance and  upgrades to some deepwater legacy assets, a majority of which are  scheduled to be part of the Deepwater solution. The fiscal year 2005  Department of Homeland Security (DHS) Appropriations Act required the  Secretary of Homeland Security to submit a revised Deepwater  implementation plan in conjunction with its fiscal year 2006 budget  request. However, with respect to pending fiscal year 2006 appropriations,  the House Appropriations Committee considered the Coast Guard’s  implementation plan submission to be incomplete and recommended  reducing the Coast Guard’s fiscal year 2006 Deepwater budget request of  $966 million by nearly 50 percent. In late May 2005, the Coast Guard  submitted further documentation to the committee in an effort to comply  with the act’s requirements. In June 2005, the Senate Appropriations  Committee expressed concern about the lack of information concerning  the Deepwater plan in the fiscal year 2006 budget request but  recommended funding of $905.6 million for the program for fiscal year  2006.  As of early July 2005, the Coast Guard’s fiscal year 2006  appropriation was still pending.
This report, which focuses on the condition of deepwater legacy assets  and the Coast Guard’s acquisition and management challenges, is aimed at  providing information about some of these issues. We presented our  preliminary observations on these matters in recent testimony. This  report adds further details on the condition of the assets, as well as  updated information on Coast Guard initiatives to better sustain these  assets until they are replaced or upgraded. Specifically, our report  addresses three issues related to these considerations:    How has the condition of the Coast Guard’s deepwater legacy assets  changed during fiscal years 2000 through 2004?
What actions has the Coast Guard taken to maintain, upgrade, and better  manage its deepwater legacy assets?
What are the management challenges the Coast Guard faces in acquiring  new assets, especially if a more aggressive acquisition schedule is  adopted?
To address these objectives, we analyzed data and condition measures  used by the Coast Guard for determining deepwater legacy assets’  condition, reviewed Coast Guard actions to maintain and upgrade legacy  assets and their systems, and met with operations and maintenance staff  at U.S. Coast Guard headquarters and other Coast Guard facilities selected  to provide coverage of each type of deepwater legacy aircraft and each  class of deepwater legacy cutter. In addition, we met with Deepwater  program staff, performance monitors, and contractor staff and reviewed  documentation to verify the improvements the Coast Guard is making in  its management of the Deepwater acquisition. We conducted our work  between July 2004 and June 2005 in accordance with generally accepted  governmental auditing standards. Appendix I describes our objectives,  scope, and methodology in greater detail.
subsections: section_title: Background
paragraphs: As the lead federal agency for maritime homeland security within the  Department of Homeland Security, the Coast Guard is responsible for  homeland and nonhomeland security missions, including ensuring security  in ports and waterways and along coastlines, conducting search and  rescue missions, interdicting drug shipments and illegal aliens, enforcing  fisheries laws, and responding to reports of pollution. The deepwater fleet,  which consists of 186 aircraft and 88 cutters of various sizes and  capabilities, plays a critical role in all of these missions. As shown in table  1, the fleet includes fixed-wing aircraft, helicopters, and cutters of varying  lengths.
Some Coast Guard deepwater cutters were built in the 1960s.  Notwithstanding extensive overhauls and other upgrades, a number of the  cutters are nearing the end of their estimated service lives. Similarly, while  a number of the deepwater legacy aircraft have received upgrades in  engines, operating systems, and sensor equipment since they were  originally built, they too have limitations in their operating capabilities.
In 1996, the Coast Guard began developing what came to be known as the  Integrated Deepwater System (IDS) acquisition program as its major effort  to replace or modernize these aircraft and cutters. This Deepwater  program is designed to replace some assets—such as deteriorating  cutters—with new cutters and upgrade other assets—such as some types  of helicopters—so they can meet new performance requirements.
The Deepwater program represents a unique approach to a major  acquisition in that the Coast Guard is relying on a prime contractor—the  system integrator—to identify and deliver the assets needed to meet a set  of mission requirements the Coast Guard has specified. In 2002, the Coast  Guard awarded a contract to Integrated Coast Guard Systems (ICGS) as  the system integrator for the Deepwater program. ICGS has two main  subcontractors—Lockheed Martin and Northrop Grumman—that in turn  contract with other subcontractors. Rather than using the traditional  approach of replacing classes of ships or aircraft through a series of  individual acquisitions, the Coast Guard chose to employ a “system of  systems” acquisition strategy that would replace its deteriorating  deepwater assets with a single, integrated package of new or modernized  assets. This system-of-systems approach is designed to provide an  improved, integrated system of aircraft, cutters, and unmanned aerial  vehicles to be linked effectively through systems that provide command,  control, communications, computer, intelligence, surveillance,  reconnaissance, and supporting logistics. The Deepwater program’s three  overarching goals are to maximize operational effectiveness, minimize  total ownership cost, and satisfy the customer—the operational  commanders, aircraft pilots, cutter crews, maintenance personnel, and  others who will use the assets.
The revised Deepwater schedule calls for acquisition of new assets under  the Coast Guard’s Deepwater program to occur over an approximately 20- year period at an estimated cost of $19 billion to $24 billion. By 2007, for  example, the Coast Guard is to receive the first 418-foot National Security  Cutter, which will have the capability to conduct military missions related  to homeland security. Current plans call for 6 to 8 of these cutters to  replace the 12 existing 378-foot cutters. However, in order to carry out its  mission effectively, the Coast Guard will also need to keep all of the legacy  assets operational until they can be replaced or upgraded.
We have been reviewing the Deepwater program for several years,  pointing out difficulties and expressing concern over a number of facets of  the program. In our 2001 report, we identified several areas of risk for  Deepwater. First, the Coast Guard faced potential risk in the overall  management and day-to-day administration of the contract. At the time, we  reported on the major challenges such as developing and implementing  plans for establishing effective human capital practices, having key  management and oversight processes and procedures in place, and  tracking data to measure system integrator performance. In addition, we  expressed concerns about the potential lack of competition during the  program’s later years and the reliance on a single system integrator for  procuring the Deepwater assets. We also reported there was little evidence  that the Coast Guard had analyzed whether the approach carried any  inherent risks for ensuring the best value to the government and, if so,  what to do about them.
We reviewed the program again in 2004 and found many of the same  concerns. Specifically, we reported that key components needed to  manage the program and oversee the system integrator’s performance had  not been effectively implemented. The Coast Guard’s primary tool for  overseeing the system integrator, the integrated product teams (IPTs)  were struggling to effectively collaborate and accomplish their missions  because of changing membership, understaffing, insufficient training, and  inadequate communication among members. Also, the Coast Guard had  not adequately addressed the frequent turnover of personnel in the  program and the transition from existing assets to those assets that will be  part of the Deepwater program moving forward. Further, the Coast  Guard’s assessment of the system integrator’s performance in the first year  of the contract lacked rigor, and the factors that formed the basis for the  award fee determination were supported only by subjective performance  monitor comments and not by quantifiable measures. This resulted in the  system integrator receiving a high performance rating and an award fee of  $4.0 million out of a maximum of $4.6 million despite documented  problems in schedule, performance, cost controls, and contract  administration.
At the time of our March 2004 report, the Coast Guard had begun to  develop models to measure the extent to which Deepwater was achieving  operational effectiveness and reduced total ownership cost, but it had not  made a decision as to which specific suite of models would be used.  Further, Coast Guard officials were not able to project a time frame for  when the Coast Guard would be able to hold the contractor accountable  for progress toward the goals of maximizing operational effectiveness,  minimizing total ownership cost, and customer satisfaction. Furthermore,  the Coast Guard had not measured the extent of competition among  suppliers of Deepwater assets or held the system integrator accountable  for taking steps to achieve competition. The Coast Guard’s lack of  progress on these issues has contributed to our concerns about the Coast  Guard’s ability to rely on competition as a means to control future  programmatic costs.
Finally, we found that the Coast Guard had not updated the Deepwater  integrated acquisition schedule despite numerous changes, making it  difficult to determine the degree to which the program was on track with  its original plan. In response to these concerns, we made a number of  recommendations to improve Deepwater management and oversight of the  system integrator. The Coast Guard welcomed our observations and  concurred with our recommendations and has begun to take actions to  address them.
section_title: Legacy Assets Show Declining Condition, but Measures Are Imprecise and Fail to Capture Impact on Mission Capabilities
paragraphs: Coast Guard condition measures show that the condition of most  deepwater legacy assets generally declined between 2000 and 2004, but the  Coast Guard’s available measures are inadequate to capture the full extent  of the decline in the condition of deepwater assets with any degree of  precision and are insufficient for determining the impact on mission  capabilities. Further, other evidence we gathered, such as information  from discussions with maintenance and operations personnel, points to  conditions that may be more severe than the available measures indicate.  The Coast Guard acknowledges that it needs better condition measures,  but it has not yet finalized or implemented such measures. The Coast  Guard anticipates having the new measures finalized by the end of 2005.
subsections: section_title: Coast Guard’s Condition Measures Show General Decline in Condition of Deepwater Assets, with Some Fluctuations
paragraphs: During fiscal years 2000 through 2004, the Coast Guard’s various condition  measures showed a general decline, although there were year-to-year  fluctuations (see table 2). For deepwater legacy aircraft, a key summary  measure of the condition—the availability index (the percentage of time  aircraft are available to perform their missions)—showed that except for  the HU-25 medium-range surveillance aircraft, the assets continued to  perform close to or above fleet availability standards over the 5-year  period. In contrast, other condition measures for aircraft, such as cost per  flight hour and labor hours per flight hour, generally reflected some  deterioration. For cutters, a key summary measure of condition—percent  of time free of major casualties—fluctuated but generally remained well  below target levels. The number of major casualties generally rose from  fiscal years 2000 through 2003 and then dropped slightly in fiscal year  2004. (Appendix II provides further details on condition measures for  each of the deepwater legacy aircraft and cutters.)
Another, albeit less direct, measure of an asset’s condition is deferred  maintenance—the amount of scheduled maintenance on an asset that  must be postponed in order to pay for unscheduled repairs. Such deferrals  can occur when the Coast Guard does not have enough money to absorb  unexpected maintenance expenditures and still perform all of its  scheduled maintenance, thus creating a backlog. For example, in spring  2004, while on a counterdrug mission, the 210-foot cutter Active  experienced problems in the condition of its flight deck that were to be  corrected during its scheduled depot-level maintenance. However,  because of a shortage of maintenance funds, the maintenance was  deferred and the flight deck was not repaired. As a result, the cutter lost all  shipboard helicopter capability, significantly degrading mission readiness.
