Coast Guard: Portfolio Management Approach Needed to Improve Major Acquisition Outcomes
Published: 2012-09-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Coast Guard is in the process of acquiring a multi-billion dollar portfolio of systems intended to conduct missions that range from marine safety to defense readiness. GAO has reported extensively on the Coast Guard's significant acquisition challenges, including those of its former Deepwater program, as well as areas in which it has strengthened its acquisition management capabilities. For this report, GAO assessed (1) the planned cost and schedule of the Coast Guard's portfolio of major acquisitions; (2) the steps the Coast Guard has recently taken to develop an affordable portfolio through its requirements process; and (3) the extent to which the Coast Guard is using cross-directorate teams to provide oversight and inform acquisition decisions. To conduct this work, GAO reviewed the Coast Guard's Major Systems Acquisition Manual, acquisition program baselines, capital investment plans, fleet mix analyses, and cross-directorate teams' charters and meeting documentation, and interviewed relevant Coast Guard and DHS officials.
section_title: What GAO Found
paragraphs: The planned cost and schedule of the Coast Guard's portfolio of major acquisitions is unknown because of outdated acquisition program baselines and uncertainty surrounding affordability. The Coast Guard's approved baselines, which reflect cost and schedule estimates, indicate the estimated total acquisition cost of Coast Guard major acquisitions could be as much as $35.3 billion--an increase of approximately 41 percent over the original baselines. However, the approved baselines for 10 of 16 programs do not reflect current cost and schedule plans because programs have breached the cost or schedule estimates in those baselines, changed in scope, or do not expect to receive funding to execute baselines as planned. Furthermore, a continued mismatch between resources needed to support all approved baselines and expected funding levels has required the Coast Guard to make decisions about which programs to fund and which programs not to fund as part of its annual budget process. Both DHS and the Coast Guard have acknowledged this resource challenge, but efforts to address this challenge have not yet resulted in a clear strategy for moving forward.
The Coast Guard has taken steps through its requirements process--a process that takes mission needs and converts them to specific capabilities--to address affordability, but additional efforts are required. For example, in an effort to consider affordability, the Coast Guard made some capability trade-offs when developing requirements for its largest acquisition, the Offshore Patrol Cutter. But whether the cutter ultimately will be affordable depends on some key assumptions in the cost estimate that are subject to change. At the fleet level, the Coast Guard completed two efforts to reassess what mix of assets it requires to meet mission needs, but neither effort used realistic fiscal constraints or considered reducing the number of assets being pursued. The mix of assets the Coast Guard is acquiring is based upon needs identified in 2005, but the Coast Guard may not be on a path to meet these needs and it has not re-examined the portfolio in light of affordability.
The Coast Guard has established an acquisition governance framework that includes the following cross-directorate teams: the Executive Oversight Council, the Systems Integration Team, and Resource Councils. The Executive Oversight Council--composed of admirals and senior executives--is well-positioned to delegate tasks to the other teams or obtain information as needed to assist in managing acquisitions. This Council has been active in meeting to discuss individual acquisitions; however, it has not met to discuss the portfolio as a whole. Coast Guard officials told us it manages portfolio affordability through the budget process. GAO's best practices work has found that successful commercial companies assess product investments collectively from an enterprise level, rather than as independent and unrelated initiatives. The Coast Guard's current approach of relying on the annual budget process to manage portfolio affordability involves immediate trade-offs but does not provide the best environment to make decisions to develop a balanced long-term portfolio.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Commandant of the Coast Guard conduct a comprehensive portfolio review to develop revised acquisition program baselines and identify the Executive Oversight Council as the governing body to oversee acquisitions with a portfolio management approach to help ensure the Coast Guard acquires a balanced mix of assets. DHS concurred with both recommendations and noted planned actions to address the recommendations.

section_title: Letter
paragraphs: The Coast Guard is in the process of acquiring a multi-billion dollar  portfolio of systems intended to conduct missions that range from marine  safety to defense readiness. We have reported extensively on the Coast  Guard’s significant acquisition challenges, including challenges with its  former Deepwater program that was created to build and modernize  ships, aircraft, and other capabilities. This prior work identified problems  in costs, management, and oversight that have led to delivery delays and  other operational challenges for certain assets. Despite these challenges,  our work has also recognized that the Coast Guard has taken steps to  strengthen its acquisition management capabilities including reorganizing  its acquisition directorate, applying the knowledge-based acquisition  policies and practices outlined in its Major Systems Acquisition Manual,  and developing acquisition program baselines for each asset. While these  steps have given the Coast Guard better insight into asset-level  capabilities and costs, we have previously recommended that the  Commandant of the Coast Guard and the Secretary of the Department of  Homeland Security (DHS) take additional actions to balance mission  needs and affordability. For example, last year we recommended that the  Commandant of the Coast Guard take actions—including identifying  acquisition program priorities and incorporating cost and schedule best  practices—to help ensure that programs receive and plan to a more   We also recommended that the Secretary of  predictable funding stream.the Department of Homeland Security develop a working group to review  the results of multiple fleet studies to identify cost, capability, and quantity  trade-offs that would produce a program that fits within expected budget  parameters.
We performed our work under the authority of the Comptroller General to  conduct work on GAO’s initiative to assist Congress with its oversight  responsibilities. This report assesses (1) the planned cost and schedule  of the Coast Guard’s portfolio of major acquisitions; (2) the steps the  Coast Guard has recently taken to develop an affordable portfolio through  its requirements process; and (3) the extent to which the Coast Guard is  using cross-directorate teams to provide oversight and inform acquisition  decisions.
To assess the planned cost and schedule of the Coast Guard’s major  acquisitions portfolio, we reviewed the Coast Guard’s Major Systems  Acquisition Manual, key asset documents including acquisition program  baselines and life-cycle cost estimates, the Fiscal Year 2013 President’s  Budget request and the fiscal years 2013-2017 capital investment plan.  To assess the steps the Coast Guard has recently taken to develop an  affordable portfolio through its requirements process, we reviewed the  Coast Guard’s Fleet Mix Analyses and DHS’s Cutter Study. We also  reviewed the Coast Guard’s 2005 Integrated Deepwater System Mission  Need Statement to determine the extent to which the capabilities being  acquired matched the needs set forth in the plan. Further, we compared  the National Security Cutter’s and Offshore Patrol Cutter’s missions,  requirements, and costs to determine similarities and differences. To  assess the extent to which the Coast Guard is using cross-directorate  teams to provide oversight and inform acquisition decisions, we compiled  and analyzed cross-directorate teams’ charters. We also reviewed  meeting minutes and briefing presentations for the Executive Oversight  Council and Resource Councils from calendar years 2010 to 2011 to  identify the extent to which cross-directorate teams are used to inform  acquisition decisions. We interviewed Coast Guard officials in the  acquisitions directorate as well as officials in the directorates responsible  for budgeting and resources and for assessing and developing  operational requirements (the capabilities directorate). In addition, we  interviewed DHS officials from the Office of Program Accountability and  Risk Management and the Office of Policy. Appendix I provides additional  details about our scope and methodology.
We conducted this performance audit from November 2011 to September  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Coast Guard is a multimission, maritime military service within DHS.  The Coast Guard has a variety of responsibilities including port security  and vessel escort, search and rescue, and Polar ice operations. To carry  out these responsibilities, the Coast Guard operates a number of vessels,  aircraft, and information technology systems. Since 2001, we have  reviewed Coast Guard acquisition programs and reported to Congress,  DHS, and the Coast Guard on the risks and uncertainties inherent in its  acquisitions. Several of our reports have focused on the Coast Guard’s  former Deepwater acquisition program that was created to build and  modernize ships, aircraft, and other capabilities. In our July 2011 report  on the Deepwater program, we found that the program continues to  exceed the cost and schedule baselines approved by DHS in 2007, but  that several factors precluded a solid understanding of the program’s true   These factors included approved acquisition program  cost and schedule.baselines that did not reflect the current status of some programs,  unreliable cost estimates and schedules for selected assets, and a  mismatch between funding needed to support all approved Deepwater  baselines and expected funding levels. We concluded that while the  Coast Guard has strengthened its acquisition management capabilities, it  needed to take additional actions to address the cost growth, schedule  delays, and expected changes to planned capabilities.
The Coast Guard’s current acquisition portfolio includes 16 major  acquisition programs—12 of which were part of the former Deepwater  program. Major acquisitions—level I and level II—have life-cycle cost  estimates equal to or greater than $1 billion (level I) or from $300 million  to less than $1 billion (level II) as outlined in the Coast Guard’s Major  Systems Acquisition Manual. Table 1 provides further information about  the Coast Guard’s major acquisition programs.
