Coast Guard: Observations on the Fiscal Year 2008 Budget, Performance, Reorganization, and Related Challenges
Published: 2007-04-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U. S. Coast Guard is a multimission agency responsible for maritime safety, security, and stewardship. It performs these missions, relating to homeland security and non-homeland security in U.S. ports and inland waterways, along the coasts, and on international waters. The President's budget request, including the request for the Coast Guard, was transmitted to Congress on February 5, 2007. This testimony, which is based on current and past GAO work, synthesizes the results of this work as it pertains to the following: budget requests and performance goals, organizational changes and related management initiatives, current acquisition efforts and challenges, and challenges related to performing traditional legacy missions.
section_title: What GAO Found
paragraphs: The Coast Guard's fiscal year 2008 budget request totals $8.7 billion, an increase of 3 percent over the enacted budget for fiscal year 2007 and a slowing of the agency's budget increases over the past 3 fiscal years. The Coast Guard expects to meet its performance goals in 6 of 11 mission areas in fiscal year 2006, down from 8 in 2005. Trends indicate increased homeland security activities have not prevented meeting non-homeland security goals. Two new reorganization efforts are under way. One creates a single command for all specialized deployable units, such as those for responding to pollution or terrorist incidents. However, experience with an effort to reorganize field units suggests there may be challenges in such matters as merging different operating approaches and addressing resource issues. The other effort merges the Coast Guard's various acquisition management efforts under a single Chief Acquisition Officer. The reorganization of acquisition management is in part a response to past troubled acquisition efforts. This change in the acquisition structure is too new to assess. Current major acquisitions include Deepwater for cutters and aircraft, the Rescue 21 communication system, and the National Automatic Identification System for vessel tracking. Deepwater and Rescue 21 have had schedule delays and performance reductions in the past, but the Coast Guard has been taking actions to improve oversight. Installation of equipment for the first phase of the National Automatic Identification System is under way, but the Coast Guard is still determining which types of vessels will have to participate. All three programs have also accumulated sizeable carryover balances of unspent moneys from previous years. Competing funding priorities have placed aging polar icebreakers and aids-to-navigation assets at risk. Many aids-to-navigation vessels are near the end of their service lives. The Coast Guard is exploring alternatives for replacement or extending their service. Similarly, high maintenance costs prompted the Coast Guard to take one of two Antarctic icebreakers out of service, increasing reliance on the remaining one.

section_title: Letter
paragraphs: I am pleased to provide this statement for the record about the President’s  fiscal year 2008 budget request for the Coast Guard. As you know, the  Coast Guard has grown significantly since September 11, 2001, to help  meet its responsibility to protect America’s ports, waterways, and  waterside facilities from terrorist attacks while maintaining responsibility  for many other programs important to the nation’s interests, such as  helping stem the flow of illegal drugs and illegal immigration, protecting  important fishing grounds, and responding to marine pollution. While the  Coast Guard budget request continues to increase in fiscal 2008, it also  shows shifts in direction. By placing less emphasis on acquiring new assets  and reorganizing some of its functional areas, the Coast Guard is  attempting to rectify some of its management concerns of the past while  better preparing itself for the challenges of the future.
My statement  today provides:    an overview of the Coast Guard’s fiscal year 2008 budget request and    a discussion of various organizational changes and related management    a status update on some current acquisition efforts and challenges, and   a look at additional challenges related to traditional legacy missions.
My statement is based in part on prior GAO work focusing on the Coast  Guard’s programmatic and management initiatives (a listing of related  reports is included at the end of my statement). Additionally, we  conducted interviews with headquarters, Pacific Area, and Sector San  Francisco personnel, and reviewed budget, performance, and acquisition  documents. The scope of our work did not include evaluating whether the  proposed funding levels are commensurate with the Coast Guard’s stated  needs. Our scope was limited due to the short time available between the  release of the President’s fiscal year 2008 budget request and the hearing  date of mid-April. All work for this statement  was conducted in  accordance with generally accepted government auditing standards  between February and March 2007.
subsections: section_title: Background
paragraphs: The U.S. Coast Guard is a multimission, maritime military service within  the Department of Homeland Security (DHS). To accomplish its  responsibilities, the Coast Guard is organized into two major commands  that are responsible for overall mission execution—one in the Pacific area  and the other in the Atlantic area. These commands are divided into 9  districts, which in turn are organized into 35 sectors that unify command  and control of field units and resources, such as multimission stations and  patrol boats. In fiscal year 2005, the Coast Guard had over 46,000 full-time  positions—about 39,000 military and 7,000 civilians. In addition, the  agency had about 8,100 reservists who support the national military  strategy or provide additional operational support and surge capacity  during times of emergency, such as natural disasters. Furthermore, the  Coast Guard also had about 31,000 volunteer auxiliary personnel help with  a wide array of activities, ranging from search and rescue to boating safety  education. The Coast Guard has responsibilities that fall under two broad  missions—homeland security and non-homeland security. The Coast  Guard responsibilities are further divided into 11 programs, as shown in  table 1.
For these 11 programs, the Coast Guard has developed performance  measure to communicate agency performance and provide information for  the budgeting process to Congress, other policymakers, and taxpayers.  The Coast Guard’s performance measures are published in various  documents, including the Coast Guard’s fiscal year Budget-in-Brief. The  Coast Guard’s Budget-in-Brief reports performance information to assess  the effectiveness of the agency’s performance as well as a summary of the  agency’s most recent budget request. This, and other documents, reports  the performance measures for each of the Coast Guard’s programs, as well  as descriptions of the measures and explanations of performance results.
