Coast Guard: Deepwater Requirements, Quantities, and Cost Require Revalidation to Reflect Knowledge Gained
Published: 2010-07-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Deepwater Program includes efforts to build or modernize ships and aircraft and to procure other capabilities. After a series of project failures, the Coast Guard announced in 2007 that it was taking over the systems integrator role from Integrated Coast Guard Systems (ICGS). At the same time, a $24.2 billion program baseline was established which included schedule and performance parameters at an overall system level. GAO has previously reported on the Coast Guard's progress in establishing individual baselines for Deepwater assets and has made a number of recommendations, which have largely been addressed. In response to the conference report accompanying the Department of Homeland Security (DHS) Appropriations Act, 2010, GAO assessed (1) DHS and Coast Guard acquisition policies and approach to managing the program, (2) whether the program is meeting the 2007 baseline, and (3) Coast Guard efforts to manage and build its acquisition workforce. GAO reviewed Coast Guard and DHS policies and program documents, and interviewed officials.
section_title: What GAO Found
paragraphs: DHS has revised its approach to managing and overseeing Deepwater by making the program subject to its recently finalized acquisition directive, which establishes a number of review points to provide insight into such key documents as baselines and test reports. DHS has also increased the number of its reviews of individual Deepwater assets. The Coast Guard's own management policies are generally aligned with DHS directives, although operational testing policies are still being revised, and it has developed additional guidance on completion of key requirements documents. In taking on the systems integrator role, the Coast Guard is also decreasing its dependence on ICGS by planning for alternate vendors on some of the assets already in production, as well as awarding and managing work outside of the ICGS contract for other assets. Currently, the Deepwater Program exceeds the 2007 cost and schedule baselines, and given revisions to performance parameters for certain assets, it is unlikely to meet system-level performance baselines. The asset-specific baselines that have been approved to date, while providing greater insight into asset-level capabilities, place the total cost of Deepwater at roughly $28 billion, or $3.8 billion over the $24.2 billion 2007 baseline. The revised baselines also present life-cycle costs, which encompass the acquisition cost as well as costs for operations and maintenance. While the revised baselines show a significant decrease in life-cycle costs, due to changes to assumptions like shorter service lives for assets, the Coast Guard's understanding of them continues to evolve as the agency revisits its assumptions and produces new cost estimates. Costs could continue to grow as four assets currently lack revised cost baselines; among them is the largest cost driver in the Deepwater Program, the Offshore Patrol Cutter. The asset-level baselines also indicate that schedules for some assets are expected to be delayed by several years. Regarding system-level performance, the 2007 baseline may not be achievable, as the Coast Guard has redefined or eliminated key performance indicators for many individual assets, while significant uncertainties surround other assets. Further, a planned analysis to reassess the overall fleet mix for Deepwater was not completed as planned, and a new analysis will include surface assets only. In the meantime, the Coast Guard and DHS are proceeding with acquisition decisions on individual assets. The Coast Guard continues to take steps to address its acquisition workforce needs as it assumes the role of system integrator. For example, it is using a workforce planning model to estimate current and future needs for key acquisition personnel. The Coast Guard has also begun to implement initiatives such as promoting career growth for acquisition professionals. External limitations on the availability of acquisition personnel, coupled with 100 new positions authorized in fiscal year 2010, place the Coast Guard's acquisition directorate vacancy rate at about 20 percent. While it is using contractors in support roles, the Coast Guard has released guidance regarding the roles of government staff in overseeing contractors.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Coast Guard complete an overall assessment that clarifies the quantities, mix, and cost of assets needed to meet requirements, given that the current Deepwater baseline is no longer feasible, and that the results be reported to Congress. DHS concurred with the recommendation.

section_title: Letter
paragraphs: The Deepwater Program—the largest acquisition program in the Coast  Guard’s history—began in 1996 as an effort to recapitalize the Coast  Guard’s operational fleet. The program now includes projects to build or  modernize five classes each of ships and aircraft, and procurement of  other capabilities such as improved command, control, communications,  computers, intelligence, surveillance, and reconnaissance (C4ISR) and  unmanned aircraft. Recognizing that it did not have a workforce with the  experience and depth to manage the acquisition, the Coast Guard  contracted with Integrated Coast Guard Systems (ICGS) in June 2002 to be  the systems integrator for Deepwater. ICGS was contractually responsible  for designing, constructing, deploying, supporting, and integrating the  Deepwater assets into a system-of-systems. However, after a series of  programmatic failures, the Commandant acknowledged in April 2007 that  the Coast Guard had relied too heavily on contractors to do the work of  the government and that government and industry had failed to control  costs. He announced several major changes to the acquisition approach  for Deepwater—primarily the Coast Guard taking over as the systems  integrator. In May 2007, soon after this announcement, the Department of  Homeland Security (DHS) approved an acquisition program baseline of  $24.2 billion for the Deepwater Program. Since that time, the Coast  Guard—with greater oversight from DHS—has taken a number of steps in  managing Deepwater projects, such as:  reorganizing the acquisition directorate and its relationships with Coast  Guard technical authorities,    applying the knowledge-based acquisition policies and practices outlined  in the Coast Guard’s Major Systems Acquisition Manual (MSAM), and    developing baselines on an asset-by-asset level as opposed to a system-of- systems level.
In response to direction in the conference report accompanying the  Department of Homeland Security Appropriations Act, 2010, and  discussions with your offices, we assessed (1) changes to DHS and Coast  Guard acquisition policies, processes, and the approach related to  Deepwater since our July 2009 report; (2) whether the Deepwater  Program is meeting baselines for cost, schedule, and performance; and (3)  the Coast Guard’s efforts to manage and build its acquisition workforce.
To conduct our work, we reviewed key Coast Guard and DHS  documentation such as the MSAM, DHS Acquisition Instruction 102-01,  original and revised acquisition program baselines, and human capital  plans. We interviewed Coast Guard acquisition directorate officials,  including program managers and human capital officials, and officials  from other Coast Guard directorates such as those responsible for  providing life-cycle support and for assessing and developing operational  requirements for Deepwater assets. In addition, we interviewed DHS  officials from the Acquisition Program Management Directorate, Cost  Analysis Division, and Test and Evaluation Directorate. We also  interviewed contractor officials from Northrop Grumman Shipbuilding and  Bollinger Shipyards and toured the shipyards. We relied in part on our past  work on the Deepwater Program. Appendix I contains more information  regarding our scope and methodology. We conducted this performance  audit from October 2009 to July 2010 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 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  escort, and those related to the Coast Guard’s traditional 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, some of which it is currently modernizing or replacing through its  Deepwater Program. Since 2001, we have reviewed the Deepwater  Program and have reported to Congress, DHS, and the Coast Guard on the  risks and uncertainties inherent in the acquisition. In our July 2009 report  on the Coast Guard’s progress in fulfilling the role of systems integrator  for the Deepwater Program, we found that the Coast Guard had increased  its role in managing the requirements, determining how assets would be  acquired, defining how assets would be employed, and exercising  technical authority in asset design and configuration. In addition, we  found that the Coast Guard was taking steps to improve its insight into  individual assets by reviewing and revising cost, schedule, and  performance baselines. Additional insight gained by the review of several  assets revealed that the program’s 2007 baselines for acquisition cost and  delivery schedules had been exceeded. We concluded that while the steps  the Coast Guard was taking were beneficial, continued oversight and  improvement were necessary to further mitigate risks. We made several  recommendations, which the Coast Guard has taken actions to address.  For example, we recommended that the Coast Guard not exercise options  under the Fast Response Cutter (Sentinel class) contract until the project  was brought into full compliance with the MSAM and DHS acquisition  directives. Coast Guard program officials stated that the program was in  compliance with these directives before the low-rate initial production  option was exercised in December 2009.