Three key Coast Guard directorates—capabilities, resources, and  acquisition—are involved in the major acquisition process. Program  managers in the acquisition directorate are required to integrate input  from these three directorates into a coherent strategy to achieve specific  cost, schedule, and performance parameters for their programs. Figure 1  identifies some key documents that program managers use in this  process and, according to the Major Systems Acquisition Manual, what  should happen if a program manager’s cost estimate for achieving  requirements established by the capabilities directorate does not match  Coast Guard’s approved or proposed budget.
Additionally, major acquisition programs are to receive oversight from  DHS’s Investment Review Board, which is responsible for reviewing  acquisitions for executable business strategies, resources, management,  accountability, and alignment to strategic initiatives. The Board also  supports the Acquisition Decision Authority in determining the appropriate  direction for an acquisition at key Acquisition Decision Events (ADE). At  each ADE, the Acquisition Decision Authority approves acquisitions to  proceed through the acquisition life-cycle phases upon satisfaction of  applicable criteria. Further, Component Acquisition Executives at the  Coast Guard and other DHS components are responsible in part for  managing and overseeing their respective acquisition portfolios. DHS has  a four-phase acquisition process:
Need phase—define a problem and identify the need for a new  acquisition. This phase ends with ADE-1, which validates the need for  a major acquisition program.
Analyze/Select phase—identify alternatives and select the best  option. This phase ends with ADE-2A, which approves the acquisition  to proceed to the obtain phase and includes the approval of the  acquisition program baseline.
Obtain phase—develop, test, and evaluate the selected option and  determine whether to approve production. During the obtain phase,  ADE-2B approves a discrete segment if an acquisition is being  developed in segments and ADE-2C approves low-rate initial  production. This phase ends with ADE-3 which approves full-rate  production.
Produce/Deploy/Support phase—produce and deploy the selected  option and support it throughout the operational life cycle.
Figure 2 depicts where level I and II Coast Guard assets currently fall  within these acquisition phases and decision events.
In conjunction with the management of these programs through the  acquisition process, the Coast Guard and DHS have also undertaken a  series of studies in the past several years focused on requirements and  the mix of assets in the Coast Guard’s acquisition portfolio. Many of these  studies have primarily focused on the assets that were part of the  Deepwater program, commonly referred to by the Coast Guard as the  program of record:    In September 2003, the Coast Guard completed a performance gap  analysis that determined the Deepwater fleet would have significant  capability gaps in meeting emerging mission requirements following  the September 11, 2001, terrorist attacks. Due to fiscal constraints,  the Coast Guard decided not to make any significant changes to the  planned Deepwater fleet, but did approve several asset capability  changes that were reflected in the 2005 Mission Need Statement,  which outlines capabilities the Coast Guard needs to meet its mission  demands.  In December 2009, the capabilities directorate completed a fleet mix  analysis which was intended to be a fundamental reassessment of the  capabilities and mix of assets the Coast Guard needs to fulfill its  Deepwater mission.   In May 2011, the capabilities directorate completed a second fleet mix  analysis which primarily assessed the rate at which the Coast Guard  could acquire the program of record within a range of cost constraints.  In August 2011, DHS completed a cutter study which developed  alternative cutter fleets that equaled the acquisition cost, at the time of  the analysis, of the cutter fleet program of record, and assessed the  expected performance of these alternative fleets compared to the  program of record.
In July 2011, we reported that it was unclear how DHS and the Coast  Guard would reconcile and use these multiple studies to make trade-off  decisions. We recommended that the Secretary of the Department of  Homeland Security develop a working group that includes participation  from DHS and the Coast Guard’s capabilities, resources, and acquisition  directorates to review the results of the studies to identify cost, capability,  and quantity trade-offs that would produce a program of record that fits  within expected budget parameters. DHS concurred, but has not yet  implemented this recommendation; the Senate Report accompanying the  2013 DHS Appropriations Bill directs the DHS and the Coast Guard to  develop this working group.
section_title: Cost and Schedule of Portfolio Remains Unknown Because of Outdated Baselines and Uncertainty Surrounding Affordability
paragraphs: Outdated acquisition program baselines and uncertainty surrounding the  affordability of the Coast Guard’s acquisition portfolio continue to limit  visibility into the current cost and schedule of the Coast Guard’s major  acquisitions. Even though the Coast Guard has revised 15 out of 16  baselines in its major acquisition portfolio at least once, 10 of those 15  baselines do not reflect the current cost or schedule of the programs.  According to the acquisition program baselines that are approved as of  July 2012 and total program cost for programs with no planned funding  beyond fiscal year 2014, the Coast Guard is managing a portfolio of major  acquisitions that could cost as much as $35.3 billion—or 41 percent more  than the original estimate of $25.1 billion—but the majority of these  baselines do not reflect the current status of these programs. DHS and  the Coast Guard have acknowledged that affordability of the Coast  Guard’s portfolio is a challenge, but the mismatch between resources  needed to support all approved baselines and anticipated funding levels  continues to affect Coast Guard acquisitions. Some of this mismatch  could be alleviated by the Coast Guard’s current five-year budget plan  which does not include the final two National Security Cutters; however,  Coast Guard officials have stated that, regardless of this plan, it continues  to support completing the program of record. A decision to pursue the  final two National Security Cutters in the near-term budget years could  have significant portfolio-wide implications.
subsections: section_title: Coast Guard Continues to Lack Updated Baselines That Identify the Planned Cost and Schedule of Its Portfolio
paragraphs: The Coast Guard has revised baselines for 15 of the 16 programs in its  major acquisition portfolio at least once; however, 10 of the 15 revised  baselines do not reflect the current cost or schedule of the programs. We  found that the revised baselines do not reflect current cost and schedule  for one or more of the following reasons:
Program reported a cost or schedule breach to DHS, but does not  have a DHS-approved baseline to reflect corrective actions for the  breach as required. Seven out of 16 programs in the Coast Guard’s  major acquisition portfolio fall into this category. The dates of these  breach notifications range from April 2009 through December 2011.
Program has changed in scope, which could have cost and/or  schedule implications, but its DHS-approved baseline does not reflect  these changes. Two out of 16 programs in the Coast Guard’s major  acquisition portfolio fall into this category.
Program does not expect to receive funding beyond fiscal year 2014,  but its DHS-approved baseline still reflects such funding. Four out of  16 programs in the Coast Guard’s major acquisition portfolio fall into  this category. Based on the fiscal years 2013-2017 capital investment  plan, Coast Guard officials do not anticipate funding for these  programs through fiscal year 2017 which means the programs cannot  execute their current baselines as planned.
These outdated baselines do not provide DHS, Coast Guard, and  Congress with accurate information about the current cost and schedule  of the Coast Guard’s major acquisition portfolio. According to the Major  Systems Acquisition Manual, the acquisition program baseline provides a  critical reference point for measuring and reporting the status of program  implementation and revised baselines should be submitted to DHS within  90 days after reporting a breach. Coast Guard officials acknowledged that  the approved baselines do not reflect the status of many programs, but  stated the update process is lengthy and sometimes interrupted by  decisions made in the budget process each year. For example, the  National Security Cutter program office formally notified DHS of a cost  and schedule breach in November 2011 and program officials told us that  Coast Guard leadership is reviewing a draft baseline. However, officials  stated that the draft baseline may no longer be valid because it was  based on a funding profile that was changed in the fiscal year 2013-2017  capital investment plan submitted to Congress, triggering the need to  update the baseline once again. Likewise, in response to our request for current cost estimates and schedules for each program, senior resource  directorate officials told us that current estimates were not available for  release because they did not know how they would be affected by future  funding allocations.
Without a stable funding profile, program managers will likely always be  at a disadvantage as they must frequently update baselines based on the  budget rather than having a stable budget reflecting program baselines.  Furthermore, our prior Department of Defense (DOD) work has found that  balancing investments late in the budget process often leads to additional  churn in programs, such as increased costs and schedule delays, and  encumbers efforts to meet strategic objectives. We made a  recommendation in July 2011 that the Coast Guard adopt action items  found in the acquisition directorate’s October 2010 Blueprint for  Continuous Improvement (Blueprint) such as promoting stability in the  capital investment plan by measuring the percentage of projects stably  funded year to year in the plan, ensuring acquisition program baseline  alignment with the capital investment plan by measuring the percentage  of projects where the acquisition program baselines fit into the capital  investment plan, and establishing project priorities as a Coast Guard-wide  goal. By promoting stability in the capital investment plan, the Coast  Guard may be able to address the churn in the acquisition program  budgeting process and help ensure that programs receive and can plan to  a more predictable funding stream. DHS concurred, but has not yet fully  implemented this recommendation. Coast Guard officials told us that the  acquisition directorate did develop a metric to measure the percentage of  programs stably funded from year to year, which confirmed wide  fluctuations in funding for most programs from year to year. However, it is  unclear whether the Coast Guard will pursue the remaining action items.