To continue executing its missions, the Coast Guard has programs to  acquire a number of assets such as vessels, aircraft, and command,  control, communications, computer, intelligence surveillance, and  reconnaissance (C4ISR) systems. The Coast Guard’s Deepwater program  is a 25-year, $24 billion effort to upgrade or replace existing vessels and  aircraft in order to carry out its missions along our coastlines and farther  out at sea. The program is eventually to include 10 major classes of new or  upgraded vessels and aircraft. The Coast Guard also has an acquisition  program called the National Automatic Identification System to identify  and track vessels bound for or within U.S. waters. Another acquisition  program is called Rescue 21, a program to replace the Coast Guard’s 30- year-old search and rescue communications systems. Rescue 21 was to be  used not only for search and rescue, but to support other Coast Guard  missions, including those involving homeland security.
section_title: Budget Places More Emphasis on Operational Expenses; Overall Performance Trends Remain Positive
paragraphs: The Coast Guard’s fiscal year 2008 budget request reflects a smaller  increase than in years past. Requests for new capital spending are down,  as the agency slows the pace of new acquisitions for Deepwater and other  capital projects. Instead, several of the budget initiatives being emphasized  reflect a reorganization of internal operations and support command  infrastructure. Although the Coast Guard met fewer performance targets  than last year, overall performance trends for most mission programs  remain positive. That is, many of the measures that Coast Guard uses to  evaluate performance have improved since last year, even though the  agency did not meet as many of its performance targets in 2006 as in the  year before.
subsections: section_title: Overall Budget Request Is 3.3 Percent Higher than Previous Year’s
paragraphs: The Coast Guard’s budget request in fiscal year 2008 is $8.73 billion,  approximately $275 million, or 3.3 percent, more than in fiscal year 2007  (see fig. 1). About $5.9 billion, or approximately 68 percent, is for  operating expenditures (OE). This funding supports its 11 statutorily  identified mission programs; increases in cost of living, fuel, and  maintenance costs; and previous administration and congressional  initiatives. The greatest change from the previous year is in the AC&I  request, which at $949 million reflects about a 19 percent decrease from  fiscal year 2007. According to Coast Guard officials, no new  appropriations are requested in fiscal year 2008 for several Deepwater  assets until business case reviews can be completed to assess the viability  of technology and contracting oversight. The remaining part of the request  consists primarily of funds requested for retiree pay and health care fund  contributions. If the Coast Guard’s total budget request is granted, overall  funding will have increased by over 55 percent since 2002, an increase of  $3.1 billion.
The Coast Guard’s budget request for homeland security missions  represents approximately 35 percent of the overall budget. Figure 2  illustrates the percentage of funding requested for homeland security  versus non-homeland security funding, and figure 3 shows the funding  levels by each mission program.
section_title: Budget Includes Reallocations to Match Reorganization
paragraphs: Two key budget initiatives—both reallocations rather than increases— reflect reorganization efforts. First, a major budget reallocation within the  operating expenditures category establishes a single unified command for  the agency’s deployable specialized forces. These are the Coast Guard’s  response teams that can deploy wherever needed for natural disasters,  terrorism incidents, and other concerns. According to senior Coast Guard  officials, this initiative entails a onetime, budget-neutral reallocation of  $132.7 million from the Atlantic and Pacific Area Commands to a new  deployable operations command, which will be located in Ballston,  Virginia. No new funds have been requested for this initiative. This  initiative is discussed in more detail later in this testimony. The second  reallocation involves an $80.5 million transfer from AC&I into the  operating expense appropriation. The operational aspect of this  reallocation is associated with creating a new consolidated acquisition  function, also discussed in further detail below. Coast Guard officials said  this reallocation consolidates all personnel funding into the operating  expense appropriation and enables the Coast Guard to manage one  personnel system for the entire agency. They said although this  reallocation is budget neutral in 2008, future budget requests may include  financial incentives that will enable the Coast Guard to develop a more  robust cadre of acquisition professionals.
section_title: Acquisition Budget Request Declines, but Substantial Unobligated Balances Are Also Available
paragraphs: The 19 percent decrease in fiscal year 2008 for AC&I reflects a slowing in  the pace of acquisition efforts, which, according to Coast Guard officials,  is an attempt to address technology issues and contracting oversight  associated with Deepwater programs such as the Vertical Unmanned  Aerial Vehicle and Fast Response Cutter. The Coast Guard also recognizes  that it is carrying significant unobligated balances for a number of its  acquisition projects. These balances reflect money appropriated but not  yet spent for projects included in previous years’ budgets. During our  work for this testimony, we reviewed budget data and Coast Guard  documentation showing the current status of the agency’s unobligated  balances. We found, for example, that the current unobligated balances  total $1.96 billion for all acquisition projects. The Deepwater acquisition  alone has $1.6 billion in total unobligated balances, which is nearly double  the Coast Guard’s fiscal year 2008 request for the Deepwater project.  Other acquisition programs, such as the Nationwide Automatic  Identification System and Rescue 21, also have unobligated balances, but  these are considerably lower (see table 2). The unobligated balance for  Rescue 21, for example, is $30.5 million.
These unobligated balances have accumulated for a variety of reasons as  the Coast Guard has found itself unable to spend previous-year acquisition  appropriations. For example, we and others have documented technical  design issues involving the Coast Guard’s 123-foot patrol boat and the Fast  Response Cutter. These problems have led to major delays in some  programs and outright cancellations in others. We asked Coast Guard  officials about their plans to spend these unobligated balances either in  fiscal year 2008 or beyond, but at this point they were unable to provide us  with detailed plans for doing so. To the agency’s credit, steps have been  taken to address the issue, including reporting quarterly acquisition  spending levels. Since these unobligated balances represent a significant  portion of the Coast Guard’s entire budget, the degree to which the Coast  Guard spends these balances in fiscal year 2008 could have a substantial  impact on the overall level of capital spending for the year.
