Coast Guard: Observations on Changes to Management and Oversight of the Deepwater Program
Published: 2009-03-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO has a large body of work examining government agencies' approaches to managing their large acquisition projects. GAO has noted that without sufficient knowledge about system requirements, technology, and design maturity, programs are subject to cost overruns, schedule delays, and performance that does not meet expectations. The Deepwater Program, intended to replace or modernize 15 major classes of Coast Guard assets, accounts for almost 60 percent of the Coast Guard's fiscal year 2009 appropriation for acquisition, construction and improvements. GAO has reported over the years on this program, which has experienced serious performance and management problems such as cost breaches, schedule slips, and assets designed and delivered with significant defects. To carry out the Deepwater acquisition, the Coast Guard contracted with Integrated Coast Guard Systems (ICGS) as a systems integrator. In April 2007, the Commandant acknowledged that the Coast Guard had relied too heavily on contractors to do the work of government and announced that the Coast Guard was taking over the lead role in systems integration from ICGS. This testimony reflects our most recent issued work on Deepwater, specifically our June 2008 report, Coast Guard: Change in Course Improves Deepwater Management and Oversight, but Outcome Still Uncertain, GAO-08-745 .
section_title: What GAO Found
paragraphs: Over the past two years, the Coast Guard has reoriented its acquisition function to position itself to execute systems integration and program management responsibilities formerly carried out by ICGS. The acquisition directorate has been consolidated to oversee all Coast Guard acquisitions, including the Deepwater Program, and Coast Guard project managers have been vested with management and oversight responsibilities formerly held by ICGS. Another key change has been to manage the procurement of Deepwater assets on a more disciplined, asset-by-asset approach rather than as an overall system of systems, where visibility into requirements and capabilities was limited. For example, cost and schedule information is now captured at the individual asset level, resulting in the ability to track and report breaches for assets. Further, to manage Deepwater acquisitions at the asset level, the Coast Guard has begun to follow a disciplined project management process that requires documentation and approval of program activities at key points in a program's life cycle. These process changes, coupled with strong leadership to help ensure the processes are followed in practice, have helped to improve Deepwater management and oversight. However, the Coast Guard still faces many hurdles going forward and the acquisition outcome remains uncertain. The consequences of not following a disciplined acquisition approach for Deepwater acquisitions and of relying on the contractor to define Coast Guard requirements are clear now that assets, such as the National Security Cutter, have been paid for and delivered without the Coast Guard's having determined whether the assets' planned capabilities would meet mission needs. While the asset-based approach is beneficial, certain cross-cutting aspects of Deepwater--such as command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) and the overall numbers of each asset needed to meet requirements--still require a system-level approach. The Coast Guard is not fully positioned to manage these aspects. One of the reasons the Coast Guard originally contracted with ICGS as the systems integrator was the recognition that the Coast Guard lacked the experience and depth in workforce to manage the acquisition itself. The Coast Guard has faced challenges in building an adequate government acquisition workforce and, like many other federal agencies, is relying on support contractors--some in key positions such as cost estimating and contract support. GAO has pointed out the potential concerns of reliance on contractors who closely support inherently governmental functions.

section_title: Letter
paragraphs: I appreciate the opportunity to be here today to discuss Coast Guard  acquisitions, specifically its Deepwater Program, the largest acquisition in  the Coast Guard’s history. GAO has a significant body of work examining  government agencies’ approaches to managing their large acquisition  projects, including Department of Defense weapon systems, Department  of Homeland Security (DHS) major investments, and large, high-risk  information technology investments across the government. We have  pointed to the need for more discipline and accountability in the  acquisition process to help ensure that programs are not initiated until  sufficient knowledge exists about system requirements, technology, and  design maturity. Without this knowledge, programs are subject to cost  overruns, schedule delays, and performance deficiencies. The Deepwater  Program represents the largest portion of the Coast Guard’s appropriation  for acquisition, construction, and improvements—almost 60 percent in  fiscal year 2009. Unfortunately, Deepwater has experienced serious  performance and management problems such as cost breaches, schedule  slips, and assets designed and delivered with significant defects.