While Coast Guard officials acknowledged that baselines for many of its  major acquisitions do not reflect the current status of the programs, even  using the approved program baselines as of July 2012 and total program  cost for programs with no planned funding beyond fiscal year 2014, the  estimated total acquisition cost of Coast Guard major acquisitions could  be as much as $35.3 billion. This is about $10 billion more than original  baselines which totaled $25.1 billion and represents an increase of  approximately 41 percent. Figure 3 compares each major acquisition  asset’s cost from the original program baseline with the latest revised  baselines that have been approved by the Coast Guard, if available. For  those programs with no planned funding beyond fiscal year 2014, figure 4  compares the original baseline with estimated total program cost based  on budget data.
As we have previously reported, the cost increases associated with many  of these revised baselines reflect the Coast Guard’s and DHS’s efforts to  better understand the acquisition costs of individual assets that formerly  made up the Deepwater program, as well as provide insight into the  drivers of cost growth. For example, the Coast Guard has attributed the  more than $1 billion rise in the Fast Response Cutter’s cost to a reflection  of actual contract cost from the September 2008 contract award and  costs for shore facilities and initial spare parts not included in the original  baseline. Another example of the Coast Guard gaining more insight into  the cost of individual assets is the Offshore Patrol Cutter program. The  initial Deepwater baseline included an $8 billion estimate for the Offshore  Patrol Cutter program. However, program officials stated they did not  have good data for how the lead systems integrator for the Deepwater  program generated the original estimate, and that the current estimate  approved by DHS in April 2012—with a threshold of approximately $12  billion—is higher likely because the original estimate was developed  before the program requirements were established. Program officials also  cited delays in the program, and the corresponding inflation associated  with those delays, as additional reasons for the cost increase. Even  though the Coast Guard used the original 2007 Deepwater Baseline  estimate of $8 billion to characterize the expected cost of the program  multiple times to Congress, it now characterizes the revised acquisition  program baseline as the initial cost estimate for the program.
Without baselines that reflect current cost and schedule, DHS and the  Coast Guard will not have adequate information to determine if the Coast  Guard can afford other major acquisition programs that are expected to  begin within the next few years. The Coast Guard is in the early stages of  planning for several new acquisitions including icebreakers, river buoy  tenders, and a biometrics-enabled identity program. In addition, officials  at the Coast Guard’s Aviation Logistics Center told us they recently  identified that the end of service life for the HH-60s and HH-65s could be  reached as early as the 2022 time frame—not the 2027 time frame as  originally planned. Officials added that this will require the Coast Guard to  either buy new HH-60s and HH-65s or conduct a service life extension— previous service life extensions have been funded with acquisition dollars.  Coast Guard officials told us that additional research is being conducted  regarding the life expectancy of these helicopters, including using  forecasting models to update service life limits. Regardless, officials also  stated that the Coast Guard plans to maintain continuous operational  capability. Furthermore, we recently reported that the medium endurance  cutters may also need a service life extension program to limit operational  gaps until the Offshore Patrol Cutters are in service. Given that the  Coast Guard does not have adequate information concerning the cost of  its current portfolio, it is not well positioned to accurately assess the  affordability of these programs as requirements are developed for these  new assets.
section_title: Upcoming Budget Decisions Will Likely Have Portfolio-wide Implications
paragraphs: The mismatch we reported in July 2011 between resources needed to  support all approved program baselines and expected funding levels  continues to affect the Coast Guard, requiring it to make decisions about  which programs to fund and which programs not to fund as part of the  annual budget formulation process. For example, in the fiscal year 2013  budget request, the following major acquisition programs were funded at  a level lower than identified in the programs’ life cycle cost estimates for  that year: Maritime Patrol Aircraft, Fast Response Cutter, HC-130J/H, and  C4ISR. Combined, the Coast Guard requested approximately $500  million less than what was identified in the life cycle cost estimates for  these programs. The funding needs for these programs have not gone  away and the Coast Guard will have to fund those activities in future fiscal  years.
Both DHS and the Coast Guard have acknowledged this resource  challenge, but efforts to address these challenges have not resulted in a  clear strategy for moving forward. For example, in an April 2011  acquisition decision memorandum concerning Coast Guard acquisition  program breaches, DHS stated that future breaches in Coast Guard  programs would almost be inevitable as funding resources diminish. DHS  also directed the Coast Guard to develop a plan for showing program  tradeoffs that illuminates the balance between operational commitments,  recapitalization, and the realities of the capital investment plan. Following  the Coast Guard’s presentation of the plan to DHS, DHS issued a second  acquisition decision memorandum in August 2011 which stated the Coast  Guard presented a global, systematic, and overarching solution to future  funding shortfalls that addressed programmatic, resource, and  operational impacts. However, a senior DHS official involved with this  review told us that the presentation only brought to light the challenges,  and did not present a solution. The briefing slides provided to us were  redacted due to the Coast Guard’s belief that they contained budget  negotiation information so we were unable to reconcile whether a solution  was presented. Coast Guard officials stated they had no other examples  of a similar portfolio-wide review to address future funding shortfalls.  Without a portfolio analysis to establish long-term priorities to guide the  budget process, it will be difficult for Coast Guard to address this  mismatch of funding and understand how decisions concerning one  program affect another program.
Some of the resource challenges in near-term years could be alleviated if  the Coast Guard executed its fiscal year 2013-2017 capital investment  plan. For example, this plan does not include funding for National Security  Cutter 7 in fiscal year 2014 or National Security Cutter 8 in fiscal year  2015, as was the plan in previous years. However, resource and  acquisition directorate officials told us that the Coast Guard continues to  support a program of record of eight National Security Cutters. A senior  Coast Guard acquisition official added that the Coast Guard has an  urgent need for the last two cutters and not buying these two ships would  require major adjustments to other acquisition plans. However, as seen in  figure 5, if the Coast Guard chooses to pursue National Security Cutter 7  in fiscal year 2014 and National Security Cutter 8 in fiscal year 2015,  there will be a significant mismatch in funding required based on life cycle  cost estimates versus expected funding levels in the fiscal year 2013- 2017 capital investment plan—especially given that some of the activities  not funded in fiscal year 2013 are expected to be funded in subsequent  years.
If National Security Cutters 7 and 8 are included in future budgets,  decision makers will likely be faced with a difficult choice: pull funds from  other high-priority federal programs to support Coast Guard acquisitions  or accept that some capabilities the Coast Guard promised will have to be  deferred to later years. However, deferring costs could lead to what is  commonly characterized as a bow-wave—or an impending spike in the  requirement for additional funds—unless the Coast Guard proactively  chooses to make some tradeoff decisions by re-examining requirements.
Coast Guard acquisition officials told us that one way it is trying to  address portfolio affordability is through an update to its Major Systems  Acquisition Manual. According to draft language, the acquisition  directorate’s Office of Resource Management will be required to maintain  a chart to visually depict all competing acquisition program priorities  within the capital investment plan at various points in time. Officials told  us that each acquisition program will be required to include this chart in its  required materials for future acquisition decision events. This update to  the Coast Guard’s acquisition manual follows best practices outlined in  GAO’s Cost Estimating and Assessment Guide with the exception that  the guide notes the affordability assessment should, preferably, be  conducted several years beyond the programming period.the chart included in GAO’s Cost Estimating and Assessment Guide.