According to senior Coast Guard officials, each acquisition project is now  receiving more scrutiny and oversight of how previous funds are spent.  The Coast Guard is not requesting additional funds for the Offshore Patrol  Cutter, Fast Response Cutter, and Vertical Unmanned Aerial Vehicle in the  fiscal year 2008 budget request until business case reviews are completed  to assess the viability of the technology and contracting oversight.
section_title: Performance Trends Generally Positive and Non-Homeland Security Measures Generally Sound
paragraphs: Despite the fact that Coast Guard met fewer performance targets than last  year, overall performance trends for most mission programs remain  positive. Performance in 7 of 11 Coast Guard mission areas increased in  the last year, but the Coast Guard also set performance targets at a higher  level than it did last year. Coast Guard’s performance did not improve  sufficiently for the Coast Guard to meet as many of its higher performance  targets in 2006 as it did in 2005. In fiscal year 2006, the Coast Guard  reported that 5 of its 11 programs met or exceeded program performance  targets. In addition, agency officials reported that the Coast Guard  expected to meet the target for 1 additional program when results become  available in August 2007, potentially bringing the total met targets to 6 out  of 11 (see fig. 4). In comparison, last year we reported that in fiscal year  2005, Coast Guard met 8 out of 11 targets. In fiscal year 2006, the agency  narrowly missed performance targets for 3 programs—Search and Rescue,  Living Marine Resources, and Aids to Navigation. In fiscal year 2005, it  missed only 1 of these 3, Living Marine Resources. The Coast Guard more  widely missed performance targets for 2 programs, Defense Readiness and  Marine Safety. In fiscal year 2005, Coast Guard met its Marine Safety  target, but missed on Defense Readiness. See appendix I for more  information on Coast Guard performance results.
Congressional committees have previously expressed concern that Coast  Guard’s shift in priorities and focus toward homeland security missions  following the events of September 11, 2001, may have affected the  agency’s ability to successfully perform its non-homeland security  missions. However, the Coast Guard’s performance on its non-homeland  security indicators has not changed substantially over the past 5 years.
This past year, we also completed an examination of some of the  performance indicators themselves. We found that while the Coast  Guard’s non-homeland security measures are generally sound and the data  used to collect them are generally reliable, there are challenges associated  with using performance measures to link resources to results. Such  challenges include comprehensiveness (that is, using a single measure per  mission area may not convey complete information about overall  performance) and external factors outside agency control, (such as  weather conditions, which can affect the amount of ice that needs to be  cleared or the number of mariners who must be rescued). The Coast  Guard continues to work on these measures through such efforts as the  following:    Standardized reporting. The Coast Guard is currently developing a  way to standardize the names and definitions for all Coast Guard  activities across the agency, creating more consistent data collection  throughout the agency.
Measurement readiness. The Coast Guard is developing a tool to track  the agency’s readiness capabilities with up-to-date information on  resource levels at each Coast Guard unit as well as the certification and  skills of all Coast Guard uniformed personnel.
Framework for analyzing risk, readiness, and performance. The  Coast Guard is developing a model for examining the links among risk,  readiness management, and agency performance. This model is  intended to help the Coast Guard better understand why events and  outcomes occur, and how these events and outcomes are related to  resources.
While the Coast Guard appears to be moving in the right direction and is  about done with some of these efforts, it remains too soon to determine  how effective the Coast Guard’s larger efforts will be at clearly linking  resources to performance results. These initiatives are not expected to be  fully implemented until 2010.
section_title: Coast Guard Continues to Make Organizational Changes Designed to Improve Operational Effectiveness and Resource Management
paragraphs: The 2008 budget request reflects a multiyear effort to reorganize the Coast  Guard’s command and control and mission support structures. Three  efforts are of note here—reorganizing shore-based forces into sector  commands, placing all deployable specialized forces under a single  nationwide command, and consolidating acquisitions management  programs. Each of these efforts faces challenges that merit close attention.
subsections: section_title: Further Action Needed to Ensure Operational Benefits from Sector Reorganization
paragraphs: As we reported for the last 2 years, the Coast Guard has implemented a  new field command structure that is designed to unify previously disparate  Coast Guard units, such as air stations and marine safety offices, into 35  different integrated commands, called sectors. At each of these sectors,  the Coast Guard has placed management and operational control of these  units and their associated resources under the same commanding officer.  Coast Guard officials told us that this change helped their planning and  resource allocation efforts. For instance, Coast Guard field officials told us  the sector command structure has been valuable in helping to meet new  homeland security responsibilities, and in facilitating their ability to  manage incidents in close coordination with other federal, state, and local  agencies. Our follow-up work found, however, that work remains to  ensure the Coast Guard is able to maximize the potential benefits of sector  realignment. In particular, Coast Guard officials reported that some  sectors had yet to colocate their vessel tracking system (VTS) centers with  the rest of their operational command centers. According to field officials,  the lack of colocation has hindered communications between staff that  formerly were from different parts of the agency.
According to Coast Guard officials, competing acquisition priorities are  limiting the progress in obtaining funding needed to colocate these  facilities. The fiscal year 2008 budget does not provide funds to colocate  the VTS centers and command centers. Coast Guard headquarters officials  told us they would work to address this challenge as part of the capital  investment plan to build interagency operational centers for port security,  as required under the SAFE Port Act, but they had not yet developed  specific plans, timelines, and cost estimates.
section_title: Unified Command Structure for Deployable Forces Is Being Developed
paragraphs: The Coast Guard is planning to reorganize its deployable specialized  forces under a single unified command, called the Deployable Operations  Group (DOG). This change is reportedly budget neutral in the fiscal year  2008 request, but it bears attention for operational effectiveness reasons.  According to Coast Guard officials, the agency is making this change  based on lessons learned from the federal response to Hurricane Katrina.  They said the response highlighted the need to improve effectiveness of  day-to-day operations and to enhance flexibility and interoperability of  forces responding to security threats and natural disasters. Currently,  there are five different types of Coast Guard specialized forces, totaling  about 2,500 personnel. Their roles and missions vary widely, ranging from  conducting antiterrorism operations to conducting environmental  response and cleanup operations (see table 3).
The Coast Guard’s existing structure divides operational control of  specialized forces into three different command authorities— headquarters, Pacific Area, and Atlantic Area. Under the planned  realignment, these forces would be available under a single operational  command, with the expectation of more effective resource management,  oversight, and coordination. The Coast Guard plans to establish operating  capability for this unified approach by July 20, 2007, with an initial  command center located in Ballston, Virginia. Officials told us they were  well under way in planning for this reorganization. Officials expect about  100 staff will be assigned to the center when it reaches its initial operating  capability, growing to about 150 personnel once the command structure is  completed. According to officials, all administrative staff selected for the  center will be drawn from headquarters, district, and area levels.