The Deepwater Program is intended to replace or modernize 15 major  classes of Coast Guard assets—five each of vessels and aircraft, and five  other projects, including command, control, communications, computers,  intelligence, surveillance, and reconnaissance (C4ISR) systems. To carry  out this acquisition, the Coast Guard awarded a contract in June 2002 to  Integrated Coast Guard Systems (ICGS), a joint venture formed by  Lockheed Martin Corporation and Northrop Grumman Ship Systems, as a  systems integrator. In April 2007, the Coast Guard Commandant  acknowledged that the Coast Guard had relied too heavily on contractors  to do the work of government and that government and industry had failed  to control costs. He announced several major changes to the acquisition  approach to Deepwater, the key one being that the Coast Guard was  taking over the lead role in systems integration from ICGS, with future  work on individual assets potentially bid competitively outside of the  existing contract.
My statement today will focus on the progress the Coast Guard has made  in improving its acquisition approach to the Deepwater Program and the  challenges it continues to face. We have ongoing work on Deepwater  acquisitions issues—specifically, the Coast Guard’s acquisition workforce,  the cost of the Deepwater Program, and challenges associated with C4ISR  and other “system-of-systems” aspects—for the House and Senate  appropriations committees and expect to issue a report later this summer.  We also have ongoing work for the same committees examining the  potential operational gaps the Coast Guard may encounter based on  delays in delivery of the National Security Cutter (NSC) and its  accompanying package of small boats and unmanned aircraft systems; the  Coast Guard’s mitigation strategies for addressing these potential gaps;  and how the Coast Guard plans to handle maintenance of the NSC while  still operating and maintaining its legacy high endurance cutters. That  report is also expected to be issued this summer.
This statement is based on our issued work on the Coast Guard’s  Deepwater Program, specifically the information in our June 2008 report,  Coast Guard: Change in Course Improves Deepwater Management and  Oversight, but Outcome Still Uncertain. That work was conducted in  accordance with generally acceptable government audit 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 that 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’s responsibilities fall into two general categories—those  related to homeland security missions, such as port security and vessel  escorts, and those related to non-homeland security missions, such as  search and rescue and polar ice operations. To carry out these  responsibilities, the Coast Guard operates a number of vessels and aircraft  and, through its Deepwater Program, is currently modernizing or replacing  those assets. At the start of Deepwater in the late 1990s, the Coast Guard  chose to use a system of systems acquisition strategy that was intended to  replace the assets with a single, integrated package of aircraft, vessels, and  communications systems. As the systems integrator, ICGS was responsible  for designing, constructing, deploying, supporting, and integrating the  assets. The decision to use a systems integrator for the Deepwater  Program was driven in part because of the Coast Guard’s lack of expertise  in managing and executing an acquisition of this magnitude. Under this  approach, the Coast Guard provided the contractor with broad, overall  performance specifications—such as the ability to interdict illegal  immigrants—and ICGS determined the specifications for the Deepwater  assets. According to Coast Guard officials, the ICGS proposal was  submitted and priced as a package; that is, the Coast Guard bought the  entire solution and could not reject any individual component.
Deepwater assets are in various stages of the acquisition process. Some,  such as the NSC and Maritime Patrol Aircraft, are in production. Others,  such as the Fast Response Cutter, are in design, and still others, such as  the Offshore Patrol Cutter, are in the early stages of requirements  definition.
section_title: Coast Guard Has Made Improvements but Faces Continued Challenges in Managing Deepwater Acquisitions
paragraphs: Since the Commandant’s April 2007 announcement that the Coast Guard  was taking over the lead role in systems integration from ICGS, the Coast  Guard has undertaken several initiatives that have increased  accountability for Deepwater outcomes within the Coast Guard and to  DHS. The Coast Guard’s Blueprint for Acquisition Reform sets forth a  number of objectives and specific tasks with the intent of improving  acquisition processes and results. Its overarching goal is to enhance the  Coast Guard’s mission execution through improved contracting and  acquisition approaches. One key effort in this regard was the July 2007  consolidation of the Coast Guard’s acquisition responsibilities—including  the Deepwater Program—into a single acquisition directorate. Previously,  Deepwater assets were managed independently of other Coast Guard  acquisitions within an insulated structure. The Coast Guard has also  vested its government project managers with management and oversight  responsibilities formerly held by ICGS.
The Coast Guard is also now managing Deepwater under an asset-based  approach, rather than as an overall system-of-systems as initially  envisioned. This approach has resulted in increased government control  and visibility. For example, cost and schedule information is now captured  at the individual asset level, resulting in the ability to track and report cost  breaches for assets. Under the prior structure, a cost breach was to be  tracked at the overall Deepwater Program level, and the threshold was so  high that a breach would have been triggered only by a catastrophic event.