As table 3 shows, deferred maintenance does not show a clear pattern  across all classes of deepwater legacy assets. For the deepwater legacy  aircraft, the overall amount of estimated deferred maintenance increased  each year during fiscal years 2002 through 2004, from $12.3 million to  about $24.6 million. However, most of the increase came for one type of  asset, the HH-60 helicopter, and the increase came mainly from deferring  maintenance past the 48-month interval requirement—thereby increasing  the scheduled maintenance workload—and not from having to divert  money to deal with unscheduled maintenance. For the deepwater cutters,  the amount of estimated deferred maintenance increased from fiscal year  2002 to 2003, but then it dropped significantly in fiscal year 2004. The  decrease in fiscal year 2004 came mainly because the Coast Guard  received supplemental funding allowing it to address both scheduled and  unscheduled maintenance. Thus, the drop in the estimate of deferred  maintenance costs for fiscal year 2004 is not necessarily an indicator that  the condition of the legacy assets was improving; it could be the result of  the Coast Guard having more money to address the maintenance needs.
section_title: Current Condition Measures Not Sufficiently Robust to Link Condition with Impact on Mission Capabilities
paragraphs: At the time we began our work, the Coast Guard’s measures generated  some limited information on the condition of its legacy assets, but the  measures were not sufficiently robust to link the assets’ declining  condition to degradation in mission capabilities or performance. As a  result, the picture that emerges regarding the condition of the deepwater  legacy assets based on current Coast Guard condition measures should be  viewed with some caution. While there is no systematic, quantitative  evidence sufficient to demonstrate that deepwater legacy assets are  “failing at an unsustainable rate,” as the Coast Guard has asserted, this  does not mean the assets are in good condition or have been performing  their missions safely, reliably, and at levels that meet or exceed Coast  Guard standards. We identified two factors that need to be considered to  put these condition measures into proper context.
The first factor deals with limitations in the measures themselves. Simply  put, the Coast Guard’s measures of asset condition do not fully capture the  extent of the problems. As such, they may understate the decline in the  legacy assets’ condition. More specifically, the Coast Guard measures we  assessed focus on events, such as equipment casualties or flight mishaps,  but do not measure the extent to which these and other incidents degrade  mission capabilities. The following is an example in which Coast Guard  measures we assessed are not sufficiently robust to systematically capture  degradation in mission capabilities:    The 378-foot cutter Jarvis recently experienced a failure in one of its  two main gas turbines shortly after embarking on a living marine  resources and search and rescue mission. While Jarvis was able to  accomplish its given mission, albeit at reduced speed, this casualty  rendered the cutter unable to respond to any emergency request it  might have received—but did not in this case—to undertake a mission  requiring higher speeds, such as drug interdiction. The Coast Guard  condition measures are not robust enough to capture these distinctions  in mission capability.
The second factor that needs to be kept in mind is the compelling nature  of the other evidence we gathered outside of the Coast Guard’s condition  measures. This evidence, gleaned from information collected during our  site visits and discussions with maintenance personnel, indicated  deteriorating and obsolete systems and equipment as a major cause of the  reduction in mission capabilities for a number of deepwater legacy aircraft  and cutters. Such problems, however, are not captured by the Coast  Guard’s condition measures. One example of this involves the HH-65  short-range recovery helicopter. While this helicopter consistently  exceeded availability standards established by the Coast Guard over the   5-year period we examined, it is currently operating with engines that have  become increasingly subject to power failures, which may potentially  render the fleet unable to meet mission requirements. As a result, Coast  Guard pilots employ a number of work-arounds, such as dumping fuel or  occasionally leaving the rescue swimmer on scene if the load becomes too  heavy. Further, because of increasing safety and reliability problems, the  Coast Guard has also implemented a number of operational restrictions— such as not allowing the helicopter to land on helipads—to safeguard crew  and passengers and prevent mishaps until all of the fleet’s engines can be  replaced.
section_title: Actions to Better Manage Legacy Assets Are Under Way, but Effects Will Not Be Known for Some Time
paragraphs: The Coast Guard has already undertaken two main types of actions to  keep its legacy assets operational: developing a compendium of  information for making decisions regarding maintenance and upgrades  needed, and performing increasingly more maintenance on these assets  between deployments. These efforts are likely helping to prevent a more  rapid decline in the condition of the assets, but the condition of these  assets has nonetheless generally continued to worsen. In response to both  the continued decline in the condition of its legacy assets, as well as to  various observations we have made to the Coast Guard about its need to  develop more objective information on mission capability needs and more  precise condition measures, the Coast Guard has begun to undertake  additional efforts. These additional efforts include developing a  knowledge-based model to provide more objective data on where to best  spend budget dollars to achieve the greatest enhancements in mission  capabilities, improving the condition measures it uses to more clearly  quantify the impact declining conditions have on mission capabilities, and,  at the Pacific Area Command, applying new business rules and strategies  to better sustain the 378-foot high-endurance cutters through 2016. These  ongoing efforts, while promising, are largely untested, and so it is too soon  to tell whether they will allow the Coast Guard to better determine and  improve the mission capabilities of its legacy assets.
subsections: section_title: Coast Guard Has Developed and Is Using a Compendium of Needs
paragraphs: Since 2002, the Coast Guard has annually issued a Systems Integrated Near  Term Support Strategy compendium. Among other things, this  compendium consolidates information needed to make planning and  budgeting decisions regarding maintenance and upgrades to sustain legacy  assets. Its purpose is to serve as a tool for senior Coast Guard  management in setting priorities and planning budgets. From this strategic  document, the Coast Guard has identified a number of upgrades to  improve the capabilities of the deepwater legacy aircraft and cutters. The  most recent compendium (for fiscal year 2006) lists more than $1 billion  worth of upgrades to the deepwater legacy assets. The planned upgrades  identified in the compendium that have been approved and received initial  funding account for an estimated $856 million the Coast Guard anticipates  it will need to complete those projects. The approved upgrades for  deepwater legacy assets are shown in table 4.
Among the projects already begun is the re-engining of the HH-65  helicopters to address safety and reliability concerns. The Coast Guard is  also upgrading several other aviation systems in an effort to improve  aircraft capabilities. Enhancements are also planned for certain classes of  deepwater cutters. For example, during fiscal year 2005, the Coast Guard  is beginning a maintenance effectiveness project on the 210-foot and   270-foot cutters. This project includes replacing major engineering  subsystems with the goal of extending the cutters’ service lives until their  replacement by the Offshore Patrol Cutter. Of the $856 million total  estimated costs needed for the planned upgrades to the deepwater legacy  assets listed above, $215 million has been allocated through fiscal year  2005, and the Coast Guard has requested another $217.3 million in its fiscal  year 2006 budget. The remaining estimated costs of $423.7 million would  have to be funded beyond fiscal year 2006.
section_title: Increasing Amounts of Maintenance Are Being Performed, but Loss of Mission Capabilities Continues
paragraphs: Coast Guard personnel consistently reported to us that crew members  have to spend increasingly more time between missions to prepare for the  next deployment. For example, due to the aging main landing gear on the  HH-65 helicopter, Coast Guard official stated that maintenance crews  spend extensive time servicing, troubleshooting and fixing them in pre- deployment maintenance. Comparable accounts were given by personnel  working on cutters. For example, officers of the 270-foot cutter Northland  told us that because of dated equipment and the deteriorating condition of  its piping and other subsystems, crew members have to spend increasingly  more time and resources while in port to prepare for their next  deployment. While we could not verify these increases in time and  resources because the Coast Guard does not capture data on these  additional maintenance efforts, the need for increasing amounts of  maintenance was a message we consistently heard from the operations  and maintenance personnel with whom we met.
Such efforts are likely helping to prevent a more rapid decline in the  condition of these deepwater legacy assets, but it is important to note that  even with the increasing amounts of maintenance, these assets are still  losing mission capabilities because of deteriorating equipment and system  failures. For example, in fiscal year 2004, the 378-foot cutter Chase lost   98 counterdrug mission days because of a number of patrol-ending  casualties—including the loss of ability to raise and lower boats and run  major electrical equipment—requiring $1.2 million in emergency  maintenance. In addition, the 378-foot cutter Hamilton lost   27 counterdrug mission days in the fall of 2004 when it required  emergency dry dock maintenance because of hydraulic oil leaking into the  reduction gear.
section_title: Coast Guard Is Developing a Strategy to Better Prioritize Upgrades and Maximize Asset Capabilities
paragraphs: In the past, we have recommended that the Coast Guard develop a long- term strategy to set and assess levels of mission performance. We found  this was an important step for the Coast Guard to take because it links  legacy asset investments to asset capabilities, mission priorities, and goals  so that the Coast Guard can better decide how limited budget dollars  should be spent. The Coast Guard has recently begun to apply the  principles behind such a strategy to (1) better prioritize the projects  needed to upgrade legacy assets that will be part of the Deepwater  program and (2) obtain the greatest overall mix of capabilities for its  assets within its budget in order to maximize mission performance. The  tool it is developing is called the Capital Asset Management Strategy  (CAMS).
CAMS, once fully implemented, is expected to help the Coast Guard to  better manage its assets by linking funding decisions to asset condition.  Unlike the Coast Guard’s current compendium, CAMS is designed to  provide analyses on the capability trade-offs for upgrades and  maintenance projects across asset classes, thereby allowing the Coast  Guard to determine which combination of projects will provide the most  capability for the dollars invested. For example, when Coast Guard  officials are trying to decide among potential project upgrades such as an  HC-130 weather radar replacement, an HH-65 sliding cabin door  replacement, or a 110-foot patrol boat fin stabilizer replacement, CAMS,  once fully implemented, could provide the officials with a recommended  mix of project upgrades that would achieve the greatest capability  enhancements based on the available budget.
CAMS analyses are to be based on legacy asset condition and readiness  data, asset retirement and replacement timelines, asset degradation  estimates, project production rates, cost data, and mission utility rankings.  Mission utility rankings will grade an asset’s importance to specific  missions, such as search and rescue or counterdrug operations. Rankings  may also be assigned to an asset’s critical subsystems or may be altered  based on an asset’s geographic location. For example, a 378-foot cutter  may be critical to the success of fisheries patrols in the Pacific but may not  be as important for alien/migrant interdiction operations in the Caribbean.  However, according to Coast Guard headquarters officials, the Coast  Guard remains cautious about employing such a strategy because an  investment strategy of this nature could lead to cutters that are no longer  multmission capable and are unable to respond to an emergency due to  reduced capabilities. In addition, the Coast Guard plans to rank its  missions within CAMS based on their relative importance. Each of these  elements is to form the basis for recommendations regarding which  combination of upgrade and maintenance projects will provide the  greatest enhancements to fleet capabilities.