section_title: Opportunities Exist to Address Affordability through the Requirements Process
paragraphs: Opportunities exist for the Coast Guard to address the affordability of the  fleet and major cutters through the requirements process, which takes  broad mission and capability needs and converts them to system-specific   The Coast Guard completed two efforts to reassess the mix  capabilities.of assets but both efforts only used its program of record, based upon the  2005 Mission Need Statement, as the basis of the analysis and did not  consider realistic fiscal constraints. While the Coast Guard remains  committed to this 2005 Mission Need Statement, it may not be on a path  to achieve several of the capabilities necessary to respond to mission  demands identified after September 11, 2001, or realize its vision for a  presence-based operating concept. Combined with cost growth, the  Coast Guard is at risk of pursuing a fleet that is not affordable and will not  be able to operate in the manner envisioned. Balancing capability and  affordability is also a concern for the Coast Guard’s and DHS’s largest  acquisition, the Offshore Patrol Cutter—which Coast Guard officials  stated is the first acquisition in the Deepwater surface fleet in which the  Coast Guard had complete control over the requirements development  process. However, even though the Coast Guard has made some  changes to reduce the estimated acquisition cost of the Offshore Patrol  Cutter, DHS Office of Policy and the Office of the Chief Financial Officer  have expressed concern regarding future cost growth and the program  crowding out other Coast Guard programs in future budget years. Further,  the requirements and missions for the Offshore Patrol Cutter have  similarities to those of the National Security Cutter though their costs vary  at this time.
subsections: section_title: Coast Guard Remains Committed to the Program of Record Amid Affordability Concerns and Capability Shortfalls
paragraphs: GAO, Observations on the Coast Guard’s and the Department of Homeland Security’s  Fleet Studies, GAO-12-751R (Washington, D.C.: May 31, 2012). found that the Coast Guard requires a fleet that could cost $65 billion to  meet its long term strategic goals, which is about $40 billion more than  the $24.2 billion program of record. Coast Guard officials told us that they  do not consider the $65 billion fleet to be affordable and are not using it to  inform decision making. In the second effort, Fleet Mix Phase Two, the  Coast Guard analyzed how long it would take to buy the program of  record under two different funding constraints: (1) an upper bound of  $1.64 billion per year and (2) a lower bound of $1.2 billion per year for  surface and aviation assets. Both of these bounds kept the aviation  funding level constant at $350 million per year. As we reported in May  2012, and as shown in figure 7, both the upper and lower bound funding  scenarios are greater than the Coast Guard’s past 5 years of  appropriations and its fiscal year 2013 request, indicating the upper  bound funding level is unrealistic and the lower bound is optimistic.
The program of record that the Coast Guard remains committed to is  based upon its 2005 Mission Need Statement, which Coast Guard  officials told us serves as the guiding document for its recapitalization  effort. This Mission Need Statement outlines capabilities the Coast Guard  needs to meet its mission demands, including 11 capabilities established  after September 11, 2001. In addition, it identifies those capabilities that  would allow the Coast Guard to become more proactive through  increased surveillance and presence, as opposed to responding to events  after they occur.presence-based operating concept will lead to operations that detect and  interdict threats as far from the United States as possible.
According to the Mission Need Statement, this  While the Coast Guard remains committed to this 2005 Mission Need  Statement, it may not be on a path to achieve several of the capabilities  necessary to address gaps that emerged following the September 11,  2001, terrorist attacks. We traced 11 system performance capabilities  identified in the 2005 Mission Need Statement through various program  documents, including the 2007 Deepwater acquisition program baseline,  operational requirements documents, and testing documentation to  identify which capabilities the Coast Guard is currently planning to  acquire. As seen in table 2, the Coast Guard’s progress in acquiring the  capabilities identified in this document is mixed as it has acquired some  capabilities while other capabilities have been refined or clarified over  time, are no longer planned for certain assets, or have been cancelled  altogether.
In addition to these 11 capabilities, the Coast Guard also identified the  need for persistent wide-area surveillance in the 2005 Mission Need  Statement to achieve the presence-based vision. Two of the solutions  required to enable this capability, in addition to the C4ISR system  discussed in table 2, are data transmission capacity—or bandwidth—and  Unmanned Aerial Systems. However, the Coast Guard has struggled to  supply its assets with the bandwidth necessary to support information- based operations. Further, as we previously reported, the Unmanned  Aerial Systems were envisioned as a key component of the Deepwater  system that would enhance surveillance capability on board the National  Security Cutter and Offshore Patrol Cutter and also from land. Congress  has appropriated over $100 million since 2003 to develop an Unmanned  Aerial System, but the Coast Guard terminated the program due to cost  increases and technical risks in June 2007. According to Coast Guard  officials, the Coast Guard established a partnership with the Navy’s Fire  Scout program in October 2008 and has developed plans to install a  system that will facilitate a future demonstration of the Fire Scout on the  National Security Cutter. As an interim solution, the Coast Guard has  proposed a non-major acquisition to purchase a smaller, less capable,  and less costly unmanned aerial vehicle. In August 2012, the Coast  Guard held a technical demonstration on board the National Security  Cutter that experimented with a possible Navy solution, called the Scan  Eagle, which may satisfy the Coast Guard’s need for a smaller, less  capable unmanned aerial vehicle. The Coast Guard currently has plans  for a more in-depth demonstration in fiscal year 2013.
Due to these capability shortfalls, the Coast Guard is at risk of purchasing  a fleet that will not be able to close all of the gaps identified following the  September 11, 2001 terrorist attacks or fully conduct operations in a  presence-based manner. While the 2005 Mission Need Statement  presented a business case for the Coast Guard’s future investments, the  Coast Guard has not re-examined the value of these assets in light of the  difficult affordability decisions likely to come. By continuing to pursue  some capabilities and not others without reevaluating the portfolio as a  whole, the Coast Guard is increasing the risk that it may not accomplish  the goals envisioned in 2005 and cannot ensure it is maximizing the value  of the assets it is buying.
section_title: Coast Guard Took Positive Steps to Improve Requirements Development and Consider Affordability for the Offshore Patrol Cutter
paragraphs: The Coast Guard took some steps to improve the requirements  development process for the Offshore Patrol Cutter—the largest  acquisition in DHS’s acquisitions portfolio and, according to officials, the  first acquisition in the Deepwater surface fleet in which the Coast Guard  had complete control over the requirements development process. The  Coast Guard undertook studies and analysis that, in part, considered the  measurability and testability as required by guidance of the following four  key performance parameters: operating range, operational sustainment  and crew, speed, and patrol endurance. For example, the range  requirement, which is the distance the cutter can travel between refueling,  is clearly stated as a minimum acceptable requirement of 8,500 nautical  miles at a constant speed of 14 knots to a maximum level of 9,500  nautical miles. Although cutters typically transit at various speeds over the  course of a patrol, the Coast Guard conducted analysis to determine that  the 14 knots speed at the minimum and maximum ranges would provide  enough days between refueling given the percentage of time that the  Coast Guard normally operates at certain speeds. By developing a  measurable range requirement, the Coast Guard helped to promote a  clear understanding of Offshore Patrol Cutter performance by potential  shipbuilders and sought to balance the cost of additional range with the  value that it provides. Furthermore, officials at the independent test  authority—the Navy’s Commander Operational Test and Evaluation  Force—told us that they have been actively involved through the  requirements development process and many of their questions regarding  testability have been resolved.
Two other key performance parameters—seakeeping and  interoperability—are not as consistent with the Coast Guard’s guidelines  of measurability and testability as identified in the Major Systems  Acquisition Manual. For example the seakeeping key performance  parameter described in the requirements document states that the  Offshore Patrol Cutter shall be able to launch small boats and helicopters  in 8.2- to 13.1-foot waves. However, in the specifications document,  which is used to translate the requirements document into a level of detail  from which contractors can develop a reasonably priced proposal, the  Coast Guard states that the Offshore Patrol Cutter shall be able to launch  small boats and helicopters in no more than 10.7 foot waves while  transiting in a direction that minimizes the pitch and roll of the vessel—an  important detail not specified in the requirements document. Further, the  interoperability key performance parameter states that the Coast Guard  must be able to exchange voice, video, and data with the Department of  Defense and Homeland Security agencies. However, it does not list  specific external partners or substantial details regarding the systems  required to exchange data and the types and size of these data that could  be examples of measurability and testability. This key performance  parameter does not make this distinction between parts of the military that  the Coast Guard operates with most often, such as the U.S. Navy and the  intelligence community, and simply requires interoperability with all of  DOD. Similarly, the interoperability key performance parameter does not  specify the DHS agencies for which the Coast Guard must exchange data  with, which makes this parameter difficult to test. Coast Guard’s  independent testing officials agreed that this key performance parameter,  as currently written, is not testable in a meaningful way and stated that  there are ongoing efforts to improve the clarity of this requirement.
During the requirements development process for the Offshore Patrol  Cutter, the Coast Guard also made some decisions with respect to  affordability. The following are examples where the Coast Guard made  capability trades that are expected to help lower the program’s acquisition  cost:
Speed—after a series of analyses, the Coast Guard decided to  reduce the minimum acceptable speed from 25 to 22 knots thereby,  according to officials, potentially eliminating the need for two diesel  engines. According to a study completed by the Coast Guard, this  trade could reduce the acquisition cost of each cutter by $10 million.