We have not studied this reorganization, but our prior work on other  aspects of Coast Guard operations suggests that the Coast Guard may face  a number of implementation challenges. Some may be similar to those that  Coast Guard faced when it created its sector commands, such as obtaining  buy-in from personnel that will be affected by the reorganization or  addressing realignment issues at the district level. Another challenge is to  ensure that the change does not adversely affect mission performance at  the sector and field unit levels. Currently, for example, sector commanders  make use of available local MSST units—made available by district and  area commanders—to help meet shortfalls in resource availability for  everyday missions, such as conducting high-risk vessel escorts and harbor  security patrols. If these units were not available to support mission needs,  additional strain could be put on the performance of these local units.
These changes to the command structure are part of plans that extend  beyond fiscal year 2008. In his recent State of the Coast Guard speech, the  Commandant of the Coast Guard unveiled a proposal to combine the  Coast Guard’s Atlantic and Pacific Area command functions into a single  Coast Guard operations command for mission execution. In addition, the  Coast Guard plans to establish a new mission support command, which  will have responsibility for nationwide maintenance, logistics, and supply  activities. According to Coast Guard officials, the current structure is not  well suited to responding to post-September 11 transnational threats. For  example, Coast Guard officials said the current structure at times works  against the Coast Guard in operations with Joint Interagency Task Forces,  whose operating areas are not the same as the Coast Guard’s established  area boundaries. Coast Guard officials told us a working group had  developed a blueprint of the new operational force structure, but the  Coast Guard is not ready to release it. Guard officials told us they  expected the reorganization would be implemented during the current  Commandant’s 4-year term.
section_title: Consolidation of Acquisitions Oversight Management Challenged By Staffing Shortfalls
paragraphs: The Coast Guard also plans to consolidate its acquisitions management  offices, placing all major acquisitions programs and oversight functions  under the control of a single acquisitions officer. The goals of this  consolidation are to improve Coast Guard oversight of acquisitions, better  balance contracting officers and acquisition professionals among its major  acquisition projects, and address staff retention and shortage problems  associated with the acquisitions management program. However, the  Coast Guard has not adequately staffed the acquisitions management  program to meet its current workload, and maintaining an appropriate  staff size will be challenging, despite the reorganization. For example, a  February 2007 independent analysis found that the Coast Guard does not  possess a sufficient number of acquisition personnel or the right level of  experience needed to manage the Deepwater program. Headquarters  officials told us the reorganization would address retention problems by  creating a new acquisitions specialty career ladder that could attract new  pools of talent. Still, given its past history of staff shortages and difficulties  retaining acquisition staff, the Coast Guard will face challenges  maintaining an appropriately sized acquisition staff, at least in the near  term. Coast Guard headquarters officials told us the Deepwater program  had pushed other important acquisitions priorities aside, and this new  organization would help the Coast Guard advance these other priorities,  such as boats, piers, and other shoreside physical infrastructure. In our  view, it is unclear how the reorganization of the acquisition function will  improve the prospects for these other programs, given Coast Guard’s  priorities and ongoing constraints on funding.
The reorganized acquisition office is expected to merge the now stand- alone Deepwater acquisition project with the existing acquisition  directorate and research and development centers. The new office is  expected to be led by a new Coast Guard Chief Acquisition Officer who  will have responsibility over all procurement projects and by a deputy who  will deal largely with Deepwater issues. At the program management level,  Coast Guard is establishing four program managers to lead each  acquisitions area, including (1) surface assets; (2) air assets; (3) command,  control, communications, computers, intelligence, surveillance, and  reconnaissance; and (4) small boats and shore-based infrastructure, such  as command centers and boathouses. The Coast Guard plans to begin  implementing this reorganization in July 2007. It is too early to tell if the  Coast Guard’s reorganization will enable it to achieve its goals—notably,  better balance of acquisitions support between Deepwater and the Coast  Guard’s other acquisitions programs.
section_title: Acquisition Challenges Continue as Several Programs Make Progress
paragraphs: While some Coast Guard major acquisition projects continue to face  challenges, especially the Deepwater program, several of these projects  are making progress. The record for Deepwater has been mixed, with 7 of  10 asset classes on or ahead of schedule. Three classes, however, are  behind schedule for various reasons and several factors add to the  uncertainty about the delivery of other Deepwater assets. Contract  management issues that we have reported on previously continue to be  challenges to the Coast Guard. Installation of equipment for the initial  phase of NAIS, an acquisition that is designed to allow the Coast Guard to  monitor and track vessels as far as 2,000 nautical miles off the U.S. coast,  is currently under way, but without changes to existing regulations, some  vessels will be able to avoid taking part in the system. The Coast Guard’s  timeline for achieving full operating capability for its search and rescue  communications system, Rescue 21, was delayed from 2006 to 2011, and  the estimated total acquisition cost increased from 1999 to 2005, but  according to Coast Guard officials, many of the issues that led to these  problems are being addressed. Coast Guard acquisition officials said they  are providing more oversight to the contractor after we reported on  contract management shortcomings.
subsections: section_title: Coast Guard Continues to Face Acquisition Challenges with Deepwater Program
paragraphs: The Coast Guard continues to face challenges in managing the Deepwater  program. The delivery record for assets is mixed and technology and  funding uncertainties, recent changes to Coast Guard plans for procuring  Deepwater assets, as well as the 25-year time frame for asset delivery add  to uncertainties about the delivery schedule for future Deepwater assets.  We have reported concerns about management of the Deepwater program  for several years now and have made recommendations aimed at  improving the program. The Coast Guard continues to address these  recommendations as it seeks to better manage the Deepwater program. In  addition to these program management issues, performance and design  problems for certain Deepwater assets have created additional operational  challenges for the Coast Guard. The Coast Guard is taking steps to  mitigate these problems, but challenges remain. Below is a summary of  our recent Deepwater work.
subsections: section_title: Deepwater Asset Delivery Schedule Is Mixed and Somewhat Uncertain
paragraphs: The Coast Guard’s Deepwater program is a 25-year, $24 billion plan to  replace or upgrade its fleet of vessels and aircraft. Upon completion, the  Deepwater program is to consist of 5 new classes of vessels—the National  Security Cutter (NSC), Offshore Patrol Cutter (OPC), Fast Response  Cutter (FRC), Short-Range Prosecutor (SRP), and Long-Range Interceptor  (LRI); 1 new class of fixed-wing aircraft—the Maritime Patrol Aircraft  (MPA); 1 new class of unmanned aerial vehicles—the Vertical Unmanned  Aerial Vehicle (VUAV); 2 classes of upgraded helicopters—the Medium- Range Recovery Helicopter (MRR) and the Multi-Mission Cutter  Helicopter (MCH); and 1 class of upgraded fixed-wing aircraft—the Long- Range Surveillance Aircraft (LRS). Figure 5 illustrates the 10 classes of  Deepwater assets.