subsections: section_title: A Brief History of the Deepwater Program
paragraphs: At the start of the Deepwater Program in the late 1990s, the Coast Guard  chose to use a system-of-systems acquisition strategy. A system-of-systems  is a set or arrangement of assets that results when independent assets are  integrated into a larger system that delivers unique capabilities. The Coast  Guard provided ICGS with broad, overall performance specifications— such as the ability to interdict illegal immigrants—and ICGS determined  the assets needed and their specifications. 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. In November 2006, the Coast Guard submitted a  revised cost, schedule, and performance baseline for the overall  Deepwater Program to DHS that reflected post-September 11 missions.  That baseline established the total acquisition cost of the ICGS solution at  $24.2 billion and projected that the acquisition would be completed in  2027. In May 2007, shortly after the Coast Guard had announced its  intention to take over the role of systems integrator, DHS approved the  baseline.
DHS too has changed its approach to oversight and management of the  Deepwater Program. In 2003, the department had delegated approving  acquisition decisions at key points in the life cycle of individual assets to  the Coast Guard, while retaining some oversight at the system-of-systems  level and requiring annual reviews. In September 2008, in response to our  recommendation, DHS rescinded that authority from the Coast Guard, and  began officially reviewing and approving acquisition decisions for  Deepwater assets. In November 2008, DHS also instituted requirements for  new acquisition documentation at key program decision points to be  submitted by DHS components, including the Coast Guard. Figure 1  provides a time line of key events in the Deepwater Program.
As we reported in July 2009, since assuming the role of systems integrator  in April 2007, the Coast Guard has taken a number of key steps to reassert  its control and management of the Deepwater Program. While decreasing  the scope of work under the ICGS contract, which as noted above is  scheduled to expire in January 2011, the Coast Guard has also reorganized  its own acquisition directorate to better fulfill its expanded roles in  acquiring and managing Deepwater assets. In addition, the Coast Guard  formalized new relationships among its directorates to better establish and  maintain technical standards for Deepwater assets related to design,  construction, maintenance, C4ISR, and life-cycle staffing and training. The  Coast Guard also began transitioning to an asset-based acquisition  approach—as opposed to the former approach that focused at the high- level system-of-systems approach—guided by the formalized process  outlined in its MSAM.
As a part of its asset-based acquisition approach, the Coast Guard has also  begun to develop better-informed cost, schedule, and performance  baselines. While these new baselines provided increased insight into what  the Coast Guard is buying, the anticipated cost, schedules, and  performance of many of the assets have changed since the $24.2 billion  system-level baseline was approved by DHS in 2007. Table 1 describes in  more detail the assets the Coast Guard plans to procure or upgrade under  the Deepwater Program.
section_title: DHS and Coast Guard Acquisition Policies and Processes Continue to Evolve, Further Establishing the Coast Guard as Systems Integrator
paragraphs: DHS has revised its approach to managing and overseeing Deepwater by  conforming the program to its recently finalized acquisition directive,  Acquisition Management Directive 102-01, which establishes a number  of review points for the department’s acquisitions to provide senior  acquisition officials insight into such key documents as baselines and test  reports. DHS has increased the number of reviews of individual Deepwater  assets and plans to review up to six assets in fiscal year 2010. For its part,  the Coast Guard’s MSAM is generally aligned with DHS directives although  operational testing policies are still being revised, and the Coast Guard has  developed additional guidance on completing key requirements  documents. The Coast Guard is also decreasing its dependence on ICGS  by planning for alternate vendors on some of the assets already in  production, as well as awarding and managing work outside of the ICGS  contract for those assets at earlier stages of the acquisition life cycle.
subsections: section_title: DHS Oversight of Deepwater Acquisitions Has Increased
paragraphs: Since our last report, DHS has finalized its Acquisition Management  Directive 102-01, effective January 2010, which provides guidance on  planning and executing acquisitions by linking DHS’s requirements,  resourcing, and acquisition processes. The four phases of the DHS  acquisition life-cycle process, each of which is authorized by an  acquisition decision event, are as follows.
The first phase identifies the specific functional capabilities needed for the  asset and how these capabilities fill identified gaps.
The second phase explores alternative solutions to provide these  capabilities and establishes cost, schedule, and performance baselines as  well as operational requirements. By the end of this phase, a decision  event is held which reviews the selection of the preferred alternative and  approves program start.
The third phase is focused on developing, testing, and evaluating the  selected alternative and refining it prior to entering full production. This  phase can contain multiple decision events depending on the complexity  of the program. DHS approval is sometimes required for supporting  acquisitions and activities such as procuring demonstrator assets for test  and evaluation, service contracts, and low-rate initial production.  In order to proceed into the fourth phase, a final decision event is held to  review the results of formal operational testing and determine if the asset  meets requirements and is supportable and sustainable within cost  baselines. This decision event authorizes full-rate production and transfers  responsibility for deployment and support to the DHS component.
Figure 2 depicts the DHS acquisition phases and decision events and  where Deepwater assets currently fall within the process.
Acquisition review boards are the principal mechanism DHS uses to  oversee major acquisitions. These boards, which include DHS executives  from the cost, management, and test and evaluation directorates, evaluate  the progress of an asset at the acquisition events described above. The  review boards make recommendations about asset acquisition decisions  and, according to officials, can request the revision of key documents, like  life-cycle cost estimates and test plans. For example, because of concerns  about operational testing on the Maritime Patrol Aircraft, the DHS review  board recommended that the aircraft’s “obtain” acquisition phase be  extended, keeping the aircraft in low-rate, rather than full-rate, production.  In another example, the DHS review board authorized low-rate initial  production of three additional Fast Response Cutters (Sentinel class);  however, it asked that the Coast Guard revise some documentation, such  as the plans for logistics support and life-cycle cost estimates. According  to Coast Guard program officials, this documentation has been submitted  to DHS.
DHS has increased the frequency with which it holds Deepwater  acquisition decision events: it held no reviews in fiscal year 2008 and three  in fiscal year 2009; thus far three have been held in fiscal year 2010 and an  additional three are planned. Coast Guard program and project managers  told us that the level of DHS scrutiny and questions has increased  significantly, which has led to constructive discussions and improvements.  However, Coast Guard and DHS approval of key documentation such as  program baselines can take months. Table 2 provides approval times for  the most recent Deepwater asset baselines.
