Coast Guard Acquisitions: As Major Assets are Fielded, Overall Portfolio Remains Unaffordable
Published: 2015-05-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Coast Guard is managing a multi-billion dollar effort to modernize aging assets, including ships, aircraft, and information technology, to provide new capabilities to conduct missions ranging from marine safety to defense readiness. The Coast Guard has made progress in its acquisition management capabilities, such as more closely following acquisition best practices and taking steps to increase competition. However, GAO has consistently found that DHS and the Coast Guard recognize, but have yet to address, the fact that the Coast Guard's acquisition needs are not affordable.
This statement is based on GAO's body of work issued during the past three years on Coast Guard major acquisitions and highlights GAO's recently completed review of the transfer to the Coast Guard of the C-27J aircraft as well as observations regarding the Coast Guard's fiscal year 2016 Capital Investment Plan. The statement addresses the status of the Coast Guard's (1) aviation assets, particularly the C-27J aircraft and (2) surface assets, as well as (3) the overall affordability of its major acquisition portfolio.
GAO has made a number of recommendations to improve acquisition management and assess the affordability of the Coast Guard's portfolio. DHS and the Coast Guard agreed with GAO's recommendations and are working on implementing them by revisiting the Coast Guard's mission needs and fleet mix, as well as creating a 20-year acquisition plan that balances needs and resources, though the agencies have not specified when they will finish these efforts.
section_title: What GAO Found
paragraphs: GAO reported in March 2015 that the Coast Guard is in the process of receiving 14 C-27J fixed-wing aircraft transferred from the Air Force at no cost to the Coast Guard. However, it will take 7 years and about $600 million to fully transfer and modify the aircraft by adding information technology and surveillance systems. Transfer of the C-27J faces a number of risks but the aircraft is expected to contribute significant flight hours toward the Coast Guard's goal once complete. In light of this transfer, the Coast Guard is in the process of determining the best mix of fixed-wing aircraft to provide the capabilities it needs to carry out its missions. As shown in the table, GAO reported that the Coast Guard has fallen short of its flight hour goal; this trend is expected to continue until the Coast Guard revises its mission needs, an effort it expects to complete in 2016. The Coast Guard also plans to complete a fixed-wing fleet mix analysis by 2019, which will revisit the current flight hour goal and the assets that will best meet its needs. The table reflects the existing fleet and flight hours as compared to GAO's analysis of the Coast Guard's planned fleet including the C-27J aircraft.
Note: The HC-144 and C-27J are medium range assets while the HC-130H and HC-130J are long range assets. The fiscal year 2014 ‘medium range' column includes 4 legacy medium range aircraft.
According to GAO's April 2015 review, the Coast Guard continues to field National Security Cutters and Fast Response Cutters. The Coast Guard is also working with three potential shipbuilders to design the Offshore Patrol Cutter, needed to recapitalize the majority of the major cutter fleet, with plans for the first ship to be fielded in 2022. In the meantime, the Coast Guard's legacy Medium Endurance Cutters, which the Offshore Patrol Cutter is planned to replace, have begun to reach the end of their service lives. The Coast Guard currently has no definitive plan to extend the service life of these legacy assets and as a result faces a potentially significant capability gap.
GAO found in June 2014 that budget officials have acknowledged that the Coast Guard's current plan for developing new, more capable assets is not affordable given current and expected funding levels. For the past 5 years, GAO has found that the Coast Guard's acquisition funding has fallen short of what it estimates it needs to fully recapitalize its assets. The Coast Guard has responded by annually delaying or reducing its capability. The Coast Guard and the Department of Homeland Security (DHS) have taken some steps to address these affordability issues, but as yet these efforts have not led to the types of significant trade-off decisions among resources and needs that would improve the long-term outlook of the Coast Guard's acquisition portfolio.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Coast Guard’s plan to buy  and deploy the assets it has determined it needs to fulfill its current and  anticipated missions. We have been reviewing the Coast Guard’s efforts  to purchase a new portfolio of aircraft, ships, and other assets for many  years. Most recently, we issued a report on the transfer of 14 C-27J  aircraft from the Air Force to the Coast Guard.
The Coast Guard has made progress in its acquisition management  capabilities over the past several years, such as more closely following  acquisition best practices and taking steps to increase competition. We  have consistently found, however, that the Department of Homeland  Security (DHS) and the Coast Guard recognize, but have yet to address,  the fact that the Coast Guard’s acquisition needs are not affordable based  on past and expected future funding levels.
My statement today is based on our body of work on Coast Guard major  acquisitions and the operational capabilities of its assets completed over  the past 3 years and highlights our recently completed review of the  transfer to the Coast Guard of the C-27J aircraft as well as our  observations regarding the Coast Guard’s fiscal year 2016 Capital  Investment Plan. I will address issues related to the Coast Guard’s (1)  aviation assets, particularly the C-27J aircraft and (2) surface assets, as  well as (3) the overall affordability of its major acquisition portfolio.