Our preliminary observations indicated that, as of January 2007, of the 10  classes of Deepwater assets to be acquired or upgraded, the delivery  record for first-in-class assets (that is, the first of multiple aircraft or  vessels to be delivered in each class) was mixed. Specifically, 7 of the 10  asset classes were on or ahead of schedule. Among these, 5 first-in-class  assets had been delivered on or ahead of schedule; and 2 others remained  on schedule but their planned delivery dates were in 2009 or beyond. In  contrast, 3 Deepwater asset classes were behind schedule due to various  problems related to designs, technology, or funding. Using the 2005  Deepwater Acquisition Program Baseline as the baseline, figure 6  indicates, for each asset class, whether delivery of the first in class asset  was ahead of schedule, on schedule, or behind schedule as of January  2007.
As part of our ongoing work, we are analyzing Coast Guard planning  documents to evaluate the current estimates of Deepwater asset delivery  dates. Several factors add to the uncertainty about the delivery schedule of  Deepwater assets. First, the Coast Guard is still in the early phases of the  25-year Deepwater acquisition program and the potential for changes in  the program over such a lengthy period of time make it difficult to forecast  the ability of the Coast Guard to acquire future Deepwater assets  according to its published schedule. For example, technology changes  since the award of the original Deepwater contract in 2002 have already, in  part, delayed delivery of the VUAV, and the Coast Guard is currently  studying the potential use of an alternative unmanned aerial vehicle.  Second, changes to funding levels can impact the future delivery of  Deepwater assets. For example, despite earlier plans, the fiscal year 2008  Department of Homeland Security congressional budget justification  indicates that the Coast Guard does not plan to request funding for some  Deepwater assets in FY 2008, such as the OPC and the VUAV.  Acquisition  of these two Deepwater assets has now been delayed until FY 2013, at the  earliest. Finally, the Coast Guard has recently made a number of program  management and asset-specific changes that could impact the delivery  schedules for its Deepwater assets. For example, the Coast Guard has  begun to bring all acquisition efforts under one organization. Further, the  Coast Guard announced that it has terminated acquisition of the FRC-B, an  off-the-shelf patrol boat that is intended to serve as an interim replacement  for the Coast Guard’s deteriorating fleet of 110-foot patrol boats, through  the system integrator and plans to assign responsibility for the project to  the Coast Guard’s acquisition directorate.  These types of programmatic  changes will take time to implement, and thus add to uncertainty about the  specific delivery dates of certain Deepwater assets.
section_title: Deepwater Program Management, Contractor Accountability, and Cost Control
paragraphs: In 2001, we described the Deepwater program as “risky” due to the unique,  untried acquisition strategy for a project of this magnitude within the  Coast Guard. The Coast Guard used a system-of-systems approach to  replace or upgrade assets with a single, integrated package of aircraft,  vessels, and unmanned aerial vehicles, to be linked through systems that  provide C4ISR and supporting logistics. In a system of systems, the  deliveries of Deepwater assets are interdependent, thus schedule slippages  and uncertainties associated with potential changes in the design and  capabilities of any one asset increases the overall risk that the Coast  Guard might not meet its expanded homeland security missions within  given budget parameters and milestone dates. The Coast Guard also used a  systems integrator—which can give the contractor extensive involvement  in requirements development, design, and source selection of major  system and subsystem subcontractors. The Deepwater program is also a  performance-based acquisition, meaning that it is structured around the  results to be achieved rather than the manner in which the work is  performed. If performance-based acquisitions are not appropriately  planned and structured, there is an increased risk that the government  may receive products or services that are over cost estimates, delivered  late, and of unacceptable quality.
In 2004 and in subsequent assessments in 2005 and 2006, we reported  concerns about the Deepwater program related to three main areas— program management, contractor accountability, and cost control. The  Coast Guard’s ability to effectively manage the program has been  challenged by staffing shortfalls and poor communication and  collaboration among Deepwater program staff, contractors, and field  personnel who operate and maintain the assets. Despite documented  problems in schedule, performance, cost control, and contract  administration, measures for holding the contractor accountable resulted  in an award fee of $4 million (of the maximum $4.6 million) for the first  year. Through the first 4 years of the Deepwater contract, the systems  integrator received award fees that ranged from 87 percent to 92 percent  of the total possible award fee (scores that ranged from “very good” to  “excellent” based on Coast Guard criteria), for a total of over $16 million.  Further, the program’s ability to control Deepwater costs is uncertain  given the Coast Guard’s lack of detailed information on the contractor’s  competition decisions. While the Coast Guard has taken some actions to  improve program outcomes, our assessment of the program and its efforts  to address our recommendations continues, and we plan to report on our  findings later this year.
section_title: Deepwater Performance and Design Problems Creating Operational Challenges for Coast Guard
paragraphs: In addition to the program management issues discussed above, there  have been problems with the performance and design of Deepwater patrol  boats that have created operational challenges for the Coast Guard. The  Deepwater program’s bridging strategy to convert the legacy 110-foot  patrol boats into 123-foot patrol boats has been unsuccessful. The Coast  Guard had originally intended to convert all 49 of its 110-foot patrol boats  into 123-foot patrol boats in order to increase the patrol boats’ annual  operational hours and to provide additional capabilities, such as small  boat stern launch and recovery and enhanced and improved C4ISR.  However, the converted 123-foot patrol boats began to display deck  cracking and hull buckling and developed shaft alignment problems, and  the Coast Guard elected to stop the conversion process at eight hulls upon  determining that the converted patrol boats would not meet their  expanded post-September 11 operational requirements.