Coast Guard officials stated that DHS approval of these documents is an  iterative process that can take some time but they coordinate informally to  speed approvals when necessary. According to officials, Coast Guard and  DHS officials are working together to reduce the approval times for key  program documents. For example, the Coast Guard now forwards a draft  version of key acquisition documents, such as requirements  documentation and cost estimates, to DHS at the same time that it is being  reviewed within the Coast Guard. This approach gives DHS an earlier  opportunity to review and comment.
section_title: Coast Guard Continues to Refine Its Processes for Managing Deepwater Assets with a Focus on Requirements Definition
paragraphs: To support the continued procurement of Deepwater assets, the Coast  Guard’s MSAM is generally aligned with DHS’ Acquisition Management  Directive 102-01. As a result of this and other changes, the MSAM now  requires additional requirements documentation—referred to as the  concept of operations and the preliminary operational requirements  document—to ensure traceability through the design, development, and  testing of an asset. In particular, the MSAM requires that the capabilities  directorate, known as CG-7, describe clearly and in detail what specific  functional capabilities will be filled with a proposed asset or system, the  relationship of a proposed asset to existing assets or systems, and how the  asset is expected to be used in actual operations. As we have previously  reported, determining an asset’s requirements early in the life cycle is  essential, as requirements ultimately drive the performance and capability  of an asset and should be traceable through design, development, and  testing to ensure that needs are met.
Generation of Coast Guard requirements documentation is now guided by  USCG Publication 7-7 Requirements Generation and Management  Process, which was released by CG-7 in March 2009. The previous lack of  overarching, formalized guidance had often resulted in requirements that  were vague, not testable, not prioritized, and not supportable or  defendable. The Coast Guard has also expanded the key stakeholders  involved in the requirements process to include not only the operational  users and the capabilities directorate, but also the acquisitions directorate,  technical authorities, support and maintenance authorities, and budget  officials.
One area where the DHS guidance and the MSAM are still not fully aligned  is the issue of the independent test authority, the entity responsible for  concurring that an asset’s test and evaluation master plan ensures  adequate demonstration of an asset’s ability to meet operational needs.  Last year, we reported that the MSAM appeared to be inconsistent with  DHS guidance regarding the role of this test authority. The DHS  Acquisition Guidebook states that the test authority should be  independent of both the acquirer and the user, while the MSAM allows the  Coast Guard’s requirements directorate—CG-7, which represents the end  user—to serve as the test authority. We recommended that the Coast  Guard consult with the DHS Office of Test & Evaluation and Standards on  this apparent conflict. Both DHS and the Coast Guard are in the process of  revising their policies to address this issue. Coast Guard officials state that  a new version of the MSAM will be released this summer, and that they are  working with DHS to determine which entities may act as test authorities  for specific assets. In May 2009, DHS released its test and evaluation  directive which states that the test authority may be organic to the  component—the Coast Guard in this case—another government agency,  or a contractor but must be independent of the developer and the  development contractor. In commenting on this directive, DHS officials  stated that the test authority should be independent of the acquisition  division but can be within another division of the component acquiring the  asset, including those representing the asset’s end user. According to DHS  officials, it is preferred that a test authority independent of both the  acquirer and the user representative conduct operational testing for assets  whose life-cycle costs are at or exceed $1 billion. This independent test  authority is already in place for some of the Deepwater assets, including  the NSC, the Maritime Patrol Aircraft, and the Fast Response Cutter  (Sentinel class). However, for assets below this threshold, operational  testing may be planned and conducted by the user, subject to approval by  the department.
subsections: section_title: Coast Guard Is Reducing Contractual Reliance on ICGS
paragraphs: As the Coast Guard has assumed the Deepwater systems integrator role,  the extent of its reliance on ICGS continues to decrease. ICGS remains the  prime contractor for four Deepwater assets: the NSC, HC-130J Long-Range  Surveillance Aircraft, the Maritime Patrol Aircraft, and C4ISR, but some of  these assets are transitioning away from ICGS. Contracts for other assets  at earlier stages of the acquisition process, such as the Fast Response  Cutter (Sentinel class), were awarded outside of the ICGS contract.
The status of Deepwater assets with contracts in place for production as  of July 2010 is as follows.
While ICGS remains under contract for the production of the third NSC,  the USCGC Stratton, the Coast Guard plans to contract directly with  Northrop Grumman Ship Systems, previously a subcontractor for ICGS, on  a sole-source basis to produce the remaining five cutters.
Two additional Maritime Patrol Aircraft and eight removable electronic  command and control mission system pallets also remain on contract with  ICGS. The Coast Guard intends to hold a limited competition for the  additional aircraft in order to retain the same airframe, issuing a request  for proposals in April 2010 for up to nine aircraft over the next 5 years.  According to Coast Guard officials, the procurement strategy for  additional mission systems pallets is still in development.
The Coast Guard is preparing to move the HC-130J into the sustainment  phase as it nears the end of this acquisition, with ICGS’ delivery of the  sixth and final aircraft on May 27, 2010.
Development of C4ISR, a key Deepwater asset referred to as the “glue”  intended to make all assets interoperable, is currently in transition from  ICGS. Under the 2007 Deepwater baseline, the C4ISR project was to  consist of four segments of capability, plus upgrades to Coast Guard shore  facilities and legacy cutters. According to program officials, C4ISR will  now comprise eight segments, including the capabilities planned for  Deepwater and additional capabilities for post-9/11 homeland security  missions. ICGS has delivered the first segment, which is currently in  operation on the NSC, Maritime Patrol Aircraft, and HC-130J, and is under  contract to develop the second segment. This second segment is primarily  focused on increasing the Coast Guard’s ability to develop and maintain  future capabilities. It is considered a bridge to begin the transition from  the ICGS-developed architecture to a Coast Guard-developed and  managed architecture by ensuring that the ICGS systems are operational  and supported while the Coast Guard puts in place its own capability to  support the systems. Program officials state that development of the third  segment has been delayed due to funding constraints, although  development of capabilities for key assets, such as the Offshore Patrol  Cutter, will continue. According to officials, the acquisition strategy for  future C4ISR segments has not been determined.