Stern Launch—the Coast Guard removed the stern launch ramp  capability from the Offshore Patrol Cutter design. While this trade-off  may inhibit the launch and recovery of small boats in certain  conditions, such as substantial roll or side-to-side movement of the  vessel, Coast Guard officials stated that it will reduce the cost of the  cutter because a stern launch ramp requires the cutter to be heavier,  thus adding cost.
C4ISR—the Coast Guard eliminated a minimum requirement for an  integrated C4ISR system and instead is requiring a system built with  interfaces to communicate between different software programs.  According to Coast Guard officials, the Coast Guard now plans to use  a Coast Guard-developed software system—Seawatch—rather than  the more costly lead systems integrator-developed software system  currently installed on the National Security Cutter, even though this  system does not provide the Coast Guard with the capability to  exchange near real-time battle data with DOD assets.
The improvements and affordability decisions that the Coast Guard has  made in its requirements development process for the Offshore Patrol  Cutter are even more evident when compared with the process for  generating requirements for its other major cutter—the National Security  Cutter. Due to the nature of the lead systems integrator strategy that the  Coast Guard initially used to buy the National Security Cutter, Integrated  Coast Guard Systems developed the requirements, designed, and began  producing the National Security Cutter before the requirements document  was completed. The Coast Guard did not have an operational  requirements document at the time the Coast Guard awarded the  construction contract for the first cutter in 2004, but the Coast Guard  documented the requirements in 2006. Further, even as the third National  Security Cutter was in production, Coast Guard was refining the  requirements and, in January 2010, made the decision to clarify some key  performance parameters such as anti-terrorism/force protection and  underwater mine detection because the existing requirements were not  testable. To further remedy the lack of clear requirements, Coast Guard  officials stated that they are currently developing a second version of the  requirements document that improves the specificity and definition of  many of the National Security Cutter’s requirements and will be used as  criteria during operational testing. To date, the Coast Guard has not  reduced the National Security Cutter’s capability for the purpose of  affordability as it has done for the Offshore Patrol Cutter. However,  according to Coast Guard officials, there is a revised acquisition program  baseline under review which will reflect an ongoing effort to lower the  acquisition cost of the vessel.
section_title: Major Cutter Requirements and Missions Have Similarities, but Costs Vary Greatly and Concerns Remain about Affordability
paragraphs: The requirements and missions for the National Security Cutter and the  Offshore Patrol Cutter programs have similarities, but the actual cost for  one National Security Cutter compared to the estimated cost of one  Offshore Patrol Cutter varies greatly. Even though the Coast Guard took  steps to consider affordability while developing the requirements for the  Offshore Patrol Cutter, those affordability decisions do not explain the  magnitude in the difference between these two costs. Table 3 compares  the expected performance of a National Security Cutter with the  objective/threshold requirements of an Offshore Patrol Cutter, the  missions each cutter is expected to perform, and the actual/estimated  costs for each cutter.
This comparison raises questions whether the Offshore Patrol Cutter  could be a less expensive, viable substitute for the National Security  Cutter or whether there are assumptions built into the Offshore Patrol  Cutter cost estimate, not related to requirements, which are driving the  estimated costs down. With respect to the first, DHS, motivated by  concerns about the affordability of the National Security Cutter program,  completed a Cutter Study in August 2011 which included an analysis to  examine the feasibility of varying the combination of objective—or optimal  performing—Offshore Patrol Cutters and National Security Cutters in the  program of record. Through this analysis, DHS found that defense  operations is a key factor in determining the quantity of National Security  Cutters needed and that the Coast Guard only needs 3.5 National  Security Cutters per year to fully satisfy the planned requirement for  defense-related missions. DHS concluded that with six National Security  Cutters the Coast Guard can meet its goals for defense operations and  mitigate some of the near-term capacity loss of the five National Security  Cutter fleet modeled in the Cutter Study. DHS Program Analysis and  Evaluation officials stated that this, in conjunction with other information,  helped to inform the decision to not include the last two National Security  Cutter hulls—hulls 7 and 8—in the fiscal years 2013-2017 capital  investment plan. However, the DHS Cutter Study also notes that the time  line for the two acquisitions makes a trade-off between the National  Security Cutter and the Offshore Patrol Cutter difficult since the National  Security Cutter program is in production whereas the Offshore Patrol  Cutter program is only in the design phase. Similarly, we have reported  that the Coast Guard may face an operational gap in its ability to perform  missions using major cutters due to the condition of the legacy fleet.
With respect to the second possibility that there are assumptions built into  the Offshore Patrol Cutter cost estimate that are driving the estimated  costs down, the Coast Guard included three key assumptions in the  Offshore Patrol Cutter’s life cycle cost estimate, generally not related to  the cutter’s key requirements, which lower the estimated cost in  comparison to the actual cost of the National Security Cutter. These three  assumptions are:
Learning Curve. The Coast Guard assumes that the shipyard(s) will  generally continue to reduce the labor hours required to build the  Offshore Patrol Cutter through the production of all 25 vessels. This  may prove optimistic, particularly for later ships in the class, because  the amount of additional learning per vessel–or efficiencies gained  during production due to improving the manufacturing process to build  the ship in a way that requires fewer labor hours–typically decreases  over time in a shipbuilding program.
Military versus Commercial Standards. The life cycle cost estimate  assumes that certain areas of the Offshore Patrol Cutter’s  construction and material would reflect an average of 55 percent  commercial standards—or construction standards that are typically  used for military sealift ships that provide ocean transportation—and  45 percent military standards—or construction standards typically  used for Navy combat vessels. Any changes in this assumption  could have a significant effect on the cost estimate because military  standards require more sophisticated construction applications,  particularly in the areas of shock hardening and signature reduction,  to prepare a ship to survive battle. Such sensitivity could help to  explain the difference in costs between the Offshore Patrol Cutter  program and the National Security Cutter program and officials stated  that the latter program is being built to about 90 percent military  standards.
Production Schedule. The cost estimate reflects the Coast Guard’s  plan to switch from building one Offshore Patrol Cutter per year to  building two Offshore Patrol Cutters per year beginning with the fourth  and fifth vessel in the class. If the Coast Guard cannot achieve or  maintain this build rate due to budget constraints, it may choose to  stretch the schedule for the program which in turn could increase  costs.
Coast Guard program officials generally agreed that these three variables  are important to the cost of the Offshore Patrol Cutter and are key  reasons why the Coast Guard expects one Offshore Patrol Cutter to cost  less than half of one National Security Cutter. However, these officials  recognized that the cost estimate for the Offshore Patrol Cutter is still  uncertain since the cutter has yet to be designed—thus, the National  Security Cutter’s actual costs are more reliable. Coast Guard program  officials also added that the cost estimate for the Offshore Patrol Cutter is  optimistic in that it assumes that the cutter will be built in accordance with  the current acquisition strategy and planned schedule. They noted that  any delays, design issues, or contract oversight problems—all of which  were experienced during the purchase of the National Security Cutter— could increase the eventual price of the Offshore Patrol Cutter.
According to the April 2012 acquisition decision memorandum, which  documents DHS’s approval for the Coast Guard to move forward and  award design contracts for the Offshore Patrol Cutter, DHS Office of  Policy and the Office of the Chief Financial Officer raised concerns about  the potential for cost growth and this program crowding out other Coast  Guard programs in future austere budget years. In response to concerns  about affordability, DHS is requiring the Coast Guard to return for a  special program review—one that is not required by acquisition  guidance—before it awards a production contract, which is currently  planned for fiscal year 2016. DHS Program Accountability and Risk  Management officials told us that a new life cycle cost estimate is not  required if the Coast Guard can demonstrate during this meeting that the  acquisition cost and schedule in the approved acquisition program  baseline are still valid. However, if there is a significant difference from  the currently approved life cycle cost estimate, DHS would direct the  Coast Guard at that time to update the life cycle cost estimate.
section_title: Cross-Directorate Acquisition Oversight Groups Have Potential to Strengthen Management of Portfolio
paragraphs: The Coast Guard has established an acquisition governance framework  that includes the following teams: Executive Oversight Council, Systems  Integration Team, and Resource Councils. The Coast Guard is currently  working on an update to its Major Systems Acquisition Manual that will  articulate expectations for how these groups will interact. We found that  the highest level team, the Executive Oversight Council—a group of  admirals and senior executives—has actively conducted oversight  meetings to govern the acquisition process for major acquisitions in the  Coast Guard’s portfolio. However, these meetings were focused on  individual programs and the Council has not acted upon some information  presented to it that could help to manage the portfolio as a whole. Coast  Guard officials told us that portfolio affordability decisions are handled  through the budget process. However, this approach results in year to  year adjustments to individual programs that do not optimize the long- term value of the portfolio.
subsections: section_title: Coast Guard Has Established an Acquisition Governance Framework That Is Still Evolving
paragraphs: The Coast Guard has established a governance framework to provide  leadership for the Coast Guard’s acquisition enterprise that includes the  following teams: the Executive Oversight Council, Systems Integration  Team, and Resource Councils. All of these teams have cross-directorate  representation including members from the acquisitions, resources, and  requirements directorates. These members are generally senior leaders  including admirals, captains, and civilian executives. Each group has a  charter to identify their purpose and scope of responsibilities. Table 4  provides an overview of each team according to their charters.