These performance problems have had operational consequences for the  Coast Guard. The hull performance problems with the 123-foot patrol  boats led the Coast Guard to remove all of the eight converted normal 123- foot patrol boats from service effective November 30, 2006. The  Commandant of the Coast Guard has stated that having reliable, safe  cutters is “paramount” to executing the Coast Guard’s missions. Thus,  removing these patrol boats from service affects the Coast Guard’s  operations in its missions, such as search and rescue and alien and  migrant interdiction. The Coast Guard is taking actions to mitigate the  operational impacts resulting from the removal of the 123-foot patrol boats  from service. Specifically, in recent testimony, the Commandant of the  Coast Guard stated that the Coast Guard has taken the following actions:    multicrewing eight of the 110-foot patrol boats with crews from the   123-foot patrol boats that have been removed from service so that  patrol hours for these vessels can be increased;    deploying other Coast Guard vessels to assist in missions formerly  performed by the 123-foot patrol boats;    securing permission from the U.S. Navy to continue using three 179- foot cutters on loan from the Navy (these were originally to be returned  to the Navy in 2008) to supplement the Coast Guard’s patrol craft; and    compressing the maintenance and upgrades on the remaining 110-foot  patrol boats.
The FRC, which was intended as a long-term replacement for the legacy  patrol boats, has experienced design problems that have operational  implications as well. As we reported in 2006, the Coast Guard suspended  design work on the FRC due to design risks such as excessive weight and  horsepower requirements. Coast Guard engineers raised concerns about  the viability of the FRC design (which involved building the FRC’s hull,  decks, and bulkheads out of composite materials rather than steel)  beginning in January 2005. In February 2006, the Coast Guard suspended  FRC design work after an independent design review by third party  consultants demonstrated, among other things, that the FRC would be far  heavier and less efficient than a typical patrol boat of similar length, in  part, because it would need four engines to meet Coast Guard speed  requirements.
One operational challenge related to the FRC is that the Coast Guard will  end up with two classes of FRCs. The first class of FRCs to be built would  be based on an adapted design from a patrol boat already on the market to  expedite delivery. The Coast Guard would then pursue development of a  follow-on class that would be completely redesigned to address the  problems in the original FRC design plans. Coast Guard officials recently  estimated that the first FRC delivery will slip to fiscal year 2009, at the  earliest, rather than 2007 as outlined in the 2005 Revised Deepwater  Implementation Plan. Thus, the Coast Guard is also facing longer-term  operational gaps related to its patrol boats.
section_title: Initial Deployment of Nationwide Automatic Identification System Is Under Way, with Decisions Still to Come about Extending Coverage to Additional Vessels
paragraphs: Outside Deepwater, one acquisition project included in the fiscal year 2008  budget is the Nationwide Automatic Identification System, a system  designed to of identify, track, and communicate with vessels bound for or  within U.S. waters and forwarding that information for additional analysis.  NAIS uses a maritime digital communication system that transmits and  receives vessel position and voyage data. The Coast Guard describes NAIS  as its centerpiece in its effort to build Maritime Domain Awareness, its  ability to know what is happening on the water.
NAIS is not expected to reach full capability until 2014, when the system  will be able to track ships as far as 2,000 nautical miles away and  communicate with them when they are within 24 nautical miles of the U.S.  coast. It is being implemented in three phases, the first of which is  scheduled to be fully operational in September 2007. At that time, the  Coast Guard expects to have the ability to track—but not communicate  with—vessels in 55 ports and 9 coastal areas. The largest areas of the  continental U.S. coastline that will remain without coverage after this first  phase are the Pacific Northwest and Gulf coasts. The second phase calls  for being able to track ships out to 50 nautical miles from the entire U.S.  coast and communicate with them as far as 24 nautical miles out. This is  the phase addressed in the fiscal year 2008 budget.
The $12 million fiscal year 2008 AC&I request for NAIS is expected to pay  for implementing the initial operating capability for phase two. The Coast  Guard has received approval from the Department of Homeland Security  to issue solicitations and award contracts for this initial capability, and the  agency has held information sessions to gauge industry interest in  participating and to help refine its statement of work for the initial  solicitation. The initial solicitation will provide requirements for full  receiving and transmitting capability for two sectors within one Coast  Guard area and one sector in another area. With this infrastructure in  place the Coast Guard expects to be able to test identification, tracking,  and communication performance, including such features as the ability to  determine if the vessel transmissions are accurately reflecting the actual  location of a vessel.
The Coast Guard is considering whether to require additional types of  vessels to install and use the equipment needed for the Coast Guard to  track vessels and communicate with them. Current regulations require  certain vessels (such as commercial vessels over 65 feet in length)  traveling on international voyages or within VTS areas to install and  operate the transmission equipment. Vessels that are not subject to  current regulations generally include noncommercial and fishing vessels  and commercial vessels less than 65 feet long. This means that many  domestic vessels are not required to transmit the vessel and voyage  information and therefore will be invisible to the NAIS. The Coast Guard  has indicated in the Federal Register that it is considering expanding the  requirements to additional vessels.
section_title: Coast Guard Has Taken Actions to Improve Oversight of Rescue 21 Contracts, but System Coverage Has Been Reduced
paragraphs: Another non-Deepwater project covered in the budget request is Rescue  21, the Coast Guard’s command, control, and communication  infrastructure used primarily for search and rescue. The fiscal year 2008  AC&I budget includes $81 million for continued development of Rescue  21. In May 2006 we reported that shortcomings in Coast Guard’s contract  management and oversight efforts contributed to program cost increases  from $250 million in 1999 to $710.5 million in 2005 and delays in reaching  full operating capability from 2006 to 2011. Our recommendations  included better oversight of the project, completion of an integrated  baseline review of existing contracts, and development of revised cost and  schedule estimates. According to the Coast Guard, it has taken a series of  actions in response, including program management reviews and oversight  meetings, conducting integrated baseline reviews on existing contracts,  and meeting regularly to assess project risks.