According to Coast Guard staff, CAMS recommendations are not a  replacement for the existing budget development process, but rather are  to augment and make more consistent the information currently provided  to decision makers. Because the recommendations are to be based, in part,  on user assumptions, CAMS recommendations are to be reviewed by  several internal Coast Guard officials before any final funding requests are  made. Further, in order to prevent user “gaming”—making assumptions in  such a way as to ensure a positive recommendation or outcome for a  particular project—the Coast Guard is developing a series of job aids,  manuals, and training courses to ensure data integrity and consistency.
Coast Guard officials expect to have CAMS fully implemented by  September 2005 and intend to use it while developing the Coast Guard’s  fiscal year 2008 budget submission. Although it is too soon to assess the  effectiveness of CAMS, we view this approach as a good faith effort  toward knowledge-based budgeting for legacy asset sustainment.
section_title: Coast Guard is Developing More Robust Condition Measures
paragraphs: At the time we began our work, in August 2004, the majority of the Coast  Guard’s condition measures were not sufficiently robust to link an asset’s  condition with its impact on mission capabilities. As we discussed with  Coast Guard officials, without such condition measures, the extent and  severity of the decline in the existing deepwater legacy assets and their  true condition cannot be fully determined. On the basis of our inquiries  and a series of discussions we held with cognizant Coast Guard officials,  the Coast Guard has begun developing improved measures to more  accurately capture data on the extent to which its deepwater legacy assets  are degraded in their mission capabilities. However, because these  measures have not been finalized or fully implemented, we were unable to  assess their effectiveness. The Coast Guard anticipates having the new  measures finalized by the end of 2005.
Coast Guard naval engineers told us that they had begun developing a  “percent of time fully mission capable” measure to reflect the degree of  mission capability, as well as measures to track cutter readiness. As part  of this measure, the Coast Guard is developing mission criticality codes,  which would rank the degree of importance of each piece of a cutter’s  equipment to each possible mission that the cutter could perform. These  codes would then be linked to electronic casualty reports for each cutter,  which would provide the cutter engineers and operators with information  on the impact that the equipment casualties would have on each possible  mission. This casualty report/mission criticality linkage will then be  factored into the calculation of the percent of time fully mission capable  measure for each cutter class and mission type. Coast Guard officials  could then review this measure to determine, for example, the degree of  capability that its 270-foot medium endurance cutter fleet has to conduct  search and rescue missions at any given time. We agree that measures like  this are needed—and as soon as possible.
According to Coast Guard officials, while the availability index will remain  the Coast Guard’s primary measure for aircraft condition and operational  readiness, the Coast Guard is working to improve its dispatch reliability  index measure, which provides causal information on delayed, aborted, or  canceled missions. The Coast Guard can use the dispatch reliability  index—in conjunction with data captured by unit-level and depot-level  maintenance staff and entered into the Coast Guard’s Electronic Aircraft  Logbook and Aviation Logistics Management Information System,  respectively—to determine which components and systems are failing  most frequently and thus causing degradation in aircraft availability and  mission performance. According to Coast Guard officials, data provided  from these systems rival the information that will be produced by the  cutter community’s proposed percent of time fully mission capable  measure. Because the dispatch reliability index measure and the  electronic aircraft logbook are relatively new and have only recently been  fully implemented Coast Guard-wide, we have not assessed their  effectiveness. However, we view these tools as a positive step toward  providing Coast Guard decision makers with more detailed information on  the primary factors leading to mission degradation.
section_title: New Initiative for Maintaining 378-Foot Cutters Is Under Way
paragraphs: One effort is under way at the Coast Guard’s Pacific Area Command to  improve maintenance practices for its 378-foot cutters, which are among  the oldest cutters in its fleet. Pacific Area officials have recognized that a  different approach to maintaining and sustaining legacy cutters may be  needed since they are dependent on 378-foot cutters for meeting missions,  such as defense operations and fisheries patrols. As a first step, Pacific  Area officials have undertaken an initiative applying what they refer to as  “new business rules and strategies” to better maintain the 378-foot high- endurance cutters through 2016, when they are scheduled to be fully  replaced by National Security Cutters. Under the original Deepwater  proposal, the final 378-foot cutter was to be decommissioned in 2013, but  by 2005, that date had slipped to 2016. To help keep these cutters running  through this date, Pacific Area officials are applying such rules and  strategies as (1) ensuring that operations and maintenance staffs work  closely together to determine priorities, (2) recognizing that maintaining  or enhancing cutter capabilities will involve trade-off determinations, and  (3) accepting the proposition that with limited funding not all cutters will  be fully capable to perform all types of missions as they near the end of  their useful lives. Pacific Area officials believe that in combination, these  rules and strategies will result in more cost-effective maintenance and  resource allocation decisions—recognizing that difficult decisions will still  have to be made to balance maintenance and operations.  However,  according to Coast Guard headquarters officials, if such strategies are  employed, careful planning must occur to avoid placing a cutter in an  operational emergency where it is incapable of adequately responding.
One example of the bridging strategies Pacific Area officials are exploring  is the development of what Pacific Area officials refer to as a “class within  a class” approach. Under this strategy, the individual cutters within the  378-foot high-endurance cutter fleet would be designated to perform  specific mission types based on an assessment of their condition and  mission capabilities. Cutters possessing full mission capabilities could be  assigned to the more demanding defensive operations, while cutters in  poorer condition and less than fully capable would be assigned to less  demanding missions, such as fisheries enforcement. According to Pacific  Area officials, this strategy is designed to more effectively spend the  maintenance funds available for the 378-foot cutters, since current funding  levels for the 378-foot cutters make it very difficult for Pacific Area to  maintain all 10 of its 378-foot cutters as fully mission capable.
Pacific Area Command’s new initiative has the potential for assisting the  Coast Guard in making more informed choices regarding the best use of  their resources, but according to Pacific Area officials, the approach will  likely require that the Coast Guard allocate additional maintenance funds.  Further, because the approach has not been fully implemented, it is too  soon to tell whether the approach will provide the results intended. Coast  Guard headquarters officials stated that before such a strategy can be  implemented further analysis is required, to include: (1) determining the  estimated savings associated with creating multiple 378-foot cutter  classes; (2) analyzing other cost saving concepts, such as  decommissioning cutters or rotating crews; (3) obtaining further  information on the effect on Coast Guard mission readiness; and   (4) assessing the operational risk associated with operating cutters that  are no longer multimission capable. Officials from Coast Guard  headquarters officials further stated that they are exploring the possibility  of increasing the funds available for operating expenses for the 378-foot  high-endurance cutters in fiscal year 2007.
section_title: Management Challenges Faced in Acquiring New Assets Remain Significant
paragraphs: In its fiscal year 2006 budget request, the Administration requested   $966 million for the Deepwater program—-$242 million more than  Congress appropriated for the program in fiscal year 2005. This request  reflects significant revisions to the Deepwater program’s requirements,  capabilities, and schedule necessitated by the Coast Guard’s new  homeland security mission. Recently, the House Appropriations  Committee recommended $500 million for the Deepwater program,   $466 million less than the Administration requested. The committee  expressed concern about the path the program has taken and the lack of  information provided to Congress as the primary reasons for this  recommendation. Specifically, the committee did not believe that the  Coast Guard’s revised implementation plan provided enough  programmatic information such as asset delivery timelines and funding  projections for each year through the program’s completion.
In late May 2005, the Coast Guard submitted documentation to the  committee in response to the committee’s request. In June 2005, the  Senate Appropriations Committee expressed concern about the lack of  information concerning the Deepwater plan in the fiscal year 2006 budget  request but recommended funding of $905.6 million for the program for  fiscal year 2006. As of early July 2005, the fiscal year 2006 appropriation  for the Deepwater program was still pending, and so the funding level is  still not known. Since the inception of the Deepwater program, we have  expressed concerns about the degree of risk in the acquisition approach  and the Coast Guard’s ability to manage and oversee the program. In 2004  we 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. We also reported that  the degree to which the program was on track could not be determined  because the Coast Guard was not updating its schedule. We detailed  improvements needed in a number of areas, shown in table 5. These  concerns have a direct bearing on any consideration to increase the  program’s pace. Because the Coast Guard was having difficulty managing  the Deepwater program at the pace it had anticipated, increasing the pace  by expediting the acquisitions would only complicate the problem.
The Coast Guard agreed with nearly all of our recommendations and has  made progress in implementing them. Specifically, the Coast Guard has  fully addressed three of the recommendations and has actions under way  on others. However, in light of continuing management challenges, it will  likely take some time for the Coast Guard to fully address the remaining  recommendations. While actions are under way, management challenges  remain that are likely to take some time for the Coast Guard to fully  address.
subsections: section_title: Improvement of Program Management and Contractor Oversight Is Mixed
paragraphs: We have seen mixed success in the Coast Guard’s efforts to improve  management of the program and contractor oversight. Three of the four  areas of concern—improving integrated project teams (IPT), ensuring  adequate staff for the program, and planning for human capital  requirements for field units receiving new assets—have yet to be fully  addressed.
subsections: section_title: Strengthening Integrated Product Teams
paragraphs: Although the Deepwater program has made some efforts to improve the  effectiveness of IPTs, we continue to see evidence that more  improvements are needed—such as greater coordination—for the teams to  effectively do their jobs. These teams, the Coast Guard’s primary tool for  managing the program and overseeing the contractor, are generally  chaired by a subcontractor representative and consist of members from  subcontractors and the Coast Guard. The teams are responsible for overall  program planning and management, asset integration, and overseeing  delivery of specific Deepwater assets. Since our March 2004 report, the  teams have been restructured, and 20 teams have charters setting forth  their purpose, authority, and performance goals. And new, entry-level  training is being provided to team members.