The Coast Guard is currently updating its Major Systems Acquisition  Manual to document how these teams will interact within this established  framework. The previous version of the manual highlights the Executive  Oversight Council as a review board that supports a knowledge-based  acquisition management approach, but does not include any references  to the Systems Integration Team or the Resource Councils. Based on  draft language of the update to the manual, the Systems Integration  Team and Resource Councils will serve as senior level advisors to the  Executive Oversight Council. Each of the Resource Councils will report  directly to the Executive Oversight Council for issues within their own  domain—cutter, aviation, or C4ISR—and report to the Systems  Integration Team for issues that cross domains. The Systems Integration  Team will be responsible for coordinating the resolution of these issues  raised by the Resource Councils as well as providing coordinated  recommendations to the Executive Oversight Council. In addition, the  Systems Integration Team will meet quarterly to review Resource Council  meeting minutes to help ensure issues that affect more than one council  are being appropriately recognized.
Although Coast Guard officials stated the way in which teams are  expected to interact with one another is still formalizing, we found that the  following examples illustrate that the Executive Oversight Council  oversees the acquisition governance framework and is well-positioned to  delegate tasks to the other teams or pull information from them as  needed to assist in the management of acquisitions or solve problems  related to acquisitions:
At a June 2011 Executive Oversight Council meeting to discuss the  Patrol Boat and Medium Endurance Cutter Sustainment programs,  the Council tasked the Cutter Resource Council to provide  recommendations for unobligated Patrol Boat project funds.
At an August 2011 Executive Oversight Council meeting to discuss  the Coast Guard’s acceptance of the third National Security Cutter,  the issue of the operational usefulness of the ship’s side door was  raised. Officials suggested that the Cutter Resource Council may  have a role in this discussion from an engineering perspective.
According to officials, in Fall 2011, the Executive Oversight Council  tasked the Systems Integration Team to assist in producing a strategy  for sharing unclassified aviation imagery collected on classified  systems so that it can be available for use throughout the Coast  Guard. This is a cross-domain issue that was initially raised by the  Aviation program office and involved the C4ISR and aviation  stakeholders, among others. Coast Guard officials told us that a  recommendation is currently in draft form.
A February 2012 memo documents Executive Oversight Council  approval of the C4ISR Resource Council’s recommendations to clarify  requirements in the Offshore Patrol Cutter’s requirements document.
section_title: Executive Oversight Council Is Conducting Program Level Oversight, but Opportunities Exist to Strengthen Its Review of the Acquisitions Portfolio
paragraphs: The Executive Oversight Council has been active in meeting with  individual programs to discuss the current status of the acquisition or  particular issues, review key program documents, and help prepare  program managers in advance of briefing more senior Coast Guard and  DHS officials. According to Coast Guard documentation we reviewed, in  2010 and 2011, the Executive Oversight Council met 38 times with  individual program managers to discuss major acquisitions. The Council  conducted its meetings on a program by program basis and did not meet  to discuss issues across the portfolio. The results of these meetings  generally led to the council members taking one of four actions: elevating issues and/or making a recommendation to the Deputy  requesting follow-up information or another meeting,  Commandant for Mission Support, Deputy Commandant for  Operations, and/or Vice Commandant, making an acquisition management decision, or determining no further action is necessary as the meeting was  primarily for informational purposes.
Table 5 provides some examples of these meeting results:  While the Executive Oversight Council is positioned to have direct access  to complete information on the progress of all acquisition programs as it  conducts acquisitions oversight with support from the Systems Integration  Team and Resource Councils, it has not acted on some information  presented that could help the Coast Guard manage its portfolio as whole.  Our best practices work has found that successful commercial companies  assess product investments collectively from an enterprise level, rather  than as independent and unrelated initiatives, and prioritize investments  by integrating the requirements, acquisition, and budget processes. This  approach empowers leadership to make decisions about the best way to  invest resources and holds managers accountable for outcomes.  Organizations should use an integrated approach to prioritize needs and  allocate resources in accordance with strategic goals, so they can avoid  pursuing more products than they can afford and optimize return on  investment. Appendix II provides additional details about four key portfolio  management practices including: clearly define and empower leadership;  establish standard assessment criteria, and demonstrate comprehensive  knowledge of the portfolio; prioritize investments by integrating the  requirements, acquisition, and budget processes; and continually make  go/no-go decision to rebalance the portfolio. These best practices  suggest that one potential positive of the Deepwater program as  envisioned was the prospect of making trades within the portfolio as  opposed to trying to manage and optimize each program individually. As  we reported in April 2011, Coast Guard officials told us that as it began  assuming the system integrator function from the Deepwater contractor in  2007, it believed it needed a forum to make trade-offs and other program  decisions especially in a constrained budget environment and established   We did identify instances in which the  the Executive Oversight Council.Executive Oversight Council was presented with opportunities to manage  its acquisitions as a portfolio, but tasks were not completed or no action  was taken:
At the request of the Executive Oversight Council, in September 2010,  the Systems Integration Team briefed the Council on strategic  courses of action to revise acquisition program baselines under a  budget constraint, but officials from the Systems Integration Team  stated that the briefing led to no decisions or further taskings.Guard officials stated that the briefing was also given to the Deputy  Commandant for Mission Support and the Deputy Commandant for  Operations.
Coast
The Acquisition Directorate’s October 2010 Blueprint for Continuous  Improvement included action items for the Executive Oversight  Council to establish, document and approve project priority review  time lines as well as publish project priority guidance to support a  larger goal of developing and implementing effective and efficient  decisonmaking to maximize results and manage risk within resource  constraints. The planned completion dates for these activities was the  end of fiscal year 2011, but these action items have not yet been  completed. Officials responsible for developing the Blueprint  explained that the action items and associated completion dates may  have been optimistic given the amount of cross-directorate  collaboration required.  In May 2011 the Executive Oversight Council received a briefing on  Fleet Mix Analysis Phase 2, but no decisions or recommendations  based on this analysis were made. Coast Guard officials stated that  the briefing was also given to the Deputy Commandant for Mission  Support and the Deputy Commandant for Operations. A senior Coast  Guard official who is the point of contact for the Council stated that the  council’s responsibility was to be informed of the matter but does not  have a decision authority. We also found no discussion of DHS’s  Cutter Study—which includes scenarios that could affect the Coast  Guard’s surface fleet—through our review of meeting minutes from  2010 and 2011.