The Coast Guard structured the acquisition of the Fast Response Cutter  (Sentinel class) as the systems integrator, competitively awarding a lead  ship design and production contract to Bollinger Shipyards in September  2008 for the lead cutter. The Coast Guard has exercised contract options  for hulls 2 though 4, with the goal of having up to 15 cutters either  delivered or under contract by 2012.
section_title: As Understanding of Assets Evolves, Achievement of 2007 Deepwater Baselines Is Unlikely
paragraphs: Currently, the Deepwater Program as a whole exceeds the cost and  schedule baselines approved by DHS in May 2007, and it is unlikely to  meet the system-level performance baselines that were approved at that  time. The new asset-specific baselines that have been developed—and  approved by DHS for seven of nine assets—put the total cost of Deepwater  at roughly $28 billion, or $3.8 billion over the $24.2 billion baseline. The  revised baselines also present life-cycle costs, which encompass the  acquisition cost as well as costs for operations and maintenance  throughout the assets’ life cycle. While the revised baselines show a  significant decrease in life-cycle costs compared to the 2007 baseline, the  Coast Guard’s understanding of these costs continues to evolve as the  agency revisits its assumptions and produces new cost estimates. These  baselines also indicate that some schedules are expected to be delayed by  several years. Preliminary assessments by the Coast Guard indicate that  some assets may be at risk for further cost and schedule growth. Further,  as the Coast Guard develops more refined requirements, it has redefined  or eliminated key performance indicators for many individual assets, while  significant uncertainties surround other assets like C4ISR, the key to the  system-of-systems as initially envisioned and approved. As a result of the  way Deepwater was implemented in the past, some assets—including the  NSC, Maritime Patrol Aircraft, and HC-130J—have begun deployment and  operations, but their ability to fully satisfy operational requirements is  unproven as they have not yet undergone operational evaluations. Further,  because the Coast Guard has not determined the overall quantities and  mix of assets needed for Deepwater in light of changes to the 2007  baseline, it is unknown what the overall Deepwater Program should look  like going forward. In the meantime, the Coast Guard and DHS are  proceeding with acquisition decision events on individual assets.
subsections: section_title: Total Acquisition Costs Continue to Exceed 2007 Baselines
paragraphs: As of July 2010, DHS had approved seven of the revised baselines and the  Coast Guard had approved two of them based on a delegation of approval  authority from DHS. Regarding total acquisition cost, the Coast Guard has  determined that some of the assets will significantly exceed anticipated  costs in the 2007 Deepwater baseline. Due to this growth, the total cost of  the Deepwater Program is now expected to be roughly $28 billion, or $3.8  billion more than the $24.2 billion that DHS approved in 2007, an increase  of approximately 16 percent. For the assets with revised baselines this  represents cost growth of approximately 35 percent. Further growth could  occur, as four Deepwater assets currently lack revised cost baselines.  Among them is the largest cost driver in the program, the 25 cutters of the  Offshore Patrol Cutter class which, in the 2007 baseline, accounted for  over 33 percent of the $24.2 billion total acquisition cost.
Table 3 compares the 2007 and revised baselines of asset acquisition costs  available as of July 2010. The table does not reflect the roughly $3.6 billion  in other Deepwater costs, such as program management, that the Coast  Guard states do not require a new baseline.
These revised baselines reflect the Coast Guard’s and DHS’ improved  understanding of the acquisition costs of individual Deepwater assets, as  well as insight into the drivers of the cost growth. We reported last year on  some of the factors contributing to increased costs for the NSC and  Maritime Patrol Aircraft. More recently, DHS approved the revised  baseline for the Fast Response Cutter (Sentinel class) in August 2009. The  Coast Guard has attributed this asset’s more than $1 billion rise in cost to  the use of actual contract costs from the September 2008 contract award  and costs for shore facilities and initial spare parts not included in the  original baseline.
section_title: Coast Guard’s Assessment of Life-cycle Costs Continues to Evolve
paragraphs: As the Coast Guard has revised asset baselines for acquisition costs, it has  also reevaluated operating costs and their effect on life-cycle costs.  According to the 2007 Deepwater baseline, the program’s life-cycle cost  was to be approximately $304.4 billion. The life-cycle costs presented in  the revised asset baselines decreased by approximately $96 billion, as  shown in table 4.
This substantial reduction in life-cycle costs is due in part to new  assumptions applied by the Coast Guard in calculating the costs to support  and maintain its assets. In preparing the revised baselines, the Coast  Guard updated its assumptions by reducing the time it expects certain  assets to continue in operations. Any reduction of the years in service for  an asset reduces the total life-cycle cost, as the overall cost for operating  the asset would decrease. For example, the useful life of the HH-65 was  reduced from 40 years to 23 years of extended service, contributing to a  $47 billion reduction in life-cycle costs in the revised baseline. According  to the Coast Guard, a 40-year extended service life for the HH-65 was not  realistic, as the first of these assets became operational in 1984 and  upgrades to extend the service life will not enable the helicopters to  operate for an additional 40 years. The service life expected of the HH-60  was also reduced, from 30 years of additional service to 20, which  contributed to its $25.2 billion decrease in life-cycle costs. Assumptions for  the expected service life of the Fast Response Cutter (Sentinel class) also  changed as a result of selecting an alternate design for production. The  current Sentinel class design is expected to have a service life of 20 years,  less than ICGS’ proposed Fast Response Cutter-A—which had an  estimated service life of 35 years—but more than its proposed Fast  Response Cutter-B, which had a proposed 15-year service life. While  altering these assumptions does reduce the expected life-cycle costs  associated with the current Deepwater Program, it also indicates that the  Coast Guard may need to acquire new assets sooner than anticipated in  the 2007 baseline.
The Coast Guard also used different assumptions about what support  costs were included in its revised baselines. For example, the life-cycle  costs in the revised baselines for the HH-65, HH-60, and the HC-130J  reflect only the costs to support the upgraded mission systems and not the  costs of the entire aircraft and therefore appear to be understated. As a  result, the stated life-cycle costs for these assets significantly decreased;  for example, in the case of the HC-130J costs decreased from $6.6 billion  to $430 million.
However, the Coast Guard’s understanding of life-cycle costs continues to  evolve. DHS approved all the revised Deepwater asset baselines on the  condition that the Coast Guard resubmit life-cycle cost estimates.  According to Coast Guard officials, DHS also requested that new estimates  for the HC-130J, HH-60, and HH-65 reflect the cost to support the entire  aircraft. As of July 2010, the Coast Guard has submitted life-cycle cost  estimates for eight assets: NSC, Fast Response Cutter (Sentinel class),  Maritime Patrol Aircraft, HC-130J, C4ISR, HH-65, and the two mission  effectiveness programs. These estimates suggest that some assets may  meet the revised cost baselines while others are in danger of exceeding  them. Table 5 compares the revised baselines to the Coast Guard’s current  life-cycle cost estimates.
As shown in the table above, expected life-cycle costs for some assets,  such as the NSC and the Fast Response Cutter (Sentinel class), continue to  decrease as more information about the actual costs to operate and  acquire these assets is used to refine estimates. The expected life-cycle  costs of other assets, however, have increased beyond their current  baselines. Coast Guard officials told us they have worked to make their  life-cycle cost estimates consistent, in keeping with DHS guidance, and  plan to update them every 12 to 18 months. A discussion of the estimates  for the NSC, Fast Response Cutter (Sentinel class), Maritime Patrol  Aircraft, C4ISR, and the HH-65 follows.