According to the Coast Guard officials we met with, the contractor is  currently on time and on budget for installing the full system in 11 Rescue  21 regions, including such regions as New Orleans, Long Island/New York,  and Miami. The last of the 11 regions covered by current contracts is  scheduled to be completed by October 2008. Contracts for the 25 regions  that remain have not been signed. To keep to current project cost and  schedule baselines, however, the Coast Guard has reduced the required  performance of the system. Originally, Rescue 21 was supposed to limit  coverage gaps to 2 percent, meaning that the system had to be able to  capture distress calls in 98 percent of the area within 20 nautical miles of  the coast and within navigable rivers and other waterways. The current  contract calls for coverage gaps of less than 10 percent. Rescue 21 was  also intended to have the capability to track Coast Guard vessels and  aircraft and provide data communication with those assets. Neither the  capability to track the Coast Guard’s own assets nor data communications  is included in the current technology being installed.
section_title: Coast Guard Faces Additional Challenges Addressing Traditional Missions
paragraphs: While the fiscal year 2008 budget request contains funding for specifically  addressing the projects discussed above, certain other projects were  judged by Coast Guard officials to be lower in priority and were not  included. We have examined two of these areas in recent work—vessels  for aids to navigation and domestic icebreaking activity, and vessels for  icebreaking in polar areas.
subsections: section_title: Decline in Condition of Some ATON and Domestic Icebreaking Assets May Require More Attention for Recapitalization or Outsourcing Options
paragraphs: Last September, we completed work for this committee on the condition  of Coast Guard aids-to-navigation (ATON) and icebreaking assets. More  than half of these assets have reached or will be approaching the end of  their designed service lives. In 2002, the Coast Guard proposed options for  systematically rehabilitating or replacing 164 cutters and boats in these  fleets after determining that the age, condition, and cost of operating these  assets would diminish the capability of the Coast Guard to carry out ATON  and domestic icebreaking missions. We noted that no funds had been  allocated to pursue these options, apparently due to competing needs for  replacing or rehabilitating other Coast Guard assets. These competing  needs, reflected largely in the Coast Guard’s expensive and lengthy  Deepwater asset replacement program, will continue for some time, as will  other pressures on the federal budget. The Coast Guard is requesting no  additional spending for ATON assets or infrastructure in fiscal year 2008.
Without specific funding to move forward, the Coast Guard has attempted  to break the project into smaller components and pursue potential funding  from within the Coast Guard’s budget, focusing on the assets most in need  of maintenance or replacement. In February 2006, the Coast Guard began  a project to replace its fleet of 80 trailerable aids-to-navigation boats with  new boats that have enhanced capabilities to do ATON work as well as  other missions. According to a Coast Guard official, this acquisition  would cost approximately $14.4 million if all 80 boats are purchased and  would bring on new boats over a 5-year period as funds allow. The Coast  Guard official responsible for the project said the Coast Guard intends to  make the purchases using a funding stream appropriated for the  maintenance of nonstandard boats that can be allocated to the boats with  the most pressing maintenance or recapitalization needs. Availability of  these funds, however, depends on the condition and maintenance needs of  other nonstandard boats; if this funding has to be applied to meet other  needs, such as unanticipated problems, it may not be available for  purchasing these boats.
In addition to carrying out their primary missions of ATON and domestic  icebreaking, these assets have also been used in recent years for other  missions such as homeland security. The Coast Guard’s ATON and  domestic icebreakers saw a sharp increase in use for homeland security  missions after the attacks of September 11, and while this trend has  moderated somewhat, the use of some assets in these missions continues  well above pre-September 11 levels. This increase is most prominent for  domestic icebreakers, which are being operated more extensively for  other purposes at times of year when no icebreaking needs to be done.  Newer ATON vessels, which have greater multimission capabilities than  older vessels, tend to be the ATON assets used the most for other  missions.
In addition to considering options for replacing or rehabilitating its ATON  assets, the Coast Guard also has examined possibilities for outsourcing  missions. In 2004 and 2006, the Coast Guard completed analyses of what  ATON functions could be feasibly outsourced. Although possibilities for  outsourcing were identified for further study, Coast Guard officials noted  that outsourcing also carries potential disadvantages. For example, they  said it could lead to a loss of “surge” capacity–that is the capacity to  respond to emergencies or unusual situations. Coast Guard officials noted  that outsourcing or finding a contractor to do work after an event such as  Katrina is difficult due to the increased demand for their services as well  as the fact that the labor pool may have been displaced. When a contractor  is found, it usually takes a long time to get the work completed due to the  backlog of work and tends to be very expensive. In addition, this surge  capability may be needed for other missions, such as those that occur  when ATON assets can be used to support search and rescue efforts. In  the aftermath of Hurricane Katrina, for example, some ATON assets  provided logistical support for first responders or transported stranded  individuals. Coast Guard officials stated that after Hurricane Katrina, its  own crews were able to begin work immediately to repair damaged aids  and get the waterways open to maritime traffic again. Coast Guard  officials also indicated that outsourcing may adversely affect the Coast  Guard’s personnel structure by reducing opportunities to provide  important experience for personnel to advance in their careers.
section_title: Coast Guard Faces Decision on Future of Polar Icebreakers
paragraphs: The Coast Guard confronts ongoing maintenance challenges that have left  its polar icebreaking capability diminished. The Coast Guard has two  Polar-class icebreakers for breaking channels in the Antarctic. Both are  reaching the end of their design service lives, and given the funding  challenges associated with maintaining them, the Coast Guard decided to  deactivate one of the two, the Polar Star, in 2006. This reduced  icebreaking capability since only one Polar-class icebreaker, the Polar  Sea, was available, and for the Polar Sea it increased maintenance needs  while reducing time available to conduct maintenance.
Coast Guard officials and others have reported that failure to address  these challenges could leave the nation without heavy icebreaking  capability and could jeopardize the investment made in the nation’s  Antarctic Program. According to Coast Guard officials, the remaining  Polar-class icebreaker’s age and increased operational tempo have left it  unable to continue the mission in the long term without a substantial  investment in maintenance and equipment renewal. One option,  refurbishing the two existing Polar-class icebreakers for an additional 25  years of service, is estimated to cost between $552 million and $859  million. Another option, building new assets, would cost an estimated $600  million per vessel, according to Coast Guard officials.