Despite this progress, however, the needed changes are not yet sufficiently  in place. A recent assessment by the Coast Guard of the system  integrator’s performance found that roles and responsibilities in some  teams continue to be unclear. Decision making is to a large extent  stovepiped, and some teams still lack 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 databases and processes to manage  different segments of the program. Decisions on air assets are made by  Lockheed Martin, while decisions regarding surface assets are 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. Deepwater program officials told us that more attention is being  paid to taking a system-wide approach and that the Coast Guard has  emphasized the need to ensure that the two major subcontractors  integrate their management systems. We will continue to monitor the  Coast Guard’s progress in implementing this recommendation during our  pending review of the revised Deepwater plan.
section_title: Ensuring Adequate Staffing for the Deepwater Program
paragraphs: The Coast Guard has taken steps to more fully staff the Deepwater  program, with mixed effects. In February 2005, the Deepwater program  executive officer approved a revised human capital plan. The plan  emphasizes workforce planning, including determining needed knowledge,  skills, and abilities and developing ways to leverage institutional  knowledge as staff rotate out of the program. This analysis is intended to  help determine what gaps exist between needed skills and existing skills  and to develop a plan to bridge these gaps. The Coast Guard has also taken  some short-term steps to improve Deepwater program staffing, hiring  contractors to assist with program support functions, shifting some  positions from military to civilian to mitigate turnover risk, and identifying  hard-to-fill positions and developing recruitment plans specifically for  them. Finally, the Deepwater program and the Coast Guard’s acquisition  branch have begun using an automated system for forecasting military  rotation cycles, a step Deepwater officials believe will help with long- range strategic workforce planning and analysis.
Despite these actions, however, vacancies remain in the program, and  some measures that may have highlighted the need for more stability in  the program’s staff have been removed from the new human capital plan.  As of January 2005, 244 positions were assigned to the program, with   206 of these filled, resulting in a 16 percent vacancy rate. A year ago,   209 staff were assigned to the program. Further, the new human capital  plan removes a performance goal that measured the percentage of billets  filled at any given time. Coast Guard officials stated that the prior plan’s  goal of a 95 percent or higher fill rate was unduly optimistic and was a  poor measure of the Coast Guard’s ability to meet its hiring goals. For  example, billets for military personnel who plan to rotate into the program  in the summer are created at the beginning of the budget year, leading the  measure to count those positions as vacant from the beginning of the  budget year until summer. Other performance measures that were  included in the prior plan to measure progress in human capital issues  have also been removed. For example, to help ensure that incoming  personnel received acquisition training and on-the-job training, a billet was  included in the prior plan to serve as a floating training position that  replacement personnel could use for a year before the departure of  military incumbents. The Coast Guard did not fund this position, and the  new plan removes the billet. According to the Coast Guard, these  measures were removed because the revised Deepwater plan focuses on  the long-range strategic human capital issues associated with the  execution of the acquisition over the entire period, whereas the prior plan  had a short-term operational focus. We will continue to monitor the Coast  Guard’s progress in implementing this recommendation during our  pending review of the revised Deepwater plan.
section_title: Improving Communication with Personnel Who Will Use the New Assets
paragraphs: The Coast Guard recognizes the critical need to inform the operators who  are to use the Deepwater assets of progress in the program, and officials  stated that on the basis of our recommendations, they have made a  number of improvements in this area. A November 2004 analysis of the  Deepwater program’s communication process, conducted in coordination  with the National Graduate School, found that the communication and  feedback processes were inadequate. Emphasis has now been placed on  outreach to field personnel, with a multipronged approach involving  customer surveys, face-to-face meetings, and presentations. We have not  yet evaluated the effectiveness of the new approach.
Human capital requirements for the Deepwater program—such as crew  numbers and schedules, training, and support personnel—will have an  increasing impact on the program’s ability to meet its goals as the pace at  which assets are delivered to field units picks up. Recent assessments by  Coast Guard performance monitors show this to be an area of concern.  Coast Guard officials have expressed concern about whether the system  integrator is appropriately considering human capital in systems  engineering decisions. The system integrator is required to develop a  workforce management plan for Deepwater, as well as “human factors  engineering” plans for each Deepwater asset and for the overall system of  systems. The Coast Guard rejected the contractor’s workforce  management plan and several of the proposed human factors engineering  plans as being inadequate. The rejections were due, in part, to the lack of  an established and integrated system-level engineering approach that  shows how issues relating to human capabilities and limitations of actually  performing with the system will be approached. One performance monitor  noted that as of late 2004, requirements for staffing and training of  maintenance facilities and organizations had yet to be determined.  According to the Coast Guard, emphasis on a system integrator for  addressing human capital considerations is necessary to ensure that  Deepwater goals are met, especially as they pertain to operational  effectiveness and total ownership cost. We will continue to monitor the  Coast Guard’s progress in implementing this recommendation during our  pending review of the revised Deepwater plan.
section_title: Updating the Acquisition Schedule
paragraphs: The Coast Guard has recently undertaken efforts to update the original  2002 Deepwater acquisition schedule—an action that we suggested in our  June 2004 report. The original schedule had milestone dates showing  when work on an asset would begin and when delivery would be expected,  as well as the integrated schedules of critical linkages between assets, but  we found that the Coast Guard was not maintaining an updated and  integrated version of the schedule. As a result, the Coast Guard could not  demonstrate whether individual components and assets were being  integrated and delivered on schedule and in critical sequence. As recently  as October 2004, Deepwater performance monitors likewise expressed  concern that the Coast Guard lacked adequate visibility into the program’s  status and that lack of visibility into the schedules for component-level  items prevented reliable forecasting and risk analysis. The Coast Guard  has since taken steps to update the outdated schedule and has indicated  that it plans to continue to update the schedule each month for internal  management purposes, and semiannually to support its budget planning  efforts. We think this is an important step toward improving the Coast  Guard’s management of the program because it provides a more tangible  picture of progress, as well as a baseline for holding contractors  accountable. We will continue our oversight of the Coast Guard to ensure  progress is made and to monitor how risks are mitigated.
section_title: Procedures for Ensuring System Integrator Accountability Are More Rigorous, but Concerns Remain
paragraphs: We have seen progress in terms of the rigor with which the Coast Guard is  periodically assessing the system integrator’s performance, but concerns  remain about the broader issues of accountability for achieving the  overarching goals of minimizing total ownership cost and maximizing  operational effectiveness.
subsections: section_title: Improving Criteria for Assessing Performance
paragraphs: Improvements continue to be made to the criteria for assessing the system  integrator’s performance. In March 2004, we reported that the process for  assessing performance against specific contract tasks lacked rigor. The  criteria for doing so have since been revised to more clearly reflect those  that are objective, (that is, measured through automated tools against  established measures) and those that are subjective, meaning the narrative  comments by Coast Guard performance monitors. Weights have been  assigned to each set of evaluation factors, and the Coast Guard continues  to refine the distribution of the weights to reach an appropriate balance  between automated results and the eyewitness observations of the  performance monitors. Coast Guard officials told us that they have also  provided additional guidance and training to performance monitors. We  found that efforts have been made to improve the consistency of the  format used for their input in assessments of the system integrator’s  performance. Coast Guard officials said that they are continuing to make  improvements to ensure that performance monitors’ relevant observations  are appropriately considered in making award fee determinations.
It is important to note that although performance monitor comments are  considered subjective, they are valuable inputs to assessing the system  integrator’s performance, particularly when they are tied to measurable  outcomes. According to Coast Guard officials, the Coast Guard will  continue to refine the award fee factors as the program progresses. In  some cases, we noted that the performance monitors’ assessments  differed vastly from the results of automated, data-driven assessments. For  example, while schedule management is discussed in the Coast Guard’s  midterm assessment of the system integrator’s performance as a major  area of challenge and risk, the objective measure showed 100 percent  compliance in this area. Another measure assesses the extent to which  integrated product teams consider the impact of their decisions on the  overall cost and effectiveness of the Deepwater program. Performance  monitors reported that because system-level guidance had not been  provided to the teams responsible for specific assets, they had a limited  ability to see the whole picture and understand the impact of decisions on  total ownership cost and operational effectiveness. However, the  automated measure was again 100 percent compliance. Coast Guard  officials said that, in some cases, the data-driven measures do not  accurately reflect the contractor’s performance. We will continue to  monitor changes to the Coast Guard’s measures for assessing the system  integrator’s performance.
section_title: Holding the System Integrator Accountable for Effectiveness of Product Teams
paragraphs: Changes have been made to the award fee measures that place additional  emphasis on the system integrator’s responsibility for making integrated  product teams effective. Award fee criteria now incorporate specific  aspects of how the integrator is managing the program, including  administration, management commitment, collaboration, training, and  empowerment of these teams. However, as discussed above, concerns  remain about whether the teams are effectively accomplishing their goals.
section_title: Evaluation of Operational Effectiveness and Total Ownership Cost
paragraphs: While the Coast Guard has developed models to measure the system  integrator’s performance in operational effectiveness and total ownership  cost, concrete results have not yet emerged. Minimizing total ownership  cost and maximizing operational effectiveness are two of the overarching  goals of the Deepwater program. The system integrator’s performance in  these two areas will be a critical piece of information when the Coast  Guard makes a decision about whether to award the contractor the first  contract option period of 5 years. Initial decision making is to start in June  2006.
With regard to the operational effectiveness of the program, measuring the  system integrator’s impact has yielded limited results to date because few  of the new assets are operational. The Coast Guard has developed  modeling capabilities to simulate the effect of the new capabilities on its  ability to meet its missions. However, until additional assets become  operational, progress toward this goal will be difficult to determine.
With regard to total ownership cost, the Coast Guard does not plan to  implement our recommendation, despite concurring with it at the time of  our March 2004 report. The Coast Guard has not adhered to its original  plan, set forth in the Deepwater program management plan, of establishing  as its baseline a cost not to exceed the dollar value of replacing the assets  under a traditional approach (e.g., on an asset-by-asset basis rather than a  system-of-systems approach). In addition to providing for greater  synergies between air, sea, sensor and communications assets and  equipment, the system-of-systems approach was to yield cost savings  when compared with a traditional acquisition approach. Although the  Coast Guard initially established a cost baseline consistent with the  program management plan’s approach, the Coast Guard has not updated it  to reflect changes made to the system integrator’s cost estimate baseline,  and therefore is not being used to evaluate the contractor’s progress in  holding down total ownership cost. As a result, the cost baseline being  used to measure total ownership cost is not the Coast Guard’s, but rather  is the system integrator’s own cost estimate. As we reported in March  2004, we believe that measuring the system integrator’s cost growth  compared with its own cost proposal will tell the government nothing  about whether it is gaining efficiencies by turning to the system-of-systems  concept rather than the traditional asset-by-asset approach. Although the  Deepwater program has undergone a number of alterations since the  contract was awarded in 2002, the Coast Guard has not studied whether  the system-of-systems approach is still more cost effective as opposed to a  traditional acquisition approach. Thus, the Coast Guard will lack this  information as it prepares to decide whether to award the first contract  option beginning in June 2006.
section_title: Establishing Criteria and Documenting Changes to the Baseline
paragraphs: Coast Guard officials stated that the contract total ownership cost and  operational effectiveness baseline is adjusted based on approved decision  memorandums from the Agency Acquisition Executive, the Vice  Commandant of the Coast Guard. Such memorandums were originally  approved by the program executive officer on a case-by-case basis. As we  reported in March 2004, establishing a solid baseline against which to  measure progress in lowering total ownership cost is critical to holding the  contractor accountable.
section_title: Coast Guard Reports Taking Steps to Hold the System Integrator Accountable for Competition
paragraphs: The Coast Guard reported that it is taking steps to address our  recommendations concerning cost control through competition among  second-tier suppliers and notification of “make” decisions. While we have  not assessed the effectiveness of the Coast Guard’s actions regarding  competition among second-tier suppliers, we are satisfied with its efforts  regarding notification of make decisions. It should be noted, though, that  we have not assessed the effectiveness of the following actions.