The current estimate for the NSC is $7.4 billion below the revised baseline  for life-cycle costs even when additional costs are added to the estimate to  account for identified risks. These risks include unstable C4ISR  requirements, which could result in modifications to the ship, and the  Coast Guard’s change in contract type for construction of the last five  NSCs from cost-reimbursement to fixed price-incentive fee. Generally,  cost-reimbursement contracts are suitable only when uncertainties  involved in contract performance do not permit costs to be estimated with  sufficient accuracy to use a fixed-price contract—such as the lack of cost  experience in performing the work or unstable manufacturing techniques  or specifications. Under cost-reimbursement contracts, most of the cost  risk is placed on the government, while under fixed-price incentive fee  contracts an increased share of cost performance risk is borne by the  builder. Because of this additional risk, the cost estimate assumed that the  contract price would increase.
The current life-cycle cost estimate for the Fast Response Cutter (Sentinel  class) is also below its revised life-cycle cost baseline, by $2.5 billion, even  after additional costs were added to account for risks. The most significant  risk is attributable to the Coast Guard’s acquisition approach for this asset.  The government plans to procure a total of 58 cutters. Under the contract  for design and production of the first patrol boat, the government plans to  procure 24-34 boats, with the remaining portion to be competitively  procured, potentially resulting in a change of contractor. This competition  would be for construction of the remaining boats utilizing the same design.  The Coast Guard adopted this acquisition strategy as a means of reducing  overall risk under the contract. The current cost estimate states that there  could be an increase in cost if a new contractor were brought on board,  potentially modifying the design to fit its construction processes in  addition to establishing the production line and learning how to more  efficiently produce the boats. The cost estimate also presents risks in the  estimates of operating costs. As the Sentinel class has never been used  operationally, these costs were determined by using historical data on  similar ships and discussions with the intended Coast Guard user, meaning  true costs are unknown and could exceed or be lower than the current  estimates. Uncertainty about future fuel costs also drives risk.
The $12.2 billion increase between the current life-cycle cost estimate and  the revised baseline for the Maritime Patrol Aircraft is primarily  attributable to a difference in assumptions about crew sizes and cost per  flight hour, which affect the cost to operate the aircraft. Further,  additional costs for training devices are now included in the estimate. The  primary risks discussed in the estimate, which have also added costs, are  the Euro/dollar exchange rate and the cost to maintain the aircraft over  time. Because a portion of the aircraft the Coast Guard currently has  under contract is produced in Europe, any fluctuation in the strength of  the dollar could have an effect, positive or negative, on the aircraft’s cost.  The estimate also states that long-term maintenance of the mission  systems pallet could be problematic if parts become obsolete, a risk  identified for other systems dependant on C4ISR-intensive systems.
The current life-cycle cost estimate for C4ISR places the cost at $6.7  billion, well above the $1.3 billion baseline established in 2007. This  estimate presents, for the first time, a full life-cycle cost for this capability,  as the 2007 baseline presented only acquisition costs for C4ISR and  assumed that operations and maintenance costs were included in the  baselines for individual assets. This increase is attributed to the changing  nature of the program and the risks involved. When the Coast Guard made  the decision to become systems integrator, it also assumed greater  oversight of the software development and maintenance associated with  C4ISR. The Coast Guard intends to establish laboratories to develop,  integrate, and support this software, which accounts for a portion of the  cost increase. According to program officials, costs have also increased  due to maintenance needs, especially the need for upgrades to keep  software and information secure. The risks are driven primarily by  technical uncertainty due to undefined requirements in later segments and  the effect of technology changes on C4ISR capabilities in the future. As the  Coast Guard has not yet fully defined the capabilities it wants from C4ISR,  it is difficult to assess the associated costs. The interrelated nature of  segments, with each segment building upon and enhancing the capabilities  of prior segments, could lead to cascading effects on cost and schedule if  one is delayed. To account for these uncertainties, the Coast Guard built  additional costs into the estimate.
The current life-cycle cost estimate for the HH-65 Multi-mission Cutter  Helicopter is $8.2 billion—$1.9 billion above the cost stated in the revised  baseline. The majority of the increase is due to a change in the  assumptions about the costs to operate and maintain the asset over its life  cycle. As mentioned previously, the revised baseline included only the  costs to support the upgraded mission systems aboard the HH-65. The  current cost estimate includes support for the entire aircraft and raises the  cost of operations and maintenance from $5.164 billion to $7.033 billion.  The current cost estimate also takes into account risks the aircraft may  encounter in the further development of its upgraded mission systems and  risks that could increase operational costs. The risks discussed in the  estimate include the possibility of a structural redesign or installation  issues associated with a new sub-system that improves the helicopter’s  ability to land on the NSC, the possibility of software or labor cost growth  for other upgrades, and the uncertainty surrounding the future price of  fuel. To account for these uncertainties, the Coast Guard built additional  costs into the estimate.
section_title: Revisions to Asset Baselines Show Further Schedule Delays
paragraphs: The Coast Guard’s reevaluation of asset baselines has also improved  insight into the schedules for when assets are expected to begin  operations—also known as initial operational capability—and when all  assets have been delivered and are ready for operations—or full  operational capability. For example, the Fast Response Cutter (Sentinel  class) patrol boat is now scheduled to deliver the final asset by September  2021, rather than 2016 as stated in the 2007 baseline—a delay of 5 years.  The HH-60 Medium Range Recovery helicopter will also not complete  deliveries until later than planned due to a restructuring of scheduled  upgrades. This asset will now complete upgrades by 2020, a 1-year delay  from the previous baseline. The schedule to upgrade the capabilities of the  HH-65 Multi-mission helicopter has also been restructured, but a date for  completing all the necessary upgrades has not yet been determined. Table  6 provides more information on changes in asset schedules.
section_title: System-level Performance Baselines Unlikely to be Met
paragraphs: In addition to establishing cost and schedule baselines, the 2007  Deepwater acquisition program baseline also established a baseline for  system-of-systems level performance and the key performance parameters  at the asset level that contribute to this performance. This system-level  baseline remains important, as the Coast Guard continues to pursue  system-of-systems level effects even as it devolves its approach to  Deepwater management to an asset level. According to the Coast Guard’s  2005 mission needs statement, the intent of the Deepwater Program was to  improve the capability to detect, intercept, and interdict potential threats  in the maritime domain using a layered defense of major cutters, patrol  boats, helicopters, unmanned aerial vehicles, and maritime patrol aircraft,  all connected using a single command and control architecture. This  description is still valid given that the Coast Guard is still pursuing the  same types of assets and capabilities proposed by ICGS. The 2007 baseline  describes thresholds and objectives for three system-level performance  requirements.
Available mission hours: Establishes the numbers of hours surface and  aviation assets must perform on an annual basis to meet mission needs.
Surveillance of nautical square miles: Describes system-level effects  specific to an NSC acting in concert with its embarked HH-65 helicopter  and unmanned aerial vehicles.