To manage Deepwater acquisitions at the asset level, the Coast Guard has  begun to follow a disciplined project management process using the  framework set forth in its Major Systems Acquisition Manual. This  process requires documentation and approval of program activities at key  points in a program’s life cycle. The process begins with identification of  deficiencies in Coast Guard capabilities and then proceeds through a  series of structured phases and decision points to identify requirements  for performance, develop and select candidate systems that meet those  requirements, demonstrate the feasibility of selected systems, and produce  a functional capability. Previously, the Coast Guard authorized the  Deepwater Program to deviate from the structured acquisition process,  stating that the requirements of the process were not appropriate for the  Deepwater system-of-systems approach. Instead, Deepwater Program  reviews were required on a schedule-driven—as opposed to the current  event-driven—basis.
Further, leadership at DHS is now formally involved in reviewing and  approving key acquisition decisions for Deepwater assets. We reported in  June 2008 that DHS approval of Deepwater acquisition decisions as part of  its investment review process was not required, as the department had  deferred decisions on specific assets to the Coast Guard in 2003. We  recommended that the Secretary of DHS direct the Under Secretary for  Management to rescind the delegation of Deepwater acquisition decision  authority. In September 2008, the Under Secretary took this step, so that  Deepwater acquisitions are now subject to the department’s investment  review process, which calls for executive decision making at key points in  an investment’s life cycle.
We also reported this past fall, however, that DHS had not effectively  implemented or adhered to this investment review process; consequently,  the department had not provided the oversight needed to identify and  address cost, schedule, and performance problems in its major  investments. Without the appropriate reviews, DHS loses the opportunity  to identify and address cost, schedule, and performance problems and,  thereby, minimize program risk. We reported that 14 of the department’s  investments that lacked appropriate review experienced cost growth,  schedule delays, and underperformance—some of which were substantial.  Other programs within DHS have also experienced cost growth and  schedule delays. For example, we reported in July 2008 that the Coast  Guard’s Rescue 21 system was projected to experience cost increases of  184 percent and schedule delays of 5 years after rebaselining.  DHS issued  a new interim management directive on November 7, 2008, that addresses  many of our findings and recommendations on the department’s major  investments. If implemented as intended, the more disciplined acquisition  and investment review process outlined in the directive will help ensure  that the department’s largest acquisitions, including Deepwater, are  effectively overseen and managed.
section_title: Consequences of Prior Deepwater Acquisition Approach May Be Costly
paragraphs: While the decision to follow the Major Systems Acquisition Manual  process for Deepwater assets is promising, the consequences of not  following this acquisition approach in the past—when the contractor  managed the overall acquisition—are now apparent for assets already in  production, such as the NSC, and are likely to pose continued problems,  such as increased costs. Because ICGS had determined the overall  Deepwater solution, the Coast Guard had not ensured traceability from  identification of mission needs to performance specifications for the  Deepwater assets. In some cases it is already known that the ICGS  solution does not meet Coast Guard needs, for example:    The Coast Guard accepted the ICGS-proposed performance specifications  for the long-range interceptor, a small boat intended to be launched from  larger cutters such as the NSC, with no assurance that the boat it was  buying was what was needed to accomplish its missions. Ultimately, after  a number of design changes and a cost increase from $744,621 to almost $3  million, the Coast Guard began to define for itself the capabilities it  needed and has decided not to buy any more of the ICGS boats.
ICGS had initially proposed a fleet of 58 fast response cutters,  subsequently termed the Fast Response Cutter-A (FRC-A), which were to  be constructed of composite materials (as opposed to steel, for example).  However, the Coast Guard suspended design work on the FRC-A in  February 2006 to assess and mitigate technical risks. Ultimately, because  of high risk and uncertain cost savings, the Coast Guard decided not to  pursue the acquisition, a decision based largely on a third-party analysis  that found the composite technology was unlikely to meet the Coast  Guard’s desired 35-year service life. After obligating $35 million to ICGS  for the FRC-A, the Coast Guard pursued a competitively awarded fast  response cutter based on a modified commercially available patrol boat.  That contract was awarded in September 2008.
section_title: System-Level Aspects Pose Additional Challenges under Revised Acquisition Approach
paragraphs: Although the shift to individual acquisitions is intended to provide the  Coast Guard with more visibility and control, key aspects still require a  system-level approach. These aspects include an integrated C4ISR  system—needed to provide critical information to field commanders and  facilitate interoperability with the Department of Defense and DHS—and  decisions on production quantities of each Deepwater asset the Coast  Guard requires to achieve its missions. The Coast Guard is not fully  positioned to manage these aspects under its new acquisition approach  but is engaged in efforts to do so.