Competition among second-tier suppliers. Coast Guard officials told us  that in making the decision about whether to award the first contract  option, the government will specifically examine the system integrator’s  ability to control costs by assessing the degree to which competition is  fostered at the major subcontractor level. The evaluation will consider the  subcontractors’ project management structure and processes to control  costs, as well as how market surveys of similar assets and major  subsystems are implemented. The Coast Guard is focusing its attention on  those areas that were priced after the initial competition for the  Deepwater contract was completed, such as the HH-65 re-engining and the  C-130J missionization. For example, a new process implemented for the  C-130J missionization was a requirement for competition in subcontracting  and government approval of all subcontracts exceeding $2 million in order  for the Coast Guard to monitor the integrator’s competition efforts.
Notification of make decisions. According to the Federal Acquisition  Regulation, the prime contractor is responsible for managing contract  performance, including planning, placing, and administering subcontracts  as necessary to ensure the lowest overall cost and technical risk to the  government. The Federal Acquisition Regulation further provides that  when “make-or-buy programs” are required, the government may reserve  the right to review and agree on the contractor’s make-or-buy program  when necessary to ensure negotiation of reasonable contract prices,  among other things. We recommended that the Coast Guard be notified of  make-or-buy decisions over $5 million in order to facilitate controlling  costs through competition. We suggested the $5 million threshold because  Lockheed Martin, one of the major subcontractors, considers that amount  to be the threshold for considering its suppliers major. The Coast Guard  has asked the system integrator, on a voluntary basis, to provide  notification 1 week in advance of a make decision of $10 million or more  based on the criteria in the make-or-buy program provisions of the Federal  Acquisition Regulation. According to Coast Guard officials, to date, no  make decision has exceeded $10 million since the request was made. The  details implementing this recommendation have not yet been worked out,  such as specifically who in the Coast Guard will monitor the  subcontractors’ make decisions to ensure that the voluntary agreement is  complied with. We will continue to monitor the Coast Guard’s progress in  implementing this recommendation during our pending review of the  revised Deepwater plan.
section_title: Concluding Observations
paragraphs: Our work suggests the costly and important Deepwater program will need  constant monitoring and management attention to successfully  accomplish its goals. In this respect, we identified three points that should  be kept in mind in considering how to proceed with the program.
First, the need to replace or upgrade deteriorating legacy assets is  considerable. While the Coast Guard currently lacks measures that clearly  demonstrate how this deterioration affects its ability to perform  deepwater-related missions, it is clear that the deepwater legacy assets are  insufficient for the task. As the Coast Guard continues to develop  condition measures that are more robust and able to link the assets’  condition with mission capabilities, and as it further develops and  implements its Capital Asset Management System, it will be in a better  position to make more informed decisions regarding where its budget  should be spent to maximize the capabilities of its legacy assets as the  Coast Guard transitions to the Integrated Deepwater System.
Second, there are signs that as the Deepwater program moves ahead, the  Coast Guard will continue to report more problems with sustaining  existing assets, together with the attendant need for additional infusions of  funding to deal with them. Some of these problems, such as those on the  378-foot cutters, are included in the compendium the Coast Guard uses to  set sustainment priorities and plan budgets, but the Coast Guard has not  allocated funds because the problems pertain to assets that are among the  first to be replaced. However, projects to address these problems are  nevertheless likely to be needed. While the Coast Guard is moving to  improve the information it uses to set budget priorities through  development of CAMS, the system has not been implemented, and  therefore, it is too soon to tell how effective the system will be. We will  continue to work with the Coast Guard to monitor its progress on CAMS  as a means for ensuring that there is a more systematic and  comprehensive approach to keeping Congress abreast of the potential bill  for sustaining these assets.
Third, although the need to replace and upgrade assets is strong, there still  are major risks in the Coast Guard’s acquisition approach. The cost  increases and schedule slippages that have already occurred are warning  signs. While the Coast Guard has initiated actions to address problems we  have raised involving system integration, cost and schedule management,  and integrated product teams, we remain concerned that the program still  carries major risks. We will continue to work with the Coast Guard to  determine how best to manage these risks so that the Deepwater missions  can be accomplished in the most cost-effective way.
section_title: Agency Comments
paragraphs: We requested comments on a draft of this report from the Department of  Homeland Security and the U.S. Coast Guard. The U.S. Coast Guard  provided technical comments, which have been incorporated into the  report where appropriate.
We are providing copies of this report to the Secretary of the Department  of Homeland Security, the Commandant of the U.S. Coast Guard, and  interested congressional committees. The report will also be made  available to others upon request. In addition, the report will be available at  no charge on GAO’s Web site at http//www.gao.gov.
For information about this report, please contact me at (415) 904-2200, or  wrightsonm@gao.gov. Contact points for our Offices of Congressional   Relations and Public Affairs may be found on the last page of this report.  Individuals making key contributions to this report are listed in appendix  III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines the condition of the U. S. Coast Guard’s Deepwater  legacy assets and the acquisition management challenges the Coast Guard  faces. Our work focused on three key questions: (1) How has the condition  of the Coast Guard’s deepwater legacy assets changed during fiscal years  2000 through 2004? (2) What actions has the Coast Guard taken to  maintain, upgrade, and better manage its deepwater legacy assets?   (3) What are the management challenges the Coast Guard faces in  acquiring new assets, especially if a more aggressive schedule is adopted?
In assessing how the condition of the deepwater legacy assets has changed  during fiscal years 2000 through 2004, we analyzed what Coast Guard  officials told us were the best available condition measures. For  deepwater aircraft, we obtained concurrence from Coast Guard Office of  Aeronautical Engineering officials that the appropriate measures to use for  aircraft condition included the availability index (percentage of time  aircraft were available to complete missions), cost per flight hour, labor  hours per flight hour, programmed flight hours per year, scheduled versus  unscheduled maintenance expenditures, and estimated deferred  maintenance. For cutters, we obtained concurrence from the Office of  Naval Engineering and the Office of Cutter Forces that the appropriate  measures to use for cutter condition were the number of major (category 3  and 4) casualties, the percent of time free of major casualties, scheduled  versus unscheduled maintenance, and estimated deferred maintenance.  We also reviewed data on mishaps and the dispatch reliability index for  aircraft, and lost cutter days and unscheduled maintenance days for  cutters, but we did not use these measures because the data were either  not relevant to our analysis, incomplete, not available for the entire time  period covered by our review, or not sufficiently reliable for our purposes.  We supplemented our analyses of these measures with documentation  from relevant reports and studies, as well as from interviews of asset  program managers and crews for each type of deepwater legacy aircraft  and cutter. For aircraft, we collected data from the Aircraft Repair and  Supply Center in Elizabeth City, North Carolina; and visited selected air  stations in Kodiak, Alaska; Miami, Florida; and Elizabeth City, North  Carolina; to provide coverage of each of the four types of Deepwater  aircraft—HC-130 and HU-25 fixed wing aircraft, and the HH-60 and HH-65  rotary aircraft. For cutters, we collected data at the Maintenance and  Logistics Commands in Alameda, California; and Norfolk, Virginia; and  visited selected Coast Guard facilities in Kodiak, Alaska; Portsmouth,  Virginia; and Miami, Florida; to provide coverage of each of the three types  of Deepwater vessels—high-endurance cutters, medium-endurance  cutters, and patrol boats. We also reviewed Coast Guard policies and  standards, including the Coast Guard Cutter Employment Standards,  Coast Guard Aircraft Employment Standards for Days Employed  Aboard Ship and Days Away from Home Station, and the Coast Guard  Environmental Health and Safety Manual. In addition, to assess the  reliability of the Coast Guard’s data and condition measures, we  questioned knowledgeable officials and reviewed existing documentation  about the data and the systems that produced the data. On the basis of our  assessments, we determined that the data were sufficiently reliable for the  purposes of this report.
To determine the actions that the Coast Guard has undertaken to maintain,  upgrade, and better manage its deepwater legacy assets, we reviewed  documentation such as the Systems Integrated Near Term Support  Strategy (SINTSS), which is a compendium of information on proposed  asset sustainment projects, and spoke with various Coast Guard program  officials from the Offices of Naval and Aeronautical Engineering, as well as  the Atlantic Area Maintenance and Logistics Command, regarding the need  to perform increasing maintenance on assets between deployments. To  determine additional efforts that Coast Guard plans to undertake to better  manage these assets, we met with Coast Guard officials from the Office of  Naval Engineering to discuss the development of measures that the Coast  Guard hopes will more accurately measure the impact that the declining  condition of its legacy assets has on mission capabilities and reviewed  documentation relevant to these measures. We also reviewed plans and  guidance for the newly developed Capital Asset Management Strategy  (CAMS), which the Coast Guard intends to use in establishing priorities  for determining which Deepwater asset maintenance and sustainment  projects to fund. In addition, we also met with officials at the Pacific Area  Command and Maintenance and Logistics Command to discuss their fleet  sustainment initiative for keeping the high-endurance cutters operational  until their replacement by the National Security Cutter.