System task sequence: Establishes the number of nautical square miles in  which the fully deployed Deepwater Program is capable of searching for,  identifying, and prosecuting targets of interest per day.
The specific capabilities to be achieved under these overarching  performance requirements are listed in table 7.  account, however, how these changes affect system-of-systems level  requirements, although officials state that those requirements are being  revalidated.
Some assets or capabilities key to the performance of the Deepwater  Program as a whole—including the 25 ships of the Offshore Patrol Cutter  class, the capabilities provided by the integrated C4ISR system, and the  cutter-based Unmanned Aerial Vehicle essential to extending major cutter  surveillance times and ranges—remain in development. The capabilities  provided by C4ISR are particularly important to achieving the  performance required for Deepwater. These systems are at the core of  every Coast Guard activity and provide the essential situational awareness,  data processing, interoperability, and records accountability and  transparency necessary to successfully execute the Coast Guard’s many  missions. If the designs of these assets, and therefore the performance  criteria they are able to meet, were to be significantly different than those  proposed under the ICGS baseline, the system’s ability to achieve the  higher-level performance requirements set forth in the 2007 system-level  baseline would be doubtful.
subsections: section_title: Results of Ongoing and Planned Operational Assessments May Further Affect Performance Baselines
paragraphs: To determine whether Deepwater assets can meet their revised  performance baselines, the Coast Guard has performed operational and  capability assessments, through formalized test procedures or through  limited operations, on a number of assets. Three of the Deepwater  assets—the NSC, Maritime Patrol Aircraft, and HC-130J—have begun  limited operations although they have not undergone formal testing to  determine whether capabilities meet requirements. The Fast Response  Cutter (Sentinel class) has undergone an early operational assessment to  determine whether its capabilities meet requirements, and the Coast  Guard plans to conduct an operational evaluation of the asset in 2011.  Additional information on the status of operational testing for these assets  follows.
The first NSC completed an assessment of its operational capabilities in  2007, before final delivery to the Coast Guard, and has since been  performing limited operations from its homeport in Alemeda, California.
While it has completed some missions successfully, shortfalls in the  expected overall capabilities have been noted. Specifically, the lack of  unmanned air vehicles limits the full capability of the cutter to conduct  surveillance as reflected in the 2007 performance baseline. The Coast  Guard is also continuing to address design problems with the NSC’s small  boat launch and recovery systems. The operational evaluation for the  NSC is currently scheduled to begin in 2011; however, there are some  aspects of the cutter’s performance that will not be demonstrated at that  time. Coast Guard officials stated that the NSC will not demonstrate the  ability to operate for 230 days away from port. This demonstration  requires the use of four sets of crews to operate three cutters at different  times in order to maintain operations without exceeding regulations  governing how long crews can remain at sea. This multicrewing concept  could have an effect on the maintenance needs of these vessels or on  personnel deployment times. The Coast Guard states that it will not fully  demonstrate this multicrewing capability until 2014 or 2015, when three  cutters are available for operations. In addition, the operational evaluation  will not demonstrate the ability of an unmanned aerial system to operate  as intended from the NSC, as the Coast Guard has not selected an  appropriate unmanned system and has not indicated when it plans to do  so. According to officials, some demonstrations of the ability of an  unmanned system to take off and land on the cutter may take place, but  operational missions with an unmanned aerial system will not be  performed.
The Maritime Patrol Aircraft underwent an operational assessment in 2009  using aircraft previously delivered to the Coast Guard. This asset, too, has  been used in limited operations before completing operational evaluation.  Program officials stated that while the aircraft itself is performing well in  those limited operations, the mission systems pallet—which contributes  significantly to operational capabilities—has previously experienced  reliability and maintenance challenges. The Coast Guard is working to  address these challenges by updating the software and hardware.  Currently, the Maritime Patrol Aircraft is expected to provide 1,200 hours  of operational performance per year. Coast Guard officials stated that the  ability of the aircraft to achieve this will be demonstrated in fiscal year  2011 during the aircraft’s operational evaluation.
The HC-130J did not undergo any operational testing or assessments  conducted by an independent operational test authority and none are  planned. The current approved operational requirements document, which  establishes the performance baseline for the aircraft and should be  reflected in the key performance criteria to which the asset is tested, was  signed in 2003 and does not necessarily reflect the current capabilities or  established baseline for the aircraft. According to officials, the Coast  Guard and DHS have developed a report that defines the aircraft’s  performance by describing the demonstrations that have already been  conducted to quantify the characteristics of the aircraft and mission  systems—such as the performance capabilities of the radar. This report,  however, is not akin to a test plan that demonstrates the aircraft is able to  meet operational needs. Determining the capabilities in this manner makes  it difficult to assess whether the aircraft meets asset-level or system-level  capabilities. However, DHS and the Coast Guard have agreed that no  further testing or documentation is necessary, as production for the  aircraft is complete.
The Fast Response Cutter (Sentinel class) is one of the few Deepwater  assets to undergo an early operational assessment, conducted by an  independent test authority—the Navy’s Commander Operational Test and  Evaluation Force—prior to the project’s critical design review, which  allowed for early detection and rectification of issues. According to Coast  Guard program and Navy test officials, all but five minor items  recommended for correction as a result of this assessment were addressed  prior to the design review. However, program and test officials stated that  the cutter will not undergo an additional assessment before as many as 15  of the expected 58 vessels are under contract and operational testing is  completed. If significant issues are found in testing, these vessels may  have to undergo costly modifications. The Coast Guard acknowledges the  risks inherent in this approach and states that it is reducing risk by  conducting testing of the patrol boat’s design and subsystems and closely  monitoring the contractor’s performance during production.
section_title: Coast Guard Has Not Yet Revalidated the Quantities or Mix of Assets Required to Meet Needs
paragraphs: While the Coast Guard has made progress in revising baselines for the  cost, schedule, and capabilities of individual assets, it has not yet  revalidated the quantities of those assets needed to meet operational  needs—as it stated that it would in assuming the role of systems  integrator. Determining the force structure and size of the Deepwater  Program, specifically the number and type of assets needed to meet  mission demands, is key to managing the acquisition and will have an  impact on the final cost and performance of the program.
The Coast Guard planned to complete a comprehensive fleet mix analysis  in July 2009 to eliminate uncertainty surrounding future mission  performance and to produce a baseline for the acquisition. The analysis,  which began in October 2008—and is now termed the fleet mix analysis  Phase I—was led by the capabilities directorate and included a review of  all Deepwater missions and assets. Assumptions on asset capabilities were  based on the capabilities of the current fleet as well as the capabilities that  are projected for the Deepwater assets. In most cases, Coast Guard  officials stated, Deepwater assets retained the capabilities determined by  ICGS with a few exceptions. For example, the Offshore Patrol Cutter was  assumed to operate away from port for 230 days out of the year as  envisioned by ICGS, but the Maritime Patrol Aircraft was assumed to  operate for 800 instead of 1,200 flight hours per year. For those assets that  have evolved significantly since 2007, the analysis made “best guess”  assumptions that utilized the capabilities currently being pursued by the  Coast Guard. While the 2007 Deepwater baseline was considered the  “floor” for asset capabilities and quantities, officials stated that the  analysis did not impose financial constraints on the outcome and that,  therefore, the result was not feasible in terms of what the Coast Guard  could afford. As a result, officials stated that they do not intend to use the  results to produce recommendations on a baseline for fleet mix decisions,  as originally intended. The results of the analysis have not been released.