While the Executive Oversight Council has had opportunities to discuss  affordability of the entire portfolio and make informed trade-off decisions,  Coast Guard officials told us that all of these decisions are handled  through the annual budget process, which also takes into account  budgeting for operating expenses. However, the Coast Guard’s current  approach of relying on the budget process to manage the affordability of  its portfolio has proven ineffective. The preparation of the annual budget  request involves immediate trade-offs, but does not provide the best  environment to make decisions to develop a balanced, long-term  portfolio. As we have previously reported, given that the Coast Guard is  managing more programs than its budget can support, and it does not  review its portfolio outside of the annual budget process, the Coast Guard  has relied on budget decisions each year to drive the acquisitions  process.each year as opposed to having a reliable funding profile consistent with   As a result, program managers react to the budget request  their approved baselines by which to execute their programs. One of the  responsibilities in the Executive Oversight Council’s charter is to  synchronize projects with planning, programming, budgeting, and  execution milestones to align them for successful completion of key  milestones, but Coast Guard officials acknowledged that this alignment  has not yet occurred.
section_title: Conclusions
paragraphs: The Coast Guard has made progress in improving its acquisition  management capabilities. Yet the Coast Guard continues to manage a  portfolio of acquisitions that lacks up-to-date, DHS-approved baselines to  reflect current costs and schedules and that will likely cost significantly  more than originally planned. While its portfolio requires more funding on  an annual basis than its expected budget can support, the Coast Guard  has not yet fully implemented our recommendation from July 2011 to  adopt action items to promote stability in the capital investment plan,  ensure program baselines are aligned with the capital investment plan,  and establish project priorities as a Coast Guard-wide goal. In the  absence of up-to-date program baselines, the Coast Guard makes  decisions about which programs to fund and which programs not to fund  as part of its annual budget process as opposed to having a stable and  meaningful long-term capital investment plan based on identified needs.  This puts Congress and the taxpayer in the position of having to commit  resources to individual programs without knowing whether they are  affordable, or achievable, within the context of the overall portfolio.  Furthermore, unplanned demands for additional funds are likely as the  Coast Guard begins to start new acquisition programs. If the Coast Guard  continues to make expedient decisions in the near-term environment of  budget decisions without an effective means of portfolio management,  there is no way to help ensure that near-term budget decisions are  optimized and in the best interest of the Coast Guard’s acquisition  portfolio in the long term.
The Coast Guard has made improvements in its process to develop  requirements for the Offshore Patrol Cutter in response to concerns about  affordability, but has not reassessed the mix of assets in its portfolio for  the same purpose. The Coast Guard may not be on track to acquire many  of the capabilities identified as necessary after September 11, 2001, while  stating that those mission needs are still guiding the ongoing acquisitions.  It is unclear, given the Coast Guard’s decisions not to pursue some of  these capabilities, whether it will obtain a balanced mix of assets and the  presence-based operating concept called for in its 2005 Mission Need  Statement.  Furthermore, the Coast Guard remains committed to  purchasing its major cutter program of record even though the  requirements of the two cutters have similarities, yet have very different  expected costs. It is too early to know what the Offshore Patrol Cutter will  eventually cost, but the current estimate includes some assumptions that  may help explain the differences in the estimated cost of the Offshore  Patrol Cutter when compared to the National Security Cutter.
The Coast Guard’s initiative to establish an acquisition governance  board—the Executive Oversight Council—provides an opportunity for it to  strengthen portfolio management practices that we found contribute to the  success of commercial companies. For example, given its cross- directorate representation and direct access to complete information on  all acquisition programs—with support from the Systems Integration  Team and Resource Councils—the  Council has the potential to  implement key portfolio management practices such as prioritizing  investments by integrating the requirements, acquisition, and budget  processes. But the Council has not engaged in these portfolio-wide  reviews, and instead, the Coast Guard continues to manage its  acquisitions through the budget process. Until the Executive Oversight  Council begins to use the individual program information it receives to  manage its portfolio of acquisitions—including informing strategic trade- off decisions—the Coast Guard will continue to operate in an environment  where its needs are not balanced with available resources.
section_title: Recommendations for Executive Action
paragraphs: To help the Coast Guard create stability in the acquisition process and  provide decision makers, including DHS, Office of Management and  Budget, and Congress, with current information to make decisions  about budgets, we recommend that the Commandant of the Coast  Guard conduct a comprehensive portfolio review to develop revised  baselines that reflect acquisition priorities as well as realistic funding  scenarios.
To strengthen the Coast Guard’s acquisition governance framework  and better prepare the Coast Guard in a constrained fiscal  environment, we recommend that the Commandant of the Coast  Guard identify the Executive Oversight Council as the governing body  to oversee the Coast Guard’s acquisition enterprise with a portfolio  management approach. The Executive Oversight Council should  supplement individual program reviews with portfolio-wide reviews to  make performance and affordability trade-off decisions that will help  ensure the Coast Guard is acquiring a balanced portfolio to meet  mission needs, given the Coast Guard is not currently on a path to  achieve several capabilities identified in the 2005 Mission Need  Statement.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DHS and the Coast Guard for  comment. In its written comments, DHS concurred with both  recommendations. The written comments are reprinted in appendix III.
With respect to the first recommendation, that the Coast Guard conduct a  comprehensive portfolio review to develop revised baselines that reflect  acquisition priorities as well as realistic funding scenarios, DHS agreed  and stated the Coast Guard will conduct a portfolio-wide review following  submittal of the next President’s budget request. Furthermore, DHS  stated that the Coast Guard is committed to ensuring acquisition plans  are executable in the current fiscal climate and noted that the Coast  Guard is currently revising its acquisition program baselines and several  new baselines are in the approval process. However, DHS added that  funding has varied considerably over the last several years making it  extraordinarily difficult to predict future budget authority with precision  and, as a result, it is inevitable that trade-off decisions will need to be  made on an annual basis. We understand that the budget process is a  dynamic environment in which some trade-off decisions may have to be  made on an annual basis, but we believe that the Coast Guard should  develop revised baselines that reflect acquisition priorities as well as  realistic funding scenarios to minimize the magnitude of trade-offs needed  each year resulting from the current mismatch between resources needed  to support all approved program baselines and expected funding levels.  Without such long-term priorities, program managers will likely always be  at a disadvantage of having to continuously update baselines to react to  the Coast Guard’s budget planning as opposed to having a stable budget  profile reflecting the baselines.
In concurring with our second recommendation, DHS stated that the  Coast Guard will identify the Executive Oversight Council as the  governing body to oversee the Coast Guard’s acquisition enterprise with  a portfolio management approach.
The Coast Guard also provided technical comments that were  incorporated, as appropriate.
We are sending copies of this report to interested congressional  committees, the Secretary of Homeland Security, and the Commandant  of the Coast Guard. In addition, the report is available at no charge on the  GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or huttonj@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: In conducting this review, we relied in part on the information and analysis  in our past work, including reports completed in 2010, 2011, and 2012.Additional scope and methodology information on each objective of this  report follows.
To assess the planned cost and schedule of the Coast Guard’s major  acquisitions portfolio, we reviewed each asset’s original acquisition  program baseline and revised baseline, if an approved, revised baseline  was available. To determine whether these baselines reflected the current  status of the program, we reviewed breach notifications, the fiscal year  2013 President’s Budget request, and interviewed officials from program  offices. We also reviewed the Coast Guard’s Major Systems Acquisition  Manual to identify when programs are required to update baselines. In  comparing original costs to revised baseline costs, if a revised baseline  presents both threshold costs and objective costs, threshold costs were  used. For those programs that comprised the former Deepwater program  this methodology allows traceability to the original $24.2 billion Deepwater  baseline while also showing how much programs could now cost based  upon revised baselines. Furthermore, some programs have reported a  cost breach to the revised baseline and costs are expected to increase  beyond the threshold values. In making this comparison for those  programs with no planned funding beyond fiscal year 2014, the estimated  total program cost equals dollars appropriated to date plus planned  funding in the fiscal years 2013-2017 capital investment plan.  Further, we  analyzed the Coast Guard’s fiscal years 2013-2017 expanded capital  investment plan to identify the planned annual funding levels for each  major acquisition program. We then compared those planned funding  levels to the annual funding needs identified in the program’s life cycle  cost estimate to determine whether there was a match. If an approved life  cycle cost estimate was not available, we used the annual funding needs  identified by the Coast Guard in the expanded capital investment plan.  We also interviewed Coast Guard officials from the acquisitions  directorate and resources directorate to discuss future funding plans as  well as to discuss the Coast Guard’s plans for the National Security  Cutter program to determine how those plans could affect other  programs. We also interviewed officials from the Department of  Homeland Security (DHS) Program Accountability and Risk Management  and DHS Office of Policy to discuss their oversight responsibilities for  Coast Guard programs.