To determine what management challenges the Coast Guard faces in  acquiring new assets, we followed up on actions the Coast Guard has  taken to implement the 11 recommendations in our report Contract  Management: Coast Guard’s Deepwater Program Needs Increased  Attention to Management and Contractor Oversight (GAO-04-380), of   March 9, 2004; and the 1 recommendation from our report Coast Guard:  Deepwater Program Acquisition Schedule Update Needed, (GAO-04-695),  of June 14, 2004. We received briefings and held several meetings with the  Deepwater Program Executive Officer, the Deputy Program Executive  Officer, and a number of Deepwater staff, including contracting officers.  We also held a discussion with representatives of the system integrator to  get their views on progress made in implementing the recommendations.
We analyzed documentation supporting the Coast Guard’s midterm  assessment of the contractor’s system integration and management  performance in the third year of the contract, including written comments  by the performance monitors. We also held discussions with Deepwater  program performance monitors. We recently began an assessment of the  third year of performance.  However, we were not able to thoroughly  review the documentation in time to include our observations in this  report. We reviewed information on Deepwater integrated product teams,  including membership lists and briefings provided by the Coast Guard on  measures of effectiveness for the teams. We analyzed the Coast Guard’s  plans to increase communications to field operators, including its August  2004 Integrated Deepwater Systems Internal Communications Plan, and  received a briefing on how the plan is being implemented. We compared  the September 2003 Deepwater Human Capital Plan with the February  2005 revised plan to identify changes that had been made and discussed  Deepwater program office staffing numbers and plans with Coast Guard  officials. Finally, we discussed with Coast Guard officials steps the Coast  Guard has taken to hold the system integrator accountable for “make”  versus “buy” decisions by the two major subcontractors and reviewed a  January 2005 letter on this subject from the Director of Subcontracts for  Integrated Coast Guard Systems to the subcontractors.
We performed our review from July 2004 to June 2005 in accordance with  generally accepted government auditing standards at various Coast Guard  offices and facilities.
section_title: Appendix II: Information on Deepwater Legacy Aircraft and Cutters
subsections: section_title: HC-130 Long-Range Surveillance Aircraft
subsections: section_title: HC-130 Fleet Overview
paragraphs: The HC-130 is a long-range, fixed-wing, multimission aircraft used for  search and rescue, drug interdiction, alien and migrant interdiction, living  marine resources, and defense readiness and logistics missions.  Manufactured by Lockheed Martin Aero, the HC-130 aircraft entered Coast  Guard service beginning in 1972. There are currently 27 HC-130 aircraft  within the Coast Guard. The estimated service life is approximately   30 years or 40,000 flight hours.
section_title: Performance Trends
paragraphs: The HC-130 fleet’s performance data show that while there was a decline  in fiscal year 2004, fleet availability has steadily improved since 2000 and  remains near the Coast Guard’s 71 percent availability standard. Similarly,  the number of labor hours per flight hour remained fairly stable from fiscal  year 2000 to 2003 but increased slightly in fiscal year 2004. Programmed  flight hours have also remained reasonably stable, with some year-to-year  fluctuations after a decline in fiscal year 2001. These performance  measures are summarized in table 6.
section_title: Maintenance Trends
paragraphs: The HC-130 fleet’s maintenance costs have generally increased during  fiscal years 2000 through 2004. Overall, the fleet’s cost per flight hour and  scheduled maintenance expenditures have risen, driven by an increase in  the scope of depot-level maintenance to improve the fleet’s material  condition. Also, depot-level maintenance schedule delays have led to a  backlog, thereby increasing the amount of fleet deferred maintenance, as  shown in table 7.
section_title: Sustainment Issues
subsections: section_title: Obsolescence of the HC-130’s Surface Search Radar System
paragraphs: According to Coast Guard officials, there is an urgent need to replace the  HC-130’s APS-137 surface search radar system. The radar system—part of  the aircraft’s original configuration—is subject to frequent failures and is  quickly becoming unsupportable, according to the Coast Guard officials.  Replacement parts are very difficult to locate. While HC-130 flight crews  will work around any failures, without the system, the flight crews are  reduced to looking out windows for targets, thereby greatly reducing  mission capabilities for performing search and rescue, alien-migrant  interdiction, and drug interdiction missions. In the conference report  accompanying the Coast Guard’s fiscal year 2005 appropriation, the  conferees directed $9 million for the radar system. Total system  replacement costs are estimated to be $78 million and are to be completed  in fiscal year 2008.
section_title: Avionics Modernization and Wing-Rewiring Projects
paragraphs: The Coast Guard has identified several additional HC-130 sustainment  projects in its latest Systems Integrated Near Term Support Strategy.  Included in these projects are an avionics modernization and a related  wing-rewiring project. According to the Coast Guard, the HC-130’s  avionics suite utilizes 1960s technology that is costly to maintain and will  soon be unsupportable because of a lack of spare and repair parts. This  cockpit modernization project is aimed at enabling the HC-130 aircraft to  better support maritime safety and security and national defense and  logistics missions. The Coast Guard estimates this project will cost   $305 million and take 4 years to complete. The wing-rewiring project is  designed to provide more power to an upgraded avionics suite and to ward  off potential safety issues due to deteriorating wiring, such as electrical  shorts and probability of fire. Coast Guard officials estimate the project  will cost nearly $11 million and will take 5 years to complete.
section_title: HC-130 Center Wing Box Structural Issues
paragraphs: Five of the 27 operational HC-130s have recently been placed under  operational restrictions at the request of the aircraft’s manufacturer,  Lockheed Martin Aero, because of a problem associated with the aircraft’s  center wing box. The restrictions include limitations on weight, airspeeds,  maneuvering, and mission endurance. As of early June 2005, the Coast  Guard was awaiting the release of inspection criteria from Lockheed  Martin. Nevertheless, the Coast Guard estimates that the inspections will  cost $2 million for the 5 aircraft. This problem is not limited to Coast  Guard aircraft, but is affecting HC-130s worldwide. The remaining Coast  Guard HC-130s are not subject to the operational restrictions but will  likely have to undergo similar limitations and inspections beginning in  fiscal year 2006.
section_title: HU-25 Medium-Range Surveillance Aircraft
subsections: section_title: HU-25 Fleet Overview
paragraphs: The HU-25 is a medium-range, fixed-wing, multimission aircraft used for  search and rescue, drug interdiction, alien/migrant interdiction, fisheries  law enforcement, defense readiness, and essential logistics missions.  Manufactured by Falcon Jet, the HU-25 entered the Coast Guard aviation  fleet in 1982. The Coast Guard’s fleet contains 23 aircraft. The Coast Guard  maintained a fleet of 26 operational HU-25 aircraft in fiscal year 2000 but  reduced the fleet because of budgetary constraints in fiscal year 2002. The  original estimated service life was 20 years or 20,000 flights (landings) or  30,000 flight hours.
section_title: Performance Trends
paragraphs: The HU-25 fleet’s programmed flight hours have fluctuated during fiscal  years 2000 through 2004 with changes in fleet size. In fiscal year 2004, the  fleet flew 86 percent of the fiscal year 2001 programmed flight hours with  29 percent fewer aircraft. Moreover, the fleet’s availability index has  generally improved during fiscal years 2000 through 2003, in large part  because of the enhanced reliability of the HU-25’s ATF-3 engine. Though it  consistently remained below the Coast Guard’s 71 percent availability  standard, it has improved from fiscal year 2000 levels. The fleet’s labor  hours per flight hour have also remained fairly consistent since fleet  reduction. Table 8 provides a summary of the HU-25’s key performance  measures.
section_title: Maintenance Trends
paragraphs: The maintenance measures for the HU-25 show varied results. During  fiscal years 2000 through 2004, the fleet’s cost per flight hour has generally  declined, scheduled and unscheduled maintenance expenditures  fluctuated, and the amount of deferred maintenance dropped significantly.  Table 9 provides a summary of the key maintenance measures.
section_title: Sustainment Issues
subsections: section_title: Engines
paragraphs: According to Coast Guard officials, the HU-25’s Honeywell ATF-3 engines  are complex, have been historically unreliable, and are time-consuming to  maintain—requiring as long as 4 days to re-install a repaired engine. Some  of the engine problems have been mitigated by improvements in sensor  capabilities that allow the aircraft to fly at higher altitudes for longer  periods of time during surveillance missions. Flying at higher altitudes  reduces the amount of saltwater introduced into the engines, thereby  reducing corrosion and placing less stress on the engines. According to  Coast Guard officials, this has contributed to increasing engine reliability  and improvements in HU-25 fleet availability.
section_title: Sensors
paragraphs: The sensors on the six HU-25D models were recently upgraded at a cost of  $43 million in acquisition, capital, and investment (AC&I) funding. Five of  the six upgraded HU-25D aircraft are stationed at air station Miami.  According to the air station’s commanding officer, the upgraded sensors,  while critical to mission success, also have a relatively high rate of  inoperability. Sensor inoperability is a function of the aircraft’s poor air  conditioning system. When the cabin becomes too warm, the sensors fail.  Air conditioning system and sensor failure does not present a safety of  flight issue but does degrade mission capability. According to Coast Guard  officials this problem is limited to the HU-25D models.
section_title: HH-60 Medium-Range Recovery Helicopter
subsections: section_title: HH-60 Fleet Overview
paragraphs: The HH-60 helicopter is used for ports, waterways, and coastal security;  drug interdiction; alien/migrant interdiction; defense readiness; search and  rescue; ice operations; living marine resources; and marine environmental  protection missions. Manufactured by Sikorsky Aircraft Corporation, the  HH-60 entered into the Coast Guard fleet in 1990.  The Coast Guard has a  total of 41 HH-60 aircraft. The original estimated service life was  approximately 20 years.
section_title: Performance Trends
paragraphs: The HH-60’s deteriorating subsystems, such as the avionics suite, are  requiring increasing amounts of maintenance and thereby reducing fleet  performance. Nevertheless, the HH-60 fleet has maintained a relatively  high availability level, remaining close to or exceeding the Coast Guard’s  71 percent availability standard since fiscal year 2000. The fleet’s number  of programmed flight hours has experienced some year-to-year  fluctuations but has been relatively stable. At the same time, increasing  subsystem failures are requiring more unit-level maintenance, as reflected  by the fleet’s general rise in the number of labor hours per flight hour.  Further, Coast Guard officials have told us that flight crews and  maintenance personnel have to work harder and longer to maintain the  fleet’s high availability levels. Table 10 provides a summary of the key  performance measures.