For our March 2015 report on the C-27J, we assessed the status and  timeframes for making the fleet operational. We also assessed gaps in  the fixed wing aviation fleet, based on the current flight hour goals and  surveillance capabilities. We analyzed the Coast Guard’s May 2012 C- 27J business case analysis and the subsequent analysis that it provided  to Congress in an August 2013 letter. We also reviewed aviation fleet  performance information and talked with operators and maintenance  personnel. We also made observations on the Coast Guard’s fiscal year  2016 budget and Capital Investment Plan and interviewed Coast Guard  budget officials. We discussed these observations with Coast Guard  budget officials and incorporated their views as appropriate.  For other  past work cited in this statement, specifically our 2014 comprehensive  portfolio review of the overall Coast Guard acquisition portfolio, we  assessed the Coast Guard’s acquisition program baselines, the cost of  the Coast Guard’s portfolio, and steps taken to address affordability  concerns, including the need for long-term planning. We reviewed the  Coast Guard’s funding needs, mission needs, future plans, and  performance data to assess to what extent, if any, the Coast Guard is  experiencing capability gaps. More detailed information on our objectives,  scope, and methodology for the work cited throughout this statement can  be found in the issued reports. We conducted the work on which this  statement is based 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: The Coast Guard Is Reevaluating Its Aviation Fleet Mix in Light of C-27J Transfer
paragraphs: The Coast Guard is in the process of receiving 14 C-27Js as a part of a  Congressionally mandated transfer, at no cost to the Coast Guard, from  the Air Force, and these aircraft are planned to significantly contribute to  the Coast Guard’s missions once they are operational. However, as we  reported in March 2015, it will take time and money to fully transfer and  modify the aircraft. As of May 2015, 2 of the 14 C-27J aircraft had been  removed from storage at the Air Force’s 309th Aerospace Maintenance  and Regeneration Group (AMARG) at Davis-Monthan Air Force Base  where 13 of the 14 C-27Js are stored. These 2 aircraft are currently at the  Coast Guard’s aviation maintenance facility in Elizabeth City, North  Carolina where the aircraft are continuing to be inducted into the Coast  Guard. The Coast Guard expects to deliver 2 additional C-27Js from  AMARG to its maintenance facility by the end of fiscal year 2015.
The first part of induction entails removing the aircraft from the AMARG  storage facility, which involves taking off a protective compound,  conducting system checks and basic maintenance, and successfully  completing a flight test—among other steps. The Coast Guard then needs  to ensure that it can support these assets and modify the C-27Js to meet  its missions. This is a lengthy and complex process and, as a result, the  fleet of 14 fully operational C-27Js is not anticipated until 2022.
In our March 2015 report, we identified a number of milestones and risks  that will need to be addressed to achieve fully capable aircraft. In general,  the Coast Guard must achieve three major milestones before the aircraft  are fully operational:  1.   induct the aircraft,  2.   establish operational units (bases), and  3.  add surveillance and advanced communication capabilities.
In addition, complicating these efforts are areas of risk that need to be  addressed before the Coast Guard can field fully operational C-27Js.  These three risk areas are: (1) purchasing spare parts, (2) accessing  technical data, and (3) understanding the condition of the aircraft. These  and other risks may inhibit the Coast Guard’s ability to operate the aircraft  as planned. However, the Coast Guard is working to mitigate these risks.  Figure 1 illustrates the milestones and risk areas the Coast Guard must  address before it can field a fully capable C-27J aircraft.
According to initial Coast Guard estimates, while the C-27J aircraft come  at no acquisition cost to the Coast Guard, the costs to fully operationalize  them will total about $600 million. The fiscal year 2016 Capital Investment  Plan includes $482 million for this effort. The Capital Investment Plan also  notes that the Coast Guard has yet to fully estimate the total cost of  incorporating and operating the C-27J. The Coast Guard is planning to  refine this initial estimate by January 2016, in accordance with a February  2015 DHS acquisition decision memo.
In addition to the challenges in converting the C-27Js to fully operational  aircraft, we found in March 2015 that the Coast Guard faces a shortfall in   To fully meet its mission needs, the  achieving its overall flight hour goal.Coast Guard’s 2005 mission needs statement set forth a goal of 52,400  hours per year. In fiscal year 2014, the Coast Guard’s fixed-wing aviation  fleet flew 38 percent fewer hours than these stated needs—a total of  32,543 hours. The revised fleet as currently envisioned, with the addition  of the C-27J, will narrow this gap, but the Coast Guard will still fall short of  the 52,400 flight hour goal. As a result of planned changes to its fleet  composition to accommodate the C-27J—specifically reducing its planned  purchase of 36 HC-144s to 18—and other reasons the Coast Guard is  now on a path to fall short of meeting this goal by 18 percent when all  planned assets are operational.