Coast Guard officials have begun planning a transition strategy to help  keep the sole operating Polar-class icebreaker mission-capable until new  or refurbished assets enter service, which would take an estimated 8 to 10  years. According to officials, this 10-year recapitalization plan will  identify current and projected maintenance service needs and equipment  renewal projects and associated costs, alternatives to address these needs,  and timelines for completing these projects.
Madam Chair and members of the subcommittee, this completes my  statement for the record.
section_title: GAO Contacts and Staff Acknowledgments
paragraphs: For information about this statement, please Contact Stephen L. Caldwell,  Acting Director, Homeland Security and Justice Issues, at (202) 512-9610,  or caldwells@gao.gov. Contact points for our Office of Congressional  Relations and Public Affairs may be found on the last page of this  statement. Individuals making key contributions to this testimony include  Penny Augustine, Jonathan Bachman, Jason Berman, Steven Calvo,  Jonathan Carver, Christopher Conrad, Adam Couvillion, Geoffrey  Hamilton, John Hutton, Christopher Hatscher, Tonia Johnson, and   Stan Stenersen.
section_title: Appendix I: Performance Results by Program from Fiscal Year 2002 through Fiscal Year 2006
paragraphs: Appendix I provides a detailed list of Coast Guard performance results for  the Coast Guard’s 11 programs from fiscal year 2002 through 2006.
section_title: Related GAO Products
paragraphs: Coast Guard: Status of Efforts to Improve Deepwater Program  Management and Address Operational Challenges. GAO-07-575T.  Washington, D.C.: March 8, 2007.
Coast Guard: Preliminary Observations on Deepwater Program Assets  and Management Challenges. GAO-07-446T. Washington, D.C.: Feb. 15,  2007.
Coast Guard: Coast Guard Efforts to Improve Management and Address  Operational Challenges in the Deepwater Program. GAO-07-460T.  Washington, D.C.: Feb. 14, 2007.
Homeland Security: Observations on the Department of Homeland  Security’s Acquisition Organization and on the Coast Guard’s  Deepwater Program. GAO-07-453T. Washington, D.C.: Feb. 8, 2007.
Coast Guard: Condition of Some Aids-to-Navigation and Domestic  Icebreaking Vessels Has Declined; Effect on Mission Performance  Appears Mixed. GAO-06-979. Washington, D.C.: Sept. 22, 2006.
Coast Guard: Non-Homeland Security Performance Measures Are  Generally Sound, but Opportunities for Improvement Exist. GAO-06-816.  Washington, D.C.: Aug. 16, 2006.
Coast Guard: Observations on the Preparation, Response, and Recovery  Missions Related to Hurricane Katrina. GAO-06-903. Washington, D.C.:  July 31, 2006.
Maritime Security: Information-Sharing Efforts Are Improving.   GAO-06-933T. Washington, D.C.: July 10, 2006.
Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts.  GAO-06-764. Washington, D.C.: June 23, 2006.
United States Coast Guard: Improvements Needed in Management and  Oversight of Rescue System Acquisition. GAO-06-623. Washington, D.C.:  May 31, 2006.
Coast Guard: Changes in Deepwater Acquisition Plan Appear Sound,  and Program Management Has Improved, but Continued Monitoring Is  Warranted. GAO-06-546. Washington, D.C.: April 28, 2006.
Coast Guard: Progress Being Made on Addressing Deepwater Legacy  Asset Condition Issues and Program Management, but Acquisition  Challenges Remain. GAO-05-757. Washington, D.C.: July 22, 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.
Maritime Security: Enhancements Made, but Implementation and  Sustainability Remain Key Challenges. GAO-05-448T. Washington, D.C.:  May 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: Observations on Agency Priorities in Fiscal Year 2006  Budget Request. GAO-05-364T. Washington, D.C.: March 17, 2005.
Coast Guard: Station Readiness Improving, but Resource Challenges and  Management Concerns Remain. GAO-05-161. Washington, D.C.: January  31, 2005.
Maritime Security: Better Planning Needed to Help Ensure an Effective  Port Security Assessment Program. GAO-04-1062. Washington, D.C.:  September 30, 2004.
Maritime Security: Partnering Could Reduce Federal Costs and  Facilitate Implementation of Automatic Vessel Identification System.  GAO-04-868. Washington, D.C.: July 23, 2004.
Maritime Security: Substantial Work Remains to Translate New  Planning Requirements into Effective Port Security. GAO-04-838.  Washington, D.C.: June 30, 2004.
Coast Guard: Deepwater Program Acquisition Schedule Update Needed.  GAO-04-695. Washington, D.C.: June 14, 2004.
Coast Guard: Station Spending Requirements Met, but Better Processes  Needed to Track Designated Funds. GAO-04-704. Washington, D.C.: May  28, 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: Relationship between Resources Used and Results Achieved  Needs to Be Clearer. GAO-04-432. Washington, D.C.: March 22, 2004.
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: New Communication System to Support Search and  Rescue Faces Challenges. GAO-03-1111. Washington, D.C.: September 30,  2003.
Maritime Security: Progress Made in Implementing Maritime  Transportation Security Act, but Concerns Remain. GAO-03-1155T.  Washington, D.C.: September 9, 2003.
Coast Guard: Actions Needed to Mitigate Deepwater Project Risks.   GAO-01-659T. Washington, D.C.: May 3, 2001.
Coast Guard: Progress Being Made on Deepwater Project, but Risks  Remain. GAO-01-564. Washington, D.C.: May 2, 2001.
Coast Guard: Strategies for Procuring New Ships, Aircraft, and Other  Assets. GAO/T-HEHS-99-116. Washington, D.C.: Mar. 16, 1999.
Coast Guard’s Acquisition Management: Deepwater Project’s  Justification and Affordability Need to Be Addressed More Thoroughly.  GAO/RCED-99-6. Washington, D.C.: October 26, 1998.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.