As a result of discussions with DHS, the Coast Guard intends to conduct a  second, cost-constrained fleet mix analysis Phase II, limited to surface  assets. This analysis is being conducted to further validate mission needs,  roles, and responsibilities and will produce recommendations on the  numbers and types of surface assets the Coast Guard should procure. It is  intended to be complete in February 2011. In the meantime, the Coast  Guard continues to pursue quantities of planned procurements that, to a  large extent, reflect the 2007 baseline.
The Coast Guard also completed a study in August 2008 on the appropriate  number and type of HC-130 aircraft to procure to meet needs, but no  decision has been made yet. The Coast Guard currently operates two  models of the HC-130 aircraft: the HC-130H, which entered operations in  the 1970s, and the HC-130J, which entered operations in the last few years.  Both models were upgraded as part of the Deepwater Program but, given  the advanced age and deteriorating state of many of the older HC-130H  aircraft, the Coast Guard decided to revalidate how many of each aircraft  should be upgraded and maintained. The study concluded that while the  HC-130J offered more capability than the HC-130H, and a longer expected  life cycle, budgetary concerns prevent retiring all the older aircraft in favor  of HC-130Js. Instead, a hybrid plan was proposed to maintain 11, instead  of the currently planned 16, HC-130Hs and to increase the numbers of HC- 130Js from the currently planned 6 to 11. However, the Coast Guard has  not yet taken the additional actions needed to purchase additional HC- 130Js. Officials stated that any additional acquisitions would necessitate a  revalidation of HC-130J requirements and resubmission of much of the  asset’s documentation, including baselines and test plans.
section_title: Coast Guard Continues to Improve Acquisition Workforce and Develop Means to Further Reduce Vacancies
paragraphs: The Coast Guard sought a systems integrator at the outset of the  Deepwater Program in part because its workforce lacked the experience  and depth to manage the acquisition internally. As the Coast Guard  assumes the role of system integrator it is important that it understand its  needs and builds an acquisition workforce to manage the Deepwater  Program. One key method the Coast Guard uses is a workforce planning  model, modified from a model developed by the Air Force, to improve its  estimates of workforce needs. According to Coast Guard officials, input  from project managers is used in the model to estimate current and future  needs for key personnel such as project managers, contracting officials,  and business and financial managers. Officials stated that the output of the  model is then discussed in a forum of all the project managers, and  requests for additional personnel are then developed and forwarded for  inclusion in the budget.
Since our last report, the Coast Guard has begun to implement initiatives  aimed at further reducing its acquisition workforce gap. One such  initiative is the acquisition professional career program, a 3-year  internship program that targets engineering and business students for  development as civilian acquisition personnel. As of July, the Coast Guard  had approximately 20 interns supporting contracting and other program  management areas. The career entry opportunity program is another  initiative meant to attract qualified employees to the Coast Guard while  also promoting career growth for current Coast Guard employees.  Participants in the program receive on-the-job training for 2 to 3 years in a  variety of positions within the acquisition directorate and, upon  completing the program, are permanently placed in positions in the Coast  Guard’s acquisition community. Officials said they are also attempting to  obtain direct hire authority to streamline the hiring process and avoid  delays in placing new hires. Along with enhancing its recruiting and  improving its hiring process for civilian personnel, officials discussed how  they are attempting to make employment in the acquisitions area more  appealing for military personnel by developing an acquisition career path  that offers opportunities for advancement similar to other uniformed  career paths within the Coast Guard.
The Coast Guard has had some success in narrowing the acquisition  workforce gap we have reported on in the past. Officials stated that by the  end of fiscal year 2009, 11 percent of the Coast Guard’s civilian acquisition  workforce positions remained unfilled, down from the 16 percent that the  Coast Guard reported for April 2009. In its fiscal year 2010 budget,  however, the acquisition directorate received an additional 100  government positions that must be filled. Officials stated that 25 percent of  these new positions were going to be allocated to the Offshore Patrol  Cutter program, due to the need for more staff as the program prepares to  award a design and construction contract, and 40 percent were going to  different sponsors and technical authorities that support the acquisition  directorate. This increase in number of positions has had an effect on the  Coast Guard’s current vacancy rate. As of April 2010, the Coast Guard had  a total of 951 government acquisition workforce positions, consisting of  556 civilian positions and 395 military positions. Of these 951 positions,  190 were vacant as of April 2010, leaving a workforce gap of  approximately 20 percent.
Although workforce gaps remain, the Coast Guard has increased the  number of certifications for the acquisition officials it has in place for  areas such as program management, business management, and systems  engineering. These officials are required to complete specialized training  in their respective acquisition career fields in order to manage or execute  acquisition contracts at various dollar thresholds. Since April 2009, the  Coast Guard reports that it has increased the total number of certified  acquisition officials in a number of these types of fields from 593 to 862, an  approximately 45 percent increase. The number of certified program  managers alone rose from 357 in April 2009 to 601 in June 2010, for an  increase of about 68 percent.
Although the Coast Guard is attempting to close its acquisition workforce  gaps it faces challenges—like many federal agencies that acquire major  systems—in recruiting and retaining a sufficient number of government  employees in acquisition positions such as contract specialists, cost  estimators, system engineers, and program management support. When  these gaps cannot be filled, contractors are often used to support the work  performed by government staff. For example, the Coast Guard has used  support contractors to perform life-cycle cost estimates and to assist in  the drafting of program documentation. As shown in figure 3, support  contractors made up 24 percent of the acquisition workforce as of April  2010.