C4ISR is a key aspect of the Coast Guard’s ability to meet its missions.  How the Coast Guard structures C4ISR is fundamental to the success of  the Deepwater Program because C4ISR encompasses the connections  among surface, aircraft, and shore-based assets and the means by which  information is communicated through them. C4ISR is intended to provide  operationally relevant information to Coast Guard field commanders to  allow the efficient and effective execution of their missions. However, an  acquisition strategy for C4ISR is still in development. Officials stated that  the Coast Guard is revisiting the C4ISR incremental acquisition approach  proposed by ICGS and analyzing that approach’s requirements and  architecture. In the meantime, the Coast Guard is continuing to acquire  C4ISR through ICGS.
As the Coast Guard transitions from the ICGS-based system-of-systems  acquisition strategy to an asset-based approach, it will need to maintain a  strategic outlook to determine how many of the various Deepwater assets  to procure to meet Coast Guard needs. When deciding how many of a  specific vessel or aircraft to procure, it is important to consider not only  the capabilities of that asset, but how it can complement or duplicate the  capabilities of the other assets with which it is intended to operate. To that  end, the Coast Guard is modeling the planned capabilities of Deepwater  assets, as well as the capabilities and operations of existing assets, against  the requirements for Coast Guard missions. The intent of this modeling is  to test each planned asset to ensure that its capabilities fill stated  deficiencies in the Coast Guard’s force structure and to inform how many  of a particular asset are needed. However, the analysis based on the  modeling is not expected to be completed until the summer of 2009. In the  meantime, Coast Guard continues to plan for asset acquisitions in  numbers very similar to those determined by ICGS, such as 8 NSCs.
section_title: Challenges in Building an Acquisition Workforce
paragraphs: Like many federal agencies that acquire major systems, the Coast Guard  faces challenges in recruiting and retaining a sufficient government  acquisition workforce. In fact, one of the reasons the Coast Guard  originally contracted with ICGS as a systems integrator was the  recognition that the Coast Guard lacked the experience and depth in its  workforce to manage the acquisition itself.
The Coast Guard’s 2008 acquisition human capital strategic plan sets forth  a number of workforce challenges that pose the greatest threats to  acquisition success, including a shortage of civilian acquisition staff , its  military personnel rotation policy, and the lack of an acquisition career  path for its military personnel. The Coast Guard has taken a number of  steps to hire more acquisition professionals, including the increased use of  recruitment incentives and relocation bonuses, utilizing direct hire  authority, and rehiring government annuitants. The Coast Guard also  recognizes the impact of military personnel rotation on its ability to retain  people in key positions. Its policy of 3-year rotations of military personnel  among units, including to and from the acquisition directorate, limits  continuity in key project roles and can have a serious impact on  acquisition expertise. While the Coast Guard concedes that it does not  have the personnel required to form a dedicated acquisition career field  for military personnel, such as that found in the Navy, it is seeking to  improve the base of acquisition knowledge throughout the Coast Guard by  exposing more officers to acquisition as they follow their regular rotations.
In the meantime, the lack of a sufficient government acquisition workforce  means that the Coast Guard is relying on contractors to supplement  government staff, often in key positions such as cost estimators, contract  specialists, and program management support. While support contractors  can provide a variety of essential services, when they are performing  certain activities that closely support inherently governmental functions  their use must be carefully overseen to ensure that they do not perform  inherently governmental roles. Conflicts of interest, improper use of  personal services contracts, and increased costs are also potential  concerns of reliance on contractors.
section_title: Concluding Observations
paragraphs: In response to significant problems in achieving its intended outcomes  under the Deepwater Program, the Coast Guard leadership has made a  major change in course in its management and oversight by re-organizing  its acquisition directorate, moving away from the use of a contractor as  the systems integrator, and putting in place a structured, more disciplined  acquisition approach for Deepwater assets. While the initiatives the Coast  Guard has underway have begun to have a positive impact, the extent and  duration of this impact depend on positive decisions that continue to  increase and improve government management and oversight.
Mr. Chairman, this concludes my prepared statement. I will be pleased to  answer any questions you or members of the subcommittee may have at  this time.
section_title: GAO Contact
paragraphs: For further information about this testimony, please contact John P.  Hutton, Director, 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 testimony.
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