To assess the steps the Coast Guard has recently taken to develop an  affordable portfolio through its requirements process, we obtained and  analyzed Fleet Mix Analysis Phase One, Fleet Mix Analysis Phase Two,  and the DHS Cutter Study. We also relied on our past work that reviewed  Coast Guard appropriations from fiscal years 2008 through 2012 and the  President’s budget request for fiscal year 2013 to analyze how fiscal  assumptions in the studies compared with past appropriations. Further,  we examined the 2005 Mission Need Statement to determine the extent  to which the capabilities being acquired matched the needs set forth in  this plan. In doing so, we traced 11 system performance capabilities  identified in the 2005 Mission Need Statement through various program  documents, including the 2007 Deepwater acquisition program baseline,  operational requirements documents, and testing documents to identify  which capabilities the Coast Guard is currently planning to acquire. In  addition to reviewing fleetwide requirements, we also reviewed the  requirements development process for the National Security Cutter and  the Offshore Patrol Cutter. We focused on these two assets as they are  the two largest cost drivers in the Coast Guard’s major acquisition  portfolio. To examine the Offshore Patrol Cutter’s requirements  development process, we reviewed the Coast Guard’s Major Systems  Acquisition Manual and Requirements Guidance and interviewed officials  in the capabilities directorate to discuss the process and to identify key  documents and studies that guided this process. We also compared the  National Security Cutter’s and Offshore Patrol Cutter’s missions,  requirements, and costs to determine similarities and differences. We  used Coast Guard budget documentation to determine the cost of the fifth  National Security Cutter and then used the Offshore Patrol Cutter’s life  cycle cost estimate which identified the average cost of the fourth and fifth  Offshore Patrol Cutters. We discussed the comparison between the  National Security Cutter and Offshore Patrol Cutter with DHS and Coast  Guard officials.
To assess the extent to which Coast Guard is using cross-directorate  teams to provide oversight and inform acquisition decisions, we  interviewed officials from the acquisition and resource directorates to  identify what teams the Coast Guard has established as part of an  acquisition governance framework. We also reviewed the charters for  each of those teams. We then collected and analyzed meeting minutes  and briefing presentations for the Executive Oversight Council and  Resource Councils from calendar years 2010-2011, but we did not do the  same for the Systems Integration Team because it was just forming  during this time period. We also reviewed the acquisition directorate’s  Blueprint to identify what action items had been tasked to these teams.  We interviewed senior representatives from the Executive Oversight  Council, Systems Integration Team, and chairs of the Aviation, Cutter and  C4ISR Resource Councils to understand their specific roles and  responsibilities for managing acquisition programs and informing  recapitalization decisions. We also interviewed stakeholders from the  acquisitions and resources directorates to gather their understanding of  the roles of the Executive Oversight Council, Systems Integration Team  and Resource Councils, and the nature and extent of their interaction with  these groups. Furthermore, we referred to previous GAO work on best  practices for portfolio management to identify the extent to which the  Coast Guard’s framework implements this management approach.
To support our review, we requested information and documents  pertaining to the current cost estimates and schedules for each asset in  the Coast Guard’s major acquisitions portfolio, a copy of the DHS- directed briefing in which Coast Guard was to develop a plan for showing  program tradeoffs, and several sets of Executive Oversight Council  meeting minutes. The Coast Guard did not provide us current cost  estimates and schedules, the complete DHS-directed briefing, or all sets  of meeting minutes because officials stated these documents included  budget negotiation information.
We conducted this performance audit from November 2011 to September  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Key Portfolio Management Practices
paragraphs: The following list identifies several key practices that can improve  outcomes when managing a portfolio of multiple programs.
subsections: section_title: Clearly define and empower leadership
paragraphs: Those responsible for product investment decisions and oversight  should be clearly identified and held accountable for outcomes.
Portfolio managers should be empowered to make decisions about  the best way to invest resources.
Portfolio managers should be supported with cross-functional teams  composed of representatives from key functional areas.
section_title: Establish standard assessment criteria, and demonstrate comprehensive knowledge of the portfolio
paragraphs: Specific criteria should be used to ensure transparency and  comparability across alternatives.  Investments should be ranked and selected using a disciplined  process to assess the costs, benefits, and risks of alternative  products.
Knowledge should encompass the entire portfolio, including needs,  gaps, and how to best meet the gaps.
section_title: Prioritize investments by integrating the requirements, acquisition, and budget processes
paragraphs: Requirements, acquisition, and budget processes should be  connected to promote stability and accountability.
Organizations should use an integrated approach to prioritize needs  and allocate resources, so they can avoid pursuing more products  than they can afford, and optimize return on investment.
Resource allocation across the portfolio should align with strategic  goals/objectives, and investment review policy should use long-range  planning.
section_title: Continually make go/no-go decisions to rebalance the portfolio
paragraphs: Program requirements should be reviewed annually to make  recommendations on proposed changes/descoping options.
As potential new products are identified, portfolios should be  rebalanced based on those that add the most value.  If project estimates breach established thresholds, the product should  be immediately reassessed within the context of the portfolio to  determine whether it is still relevant and affordable.
Agencies should use information gathered from post-implementation  reviews of investments, as well as information learned from other  organizations, to fine-tune the investment process and the portfolios  to shape strategic outcomes.
section_title: Previous Reports Establishing Key Acquisition Management Practices
paragraphs: Defense Acquisitions: Assessments of Selected Weapon  Programs, GAO-10-388SP (Washington, D.C.: March 30, 2010)
Department of Homeland Security: Billions Invested in Major  Programs Lack Appropriate Oversight, GAO-09-29 (Washington,  D.C.: November 18, 2008)
Best Practices: An Integrated Portfolio Management Approach to  Weapon System Investments Could Improve DOD’s Acquisition  Outcomes, GAO-07-388 (Washington, D.C.: March 30, 2007)  Information Technology Investment Management: A Framework  for Assessing and Improving Process Maturity, GAO-04-394G  (Washington, D.C.: March 2004)
Executive Guide: Leading Practices in Capital Decision-Making,  GAO/AIMD-99-32 (Washington, D.C.: December  1998)
section_title: Appendix III: Comments from the Department of Homeland Security and Coast Guard
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: John P. Hutton, (202) 512-4841 or huttonj@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, individuals making key  contributions to this report include Katherine Trimble, Assistant Director;  Molly Traci; Jose Cardenas; Mya Dinh; Laurier Fish; Laura Greifner;  Kristine Hassinger; and Andrea Yohe.
section_title: Related GAO Products
paragraphs: Coast Guard: Legacy Vessels’ Declining Conditions Reinforce Need for  More Realistic Operational Targets. GAO-12-741. Washington, D.C.: July  31, 2012.
Observations on the Coast Guard’s and the Department of Homeland  Security’s Fleet Studies. GAO-12-751R. Washington, D.C.: May 31, 2012.
Coast Guard: Observations on Arctic Requirements, Icebreakers, and  Coordination with Stakeholders. GAO-12-254T. Washington, D.C.:  December 1, 2011.
Coast Guard: Action Needed as Approved Deepwater Program Remains  Unachievable. GAO-12-101T. Washington, D.C.: October 4, 2011.
Coast Guard: Action Needed as Approved Deepwater Program Remains  Unachievable. GAO-11-743. Washington, D.C.: July 28, 2011.
Coast Guard: Observations on Acquisition Management and Efforts to  Reassess the Deepwater Program. GAO-11-535T. Washington, D.C.:  April 13, 2011.   Coast Guard: Opportunities Exist to Further Improve Acquisition  Management Capabilities. GAO-11-480. Washington, D.C.: April 13,  2011.   Coast Guard: Deepwater Requirements, Quantities, and Cost Require  Revalidation to Reflect Knowledge Gained. GAO-10-790. Washington,  D.C.: July 27, 2010.
Department of Homeland Security: Assessments of Selected Complex  Acquisitions. GAO-10-588SP. Washington, D.C.: June 30, 2010.
Coast Guard: Observations on the Requested Fiscal Year 2011 Budget,  Past Performance, and Current Challenges. GAO-10-411T. Washington,  D.C.: February 25, 2010.
Coast Guard: Better Logistics Planning Needed to Aid Operational  Decisions Related to the Deployment of the National Security Cutter and  Its Support Assets. GAO-09-497. Washington, D.C.: July 17, 2009.
Coast Guard: As Deepwater Systems Integrator, Coast Guard Is  Reassessing Costs and Capabilities but Lags in Applying Its Disciplined  Acquisition Approach. GAO-09-682. Washington, D.C.: July 14, 2009.
Coast Guard: Observations on Changes to Management and Oversight of  the Deepwater Program. GAO-09-462T. Washington, D.C.: March 24,  2009.
Coast Guard: Change in Course Improves Deepwater Management and  Oversight, but Outcome Still Uncertain. GAO-08-745. Washington, D.C.:  June 24, 2008.
Coast Guard: Strategies for Mitigating the Loss of Patrol Boats Are  Achieving Results in the Near Term, but They Come at a Cost and  Longer Term Sustainability Is Unknown. GAO-08-660. Washington, DC:  Jun 23, 2008.
Status of Selected Assets of the Coast Guard’s Deepwater Program.  GAO-08-270R. Washington, D.C.: March 11, 2008.