section_title: Maintenance Trends
paragraphs: In constant dollars, the HH-60 fleet’s estimated scheduled and  unscheduled maintenance expenditures generally trended downward  during fiscal years 2000 through 2004, while the cost per flight hour has  fluctuated. In contrast, the amount of HH-60 deferred maintenance  incurred by the Coast Guard has nearly doubled since fiscal year 2000. HH- 60 fleet product line managers attribute this increase to budget constraints  and an expansion in the scope of the HH-60 overhauls without a  corresponding increase in the number of maintenance personnel. Table 11  provides a summary of the key maintenance measures.
section_title: Sustainment Issues
subsections: section_title: HH-60 Avionics Replacement
paragraphs: According to HH-60 flight crews and maintenance staff, the reliability of  the aircraft’s 1970s era avionics system is steadily declining. The system’s  increasing failure rate is directly affecting the HH-60 fleet’s mission  capabilities, as avionics system failures are occurring every 11 flight hours,  on average. Further, according to the Coast Guard, HH-60 avionics repair  vendors will phase out system component repairs in fiscal year 2007. For  these reasons, the Coast Guard has implemented an HH-60 avionics  upgrade to replace the current system with a state-of-the-art open  architecture system that Coast Guard officials claim will meet the future  needs of HH-60 missions. The Coast Guard estimates that this program will  cost about $84 million and will be completed in fiscal year 2010. The Coast  Guard has allocated $30.8 million through fiscal year 2005 for the program.
section_title: The HH-60 Service Life Extension Program
paragraphs: The Coast Guard has developed a service life extension program for the  HH-60 fleet to upgrade structural components such as beams, fittings, and  frames, and will increase depot-level maintenance production to  nine  aircraft per year. According to the Coast Guard, the program will extend  the service life of the HH-60 fleet through 2022.
section_title: HH-65 Short-Range Recovery Helicopter
subsections: section_title: HH-65 Fleet Overview
paragraphs: The HH-65 is a twin-engine, short-range recovery helicopter used for ports,  waterways and coastal security; drug interdiction; alien-migrant  interdiction; defense readiness; search and rescue; ice operations; and  marine environmental missions. The HH-65 entered Coast Guard service  beginning in 1984. The helicopter’s airframe is manufactured by  Eurocopter, and most HH-65s are equipped with Honeywell-manufactured  LTS-101-750 engines. However, these engines are currently being replaced  (see details below). The Coast Guard maintains 95 aircraft in the fleet. The  original estimated service life for the HH-65 aircraft was 20 years, but  according to Coast Guard aviation staff, the engine replacement program  should extend the service live beyond that estimate.
section_title: Performance Trends
paragraphs: Despite safety and reliability concerns related to its engines, the HH-65  fleet has consistently maintained an availability level above the 71 percent  Coast Guard standard during fiscal years 2000 through 2004. Moreover, the  number of fleet programmed flight hours has steadily increased since  fiscal year 2000. The fleet’s labor hours per flight hour have remained  stable since fiscal year 2001. However, it should be noted that the number  of fleet mishaps, particularly engine-related mishaps, increased sharply in  2004, primarily because of the engine and engine control system’s poor  reliability. Table 12 provides a summary of the key performance measures.
section_title: Maintenance Trends
paragraphs: The HH-65 fleet has sustained a comparatively high level of availability  even though maintenance data show that the fleet has had challenges  related to poor engine performance. Fleet cost per flight hour steadily  increased during fiscal years 2000 through 2004. The Coast Guard has not  deferred any maintenance for the HH-65 fleet from fiscal year 2000  through 2004. Table 13 provides a summary of the key maintenance  measures.
section_title: Sustainment Issues
subsections: section_title: The HH-65 Re-engining Program
paragraphs: The increasing trend in the number and seriousness of safety-related HH- 65 incidents prompted a Coast Guard decision in January 2004 to replace  the existing engines and the associated engine control systems within   24 months. However, the Coast Guard now anticipates that the re-engining  of all 84 operational HH-65 helicopters will take until February 2007. Total  program costs are estimated to be nearly $350 million, or about $3.7  million per helicopter.
As of June 7, 2005, 5 HH-65 aircraft have been successfully re-engined,   14 are under production at the Coast Guard’s Aircraft Repair and Supply  Center, and an additional aircraft is under production at the American  Eurocopter’s facility in Columbus, Mississippi. Upon completion of this  test case, the Coast Guard will determine if the American Eurocopter  facility is suitable to serve as the site for a second re-engining production  line.
section_title: Other Multimission Cutter Helicopter Conversion Elements
paragraphs: According to the Coast Guard, the HH-65 was selected for conversion to  the Deepwater program’s multimission cutter helicopter (MCH) beginning  in fiscal year 2007. As such, the converted HH-65 helicopters will be part of  the Deepwater program moving forward. There are several steps  constituting the full MCH conversion, of which the current HH-65 re- engining program is one element. Other elements include the replacement  of the HH-65’s landing gear and tail rotors. The HH-65’s new engine should  allow the helicopter to support an increase in maximum gross weight.   However, the current landing gear cannot support such an increase. The  current tail rotors also need to be replaced because the product  manufacturer is discontinuing production of the rotors, though supplies on  hand should last until May 2005.
Other elements of the MCH conversion, such as an upgrade of the  avionics, will increase the aircraft’s service life and capabilities. These  conversion elements are scheduled for integration beginning in fiscal year  2007.
section_title: 378-Foot High- Endurance Cutter
subsections: section_title: 378-foot High-Endurance Cutter Fleet Overview
paragraphs: The 378-foot cutters are the largest cutters in the deepwater fleet, with a  crew size of 19 officers and 147 enlisted. The Coast Guard has 12 of the  378-foot cutters in its deepwater fleet, with 10 of these stationed in the  Pacific Area Command and the remaining 2 in the Atlantic Area Command.  The 378-foot cutters typically operate 185 days away from home port per  year. The 378-foot cutters are used in a number of missions, such as  defense operations; maritime security/law enforcement; search and  rescue; living marine resources; ports, waterway, and coastal security;  alien-migrant interdiction; and drug interdiction. These cutters were  commissioned by the Coast Guard during 1967 to 1972 and have an  estimated service life of about 40 years, affected in part by the Fleet  Rehabilitation and Modernization (FRAM) program, which is discussed in  further detail below.
section_title: Performance Trends
paragraphs: The 378-foot cutters are considered by the Coast Guard to generally be  deteriorating in condition, and this assertion is supported by the Coast  Guard’s data measures. Major casualties per cutter have increased from  fiscal year 2000 through 2004, and the percent of time free (POTF) of  major casualties has fluctuated, but it has remained well below the target  of 72 percent.  Table 14 provides a summary of the key performance  measures.
section_title: Maintenance Trends
paragraphs: Both scheduled and unscheduled maintenance expenditures for the 378- foot cutters have been on a general upward trend during fiscal years 2000  through 2004, with some fluctuations. The increasing age of these cutters,  along with equipment obsolescence, appears to be driving these costs.   Table 15 provides a summary of the key maintenance measures.
section_title: Sustainment Issues
paragraphs: The average age of the 378-foot cutters is 36.3 years. Each 378-foot cutter  underwent the FRAM at approximately 20 years of age, beginning in the  late 1980s and ending in 1992. As part of the FRAM, each cutter received  an overhaul, costing anywhere from $70 million to $90 million, that Pacific  Area Command officials estimated would add about 15 additional years of  service—a mark that many of the cutters are beginning to reach. Many  major propulsion and hull systems, however, were merely overhauled but  not upgraded or replaced, and these systems are now at or near the end of  their useful service life. In addition, the Coast Guard regularly compiles a  list of the top 10 maintenance issues affecting each cutter class. The most  recent top 10 list has identified service boilers, the gyrocompass  navigation system, and propulsion shafting and shaft bearings, among  other things, as the most critical sustainment issues for the 378-foot  cutters.
section_title: 270-Foot Medium- Endurance Cutter
subsections: section_title: 270-Foot Medium- Endurance Cutter Fleet Overview
paragraphs: The Coast Guard’s 270-foot cutter fleet consists of 13 cutters, all of which  are stationed in the Atlantic Area Command. These cutters were  commissioned between 1983 and 1991, have an estimated service life of   30 years, and operate with a crew of 13 officers and 85 enlisted personnel.  The 270-foot cutters typically operate 185 days away from home port each  year and are used for maritime security/law enforcement; search and  rescue; living marine resources; ports, waterway, and coastal security;  alien-migrant interdiction; drug interdiction; and defense missions.
section_title: Performance Trends
paragraphs: Officials at Coast Guard headquarters stated that the condition of the   270-foot medium endurance cutters is generally worsening, and key  condition measures seem to bear this out, though there were some  improvements in fiscal year 2004. Major casualties per cutter saw a major  increase from fiscal year 2000 to 2001, remained fairly steady during fiscal  years 2002 and 2003, and then decreased in fiscal year 2004. The POTF of  major casualties fluctuated during fiscal years 2000 through 2004 but  remained well below the POTF target rate of 72 percent. Table 16 provides  a summary of the key performance measures.
section_title: Maintenance Trends
paragraphs: Scheduled maintenance expenditures fluctuated for the 270-foot medium- endurance cutters from fiscal years 2000 to 2004, with a major increase in  fiscal year 2003. Coast Guard officials attribute this increase in  expenditures to the age and poor structural condition of the cutters, the  replacement of obsolete equipment, and upgrades. The increased cutter  maintenance that occurred in fiscal year 2003 was sourced from  supplemental appropriations. Unscheduled maintenance expenditures saw  a small amount of fluctuation for the 270-foot cutters during fiscal years  2000 through 2004. Table 17 provides a summary of the key maintenance  measures.
section_title: Sustainment Issues
paragraphs: The average age of the 270-foot cutters is 18.0 years. During fiscal year  2005, the Coast Guard began a Mission Effectiveness Project (MEP) on the  medium-endurance cutters (270-foot and 210-foot) in order to extend their  service lives. The MEP includes replacement of the major systems, such as  evaporators and gyrocompasses, as well as other auxiliary systems. The  first 270-foot cutter entered the MEP in May 2005 at a cost of $7.5 million,  funded from the Deepwater program’s acquisition, construction, and  improvement account. Overall, the 270-foot cutter MEP is projected to  cost $193.5 million, and the work will extend 10 years, into fiscal year  2015. In addition, regularly scheduled maintenance should continue to  address the principal maintenance problems for the 270-foot cutters as  identified in the top 10 list, including the air conditioning and refrigeration  systems, the main propulsion control and monitoring system, and the  auxiliary saltwater and sewage piping systems.