The Coast Guard acknowledges that the use of support contractors puts it  at risk for potential conflicts of interest and the possibility of these  contractors functioning in roles that closely support inherently  governmental functions. To address conflicts of interest, all solicitations  and contracts include appropriate clauses where a potential for conflict  may exist, according to Coast Guard officials, and staff are trained on how  to identify and manage conflicts of interest. Further, the Coast Guard has  made efforts to ensure that support contractors do not perform inherently  governmental work. These efforts include releasing guidance to define  inherently governmental roles and the roles of government staff in  overseeing contractors and ensuring appropriate oversight and approval of  work performed.
section_title: Conclusions
paragraphs: In creating new baselines for individual asset cost, schedule, and  performance, the Coast Guard has deepened its understanding of the  resources needed and capabilities required on an asset level in a manner  that improves oversight and management of the Deepwater Program. As it  does so, it is also becoming increasingly clear that the baselines for cost,  schedule, and performance established in 2007 cannot be achieved.  Because the Coast Guard has not revalidated its system-level  requirements, it lacks the analytical framework needed to inform Coast  Guard and DHS decisions about asset trade-offs in the future. In the  absence of recommendations from the fleet mix analysis, it remains  unclear what number of assets are required to meet the Coast Guard’s  needs or what trade-offs in capabilities or mission goals are required to  control costs in a fiscally constrained environment.
section_title: Recommendation for Executive Action
paragraphs: To capitalize on the increase in knowledge gained by creating new  baselines for Deepwater assets, and to better manage acquisitions of  further assets and capabilities, we recommend that the Commandant of  the Coast Guard complete, and present to Congress, a comprehensive  review of the Deepwater Program that clarifies the overall cost, schedule,  quantities, and mix of assets that are needed to meet mission needs and  what trade-offs need to be made considering fiscal constraints, given that  the currently approved Deepwater baseline is no longer feasible.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Coast Guard and DHS. DHS  provided oral comments via an e-mail stating that it concurred with the  recommendation. The Coast Guard provided technical comments, which  we incorporated into the report 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. This report will also be available at no charge on GAO’s  Web site at http://www.gao.gov.
If you or your staff have any questions about this report or need additional  information, 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. Staff  acknowledgments are provided in appendix II.
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 2008 and 2009.  Additional scope and methodology information on each objective of this  report follows.
To assess changes to the Department of Homeland Security (DHS) and  Coast Guard acquisition policies, processes, and approach related to  Deepwater since our July 2009 report we reviewed DHS’ Acquisition  Directive 102-01, Acquisition Guidebook 102-01-001, Directive 026-06 on  test and evaluation, as well as acquisition decision and other memoranda.  We also reviewed the Coast Guard’s Major Systems Acquisition Manual  (MSAM), Requirements Generation and Management Process, and other  policy documents. We also interviewed senior acquisition directorate  officials, representatives of the Coast Guard’s capabilities directorate, and  representatives of Coast Guard’s technical and support authorities. We  also interviewed program and project managers to discuss the effect of the  policies and processes on Deepwater assets and spoke with DHS officials  about the department’s major acquisition review process and reporting  requirements. To determine the contractual status of Deepwater assets we  reviewed Coast Guard contracts and acquisition strategies and spoke with  contracting and acquisition officials. In addition, we met with contractor  and Coast Guard officials at Northrop Grumman facilities in Pascagoula,  Mississippi and with Bollinger officials in Lockport, Louisiana. We also  met with Coast Guard officials at the Aviation Logistics Center in  Elizabeth City, North Carolina; Surface Fleet Logistics Center in Curtis  Bay, Maryland; Lockheed Martin facilities in Moorestown, New Jersey; and  the Command and Control Engineering Center in Portsmouth, Virginia to  discuss their role in upgrading and maintaining Deepwater assets.
To assess whether the Deepwater Program is meeting baselines for cost,  schedule, and performance, we reviewed the Deepwater Program’s 2007  baseline and compared it to the revised baselines for individual assets that  have been approved to date. We also interviewed senior acquisition  directorate officials and program and project managers to discuss how the  Coast Guard is developing new acquisition program baselines for  individual assets and how the process used differs from that in the 2007  baseline, such as the basis for cost estimates. In addition we reviewed the  life-cycle cost estimates for selected assets. We also reviewed operational  requirements documents for selected assets in various stages of the  development and production processes to understand the major drivers of  cost growth, schedule delays, and capability changes. We interviewed  acquisition directorate officials and program and project managers to  discuss options for controlling cost growth by making trade-offs in asset  quantities and/or capabilities, as well as some of the potential implications  of unplanned schedule delays. We also interviewed Coast Guard officials  and analyzed documentation for the fleet-mix analysis and follow-on  studies being conducted by the capabilities directorate. In addition we met  with Navy and Coast Guard officials at the U.S. Navy’s Commander  Operational Test and Evaluation Force in Norfolk, Virginia to discuss their  role in conducting operational testing.
To assess the Coast Guard’s efforts to manage and build its acquisition  workforce, we reviewed Coast Guard information on government,  contractor, and vacant positions. We supplemented this analysis with  interviews of acquisition directorate officials, including contracting and  Office of Acquisition Workforce Management officials and program and  project managers to discuss current vacancy rates and the Coast Guard’s  plans to increase the size of the acquisition workforce. We also reviewed  documentation and interviewed senior acquisition directorate officials  about the use of support contractors and oversight to prevent contractors  from performing inherently governmental functions. We reviewed  documentation such as the updated Acquisition Human Capital Strategic  Plan and discussed workforce initiatives, challenges, and obstacles to  building an acquisition workforce, including recruitment and difficulty in  filling key positions.
We conducted this performance audit between October 2009 and July 2010  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 that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: GAO Contact and Acknowledgments
paragraphs: For further information about this report, please contact John P. Hutton,  Director, Acquisition and Sourcing Management, at (202) 512-4841 or  huttonj@gao.gov. Other individuals making key contributions to this  report include Michele Mackin, Assistant Director; J. Kristopher Keener;  Matthew Alemu; Kelly Bradley; and Kristine Hassinger.
section_title: Related GAO Products
paragraphs: 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: Change in Course Improves Deepwater Management and  Oversight, but Outcome Still Uncertain. GAO-08-745. Washington, D.C.:  June 24, 2008.
Coast Guard: Observations on Changes to Management and Oversight of  the Deepwater Program. GAO-09-462T. Washington, D.C.: March 24, 2009.
Status of Selected Assets of the Coast Guard’s Deepwater Program.  GAO-08-270R. Washington, D.C.: March 11, 2008.
Coast Guard: Status of Efforts to Improve Deepwater Program  Management and Address Operational Challenges. GAO-07-575T.  Washington, D.C.: March 8, 2007.
Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts.  GAO-06-764. Washington, D.C.: June 23, 2006.
Coast Guard: Changes to Deepwater Plan Appear Sound, and Program  Management Has Improved, but Continued Monitoring Is Warranted.  GAO-06-546. Washington, D.C.: April 28, 2006.
Coast Guard: Progress Being Made on Addressing Deepwater Legacy  Asset Condition Issues and Program Management, but Acquisition  Challenges Remain. GAO-05-757. Washington, D.C.: July 22, 2005.
Coast Guard: Preliminary Observations on the Condition of Deepwater  Legacy Assets and Acquisition Management Challenges. GAO-05-651T.  Washington, D.C.: June 21, 2005.
Coast Guard: Deepwater Program Acquisition Schedule Update Needed.  GAO-04-695. Washington, D.C.: June 14, 2004.
Contract Management: Coast Guard’s Deepwater Program Needs  Increased Attention to Management and Contractor Oversight.  GAO-04-380. Washington, D.C.: March 9, 2004.
Coast Guard: Actions Needed to Mitigate Deepwater Project Risks.  GAO-01-659T. Washington, D.C.: May 3, 2001.