section_title: 210-Foot Medium- Endurance Cutter
subsections: section_title: 210-Foot Medium- Endurance Cutter Fleet Overview
paragraphs: The Coast Guard’s 210-foot cutter fleet consists of 14 cutters, 11 of which  are stationed in the Atlantic Area Command, and the remaining 3 are  based in the Pacific Area Command. These cutters were commissioned  between 1964 and 1969, have an estimated service life of 43 to 49 years and  operate with a crew of 12 officers and 63 enlisted personnel. The 210-foot  cutters typically operate 185 days away from home port each year, during  which time they perform missions such as maritime security/law  enforcement; search and rescue; living marine resources; ports, waterway,  and coastal security; alien-migrant interdiction; and drug interdiction.
section_title: Performance Trends
paragraphs: Officials at Coast Guard headquarters stated that the condition of the   210-foot medium endurance cutters is generally worsening, and key  condition measures seem to bear this out, though there were some  improvements in fiscal year 2004. Major casualties per cutter saw a major  increase from fiscal year 2000 to 2001, a smaller increase during fiscal  years 2002 and 2003, and then a decrease in fiscal year 2004. The POTF of  major casualties has generally declined for the 210-foot cutters during  fiscal years 2000 through 2004, and consistently remained well below the  POTF target rate of 72 percent. Table 18 provides a summary of the key  performance measures.
section_title: Maintenance Trends
paragraphs: Scheduled maintenance expenditures fluctuated for the 210-foot medium- endurance cutters from fiscal years 2000 to 2004, with a major increase in  fiscal year 2003. Coast Guard officials attribute this increase in  expenditures to the age and poor structural condition of the cutters, the  replacement of obsolete equipment, and upgrades. The increased cutter  maintenance that occurred in fiscal year 2003 was sourced from  supplemental appropriations. Unscheduled maintenance expenditures saw  a small amount of fluctuation during fiscal years 2000 through 2004. Table  19 provides a summary of the key maintenance measures.
section_title: Sustainment Issues
paragraphs: The average age of the 210-foot cutters is 38.3 years. The first 210-foot  cutter will enter the MEP beginning in September 2005 at a projected cost  of $5 million, funded from the Deepwater program’s acquisition,  construction, and improvement account. Overall, the 210-foot cutter MEP  is projected to cost a total of $98.5 million, and the work will extend into  fiscal year 2009. In addition, regularly scheduled maintenance should  continue to address the principal maintenance problems for the 210-foot  cutters as identified in the top 10 list, such as the air conditioning system,  refrigeration system, oily water separators, and supportability of the  emergency diesel generators.
section_title: 110-Foot and 123-Foot Patrol Boats
subsections: section_title: 110-Foot and 123-Foot Patrol Boat Fleet Overview
paragraphs: Overall, there are currently 49 patrol boats in the Coast Guard Deepwater  fleet. Of these, 41 are 110 feet long, with 29 of those stationed in the  Atlantic Area Command and the remaining 12 stationed in the Pacific Area  Command. Six of the Atlantic Area Command’s 110-foot patrol boats are  currently serving in the Persian Gulf. These 110-foot patrol boats were  acquired between 1986 and 1992, have estimated service lives of 14 to   20 years, and operate with a crew of 2 officers and 14 enlisted personnel.  The patrol boats generally operate at 1,800 hours per year. The 110-foot  patrol boats are used in a variety of missions, such as defense operations;  maritime security/law enforcement; search and rescue; living marine  resources; ports, waterway, and coastal security; alien-migrant  interdiction; and drug interdiction.
The remaining 8 patrol boats either have undergone or are in the process  of being converted into 123-foot patrol boats. These patrol boats are to be  stationed in the Atlantic Area Command and, like the 110-foot patrol boats,  are to operate with a crew of 2 officers and 14 enlisted personnel. The   123-foot patrol boats are slated to perform the same missions as the   110-foot patrol boats but will have the capability to generally operate   2,500 hours per year. The first converted 123-foot patrol boat (Matagorda)  became operational in February 2005, and as of early June 2005,   4 additional 123-foot patrol boats are operational, with restrictions.
section_title: Performance Trends
paragraphs: During fiscal years 2000 through 2004, the 110-foot patrol boats have  experienced many problems, especially hull corrosion issues, which led to  a worsening condition. However, the Coast Guard began addressing the  hull condition issues (see details below), which likely contributed to the  decreases in the major casualties in fiscal years 2003 and 2004. Table 20  provides a summary of the key performance measures.
section_title: Maintenance Trends
paragraphs: Scheduled and unscheduled maintenance expenditures saw large  increases in fiscal years 2002 and 2003. These increases appear to be  closely related to increased major casualties, deteriorating hull conditions,  and an increase in operational tempo. In addition, increased cutter  maintenance occurred during this time period due to supplemental  appropriations. Table 21 provides a summary of the key maintenance  measures.
section_title: Sustainment Issues
paragraphs: The average age of the patrol boats is 16.4 years. A number of the 110-foot  patrol boats have experienced significant hull deterioration. To combat  these corrosion problems and add other capabilities to the 110-foot patrol  boats, the Coast Guard developed the Hull Sustainment Project (HSP) and  the 123-foot patrol boat conversion program.
The HSP was implemented to replace all deteriorated hull plates and  structural members. The selected patrol boats were gutted, sandblasted,  and thoroughly inspected, and all metal wasted beyond 15 percent was  renewed. As of early June 2005, 9 of the original 49 110-foot patrol boats  had completed the HSP. The Coast Guard believes that all remaining   110-foot patrol boats that have not had their hulls strengthened or  replaced will eventually require such work. The Coast Guard is currently  preparing a business case analysis in order to use $49.2 million in fiscal  year 2005 supplemental appropriations for a 110-foot patrol boat MEP.  This project would include hull sustainment work.  In addition to the HSP, 8 patrol boats deemed to be among those in the  worst condition were placed in the 123-foot conversion program. The  Coast Guard had the option to place an additional 4 patrol boats (for a  total of 12) in the 123-foot conversion program but has decided not to  exercise this option. This program was implemented to renew the  deteriorated hull structure and to add additional capability. Among the  expected capability improvements are:   enhanced and improved command, control, communications,  computer, intelligence, surveillance, and reconnaissance capabilities;    stern launch/recovery capability for the Short Range Prosecutor; renovation of some berthing areas, including relocation of aft berthing  to a location forward and nonadjacent to the engine room; and   renewing the pilot house to include a 360-degree bridge.
As of early June 2005, 7 of the 8 patrol boats have completed the  conversion, and 5 converted patrol boats are operational (Matagorda,  Metompkin, Padre, Attu, and Vashon, with all patrol boats currently  under operating restrictions). The first patrol boat to come out of the  conversion process, the Matagorda, was delivered to the Coast Guard in  March 2004 but experienced a number of problems that prevented it from  becoming operational until February 2005. Specifically, upon delivery, the  Coast Guard identified several discrepancies with the original  performance specifications. One such discrepancy was the inability of the  patrol boat to simultaneously launch or recover the short-range prosecutor  while towing another vessel. In September 2004, Matagorda experienced  hull buckling, and repairs were completed in December 2004. However,  while en route from the shipyard to Key West, Florida, Matagorda  encountered a storm, causing damage to the primary radar system and  new cracks in the hull. These problems were resolved, and Matagorda  began patrols in early February 2005. Additionally, the contractor that  performed the work is applying lessons learned from the Matagorda  conversion to the other patrol boats still undergoing conversion. Further,  the contractor has increased the number of quality assurance personnel  from one to four to improve oversight of the conversion process.
The Coast Guard top 10 list mentions several maintenance concerns, in  addition to hull corrosion, that have negatively affected the condition of  the 110-foot patrol boats. These include difficulties in obtaining parts for  the fin stabilizer system, steering spaces holding moisture (which leads to  rust and corrosion), and exhaust piping leaks. In addition, the Coast Guard  has stated that mechanical and electrical subsystems need to be upgraded  or replaced if the patrol boats are to operate for another 10 to 15 years,  even the newly converted 123-foot patrol boats.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Contact
paragraphs: Margaret Wrightson, Director (415) 904-2200.
section_title: Acknowledgment
paragraphs: Steven Calvo, Christopher Conrad, Adam Couvillion, Michele Fejfar,  Geoffrey Hamilton, Julie Leetch, Michele Mackin, Stan Stenersen, and  Linda Kay Willard.
section_title: GAO Related Products
paragraphs: Coast Guard’s Acquisition Management: Deepwater Project’s  Justification and Affordability Need to Be Addressed More Thoroughly,  GAO/RCED-99-6 (Washington, D.C.: Oct. 26, 1998)
Coast Guard: Budget Challenges for 2001 and Beyond,   GAO/T-RCED-00-103 (Washington, D.C.: March 15, 2000)
Coast Guard: Progress Being Made on Deepwater Project, but Risks  Remain, GAO-01-564 (Washington, D.C.: May 2, 2001)
Coast Guard: Actions Needed to Mitigate Deepwater Project Risks,   GAO-01-659T (Washington, D.C.: May 3, 2001)
Coast Guard: Strategy Needed for Setting and Monitoring Levels of  Effort for All Missions, GAO-03-155 (Washington, D.C.: Nov. 12, 2002)
Coast Guard: Comprehensive Blueprint Needed to Balance and Monitor  Resource Use and Measure Performance for All Missions, GAO-03-544T  (Washington, D.C.: March 12, 2003)
Contract Management: Coast Guard’s Deepwater Program Needs  Increased Attention to Management and Contractor Oversight,  GAO-04-380 (Washington, D.C.: March 9, 2004)
Coast Guard: Replacement of HH-65 Helicopter Engine, GAO-04-595  (Washington, D.C.: March 24, 2004)
Coast Guard: Key Management and Budget Challenges for Fiscal Year  2005 and Beyond, GAO-04-636T (Washington, D.C.: April 7, 2004)
Coast Guard: Deepwater Program Acquisition Schedule Update Needed,  GAO-04-695 (Washington, D.C.: June 14, 2004)
Coast Guard: Observations and Agency Priorities in Fiscal Year 2006  Budget Request, GAO-05-364T (Washington, D.C.: March 17, 2005)
Coast Guard: Preliminary Observations on the Condition of Deepwater  Legacy Assets and Acquisition Management Challenges, GAO-05-307T  (Washington, D.C.: April 20, 2005)
Coast Guard: Preliminary Observations on the Condition of Deepwater  Legacy Assets and Acquisition Management Challenges, GAO-05-651T  (Washington, D.C.: June 21, 2005)