Table 1 shows: (1) the aircraft that comprise the current 2014 fleet plan  and the Coast Guard’s planned fleet once the C-27Js are operational, (2)  the annual flight hours each fleet provides, and (3) the difference between  the flight hours of the fleets and the 52,400 hour goal.
According to the fiscal year 2016 Capital Investment Plan, the Coast  Guard is currently conducting a revised fixed-wing fleet analysis, intended  to be a fundamental reassessment of the capabilities and mix of fixed- wing assets needed to fulfill its missions. Coast Guard budget and  programming officials recognize the aviation fleet may change based on  the flight hour goals in the new mission needs statement and the overall  fleet mix analysis. The fiscal year 2016 Capital Investment Plan,  therefore, does not include any additional fixed-wing asset purchases. For  example, DHS and the Coast Guard have formally paused the HC-144  acquisition program at 18 aircraft, which are the aircraft they have already  purchased.
The Coast Guard has begun to rewrite its mission needs statement and  concept of operations and plans to complete this effort by 2016. The  Coast Guard plans to complete its full fixed-wing fleet mix analysis, which  includes the assets it estimates will best meet these needs, by 2019, but  has not set forth specific timeframes for completing key milestones. We  recommended in our March 2015 report that the Secretary of Homeland  Security and the Commandant of the Coast Guard inform Congress of the  time frames and key milestones for completing the fleet mix study,  including the specific date when the Coast Guard will publish its revised  annual flight hour needs and when it plans to inform Congress of the  corresponding changes to the composition of its fixed-wing fleet to meet  these needs. DHS concurred with our recommendation but did not  provide specific time lines for meeting this recommendation. The bill for  the Coast Guard Authorization Act of 2015, introduced in April 2015,  requires a revised Coast Guard fixed-wing aircraft fleet mix analysis to be  submitted to congressional transportation committees by the end of fiscal  year 2015.
section_title: The Coast Guard Is Beginning to Field New Surface Fleet Assets but Faces Potentially Significant Capability Gap
paragraphs: The Coast Guard continues to field National Security Cutters (NSCs) and  Fast Response Cutters (FRCs), which are replacing the legacy 378’-foot  high endurance cutters and the 110’-foot patrol boats, respectively. As we  reported in April 2015, the Coast Guard is also in the process of working  with three potential shipbuilders to design the Offshore Patrol Cutter, but  this asset, needed to recapitalize the vast majority of the major cutter  fleet, remains years away from being fielded. In the meantime, the Coast  Guard’s legacy Medium Endurance Cutters, which the Offshore Patrol  Cutter is planned to replace, have begun to reach the end of their service  lives creating a potential gap.
subsections: section_title: National Security Cutter
paragraphs: The Coast Guard has all 8 NSCs on contract or delivered as of May 2015,  and, as we reported in April 2015, completed operational test and  evaluation in April 2014. All 8 NSCs are planned to be fully operational by  2020 and the Coast Guard is phasing out the legacy 378’-foot high  endurance cutters as the NSCs become operational. We are currently  conducting a detailed review of the NSC’s recent test event at the request  of this subcommittee. We reported in April 2015, however, that during this  initial operational testing, the NSC was found to be operationally effective  and suitable, but with several major deficiencies. For example, the NSC’s  small boat—which is launched from the back of the cutter—is not suited  to operate in rough waters (sea state 5) as intended. officials told us they planned to test a new small boat by March 2015. In  addition, the Coast Guard deferred testing for several key capabilities on  the cutter, such as cybersecurity, the use of unmanned aerial systems, or  its ability to handle certain classified information. Coast Guard officials  said follow-on operational tests will be conducted between fiscal years  2015 and 2017. While future tests will be key to understanding the NSC’s  capabilities, any necessary changes resulting from these tests will have to  be retrofit onto all 8 NSCs since they are all either built or under contract.  In June 2014, we found that the NSC program had at least $140 million in  retrofits and design changes to fund and implement on the NSC fleet.
Sea states refer to the height, period, and character of waves on the surface of a large  body of water. Sea state 5 represents 8.2- to 13.1-foot waves.
As we also reported in June 2014, further changes may be needed due to  issues discovered through operating the NSC, which could result in the  Coast Guard having to spend even more money in the future to ensure  the NSC fleet meets requirements and is logistically supportable. For  example, the cutter is experiencing problems operating in warm climates,  including cooling system failures, excessive condensation forming  puddles on the deck of the ship, and limited redundancy in its air  conditioning system affecting use of information technology systems.  According to operational reports from a 2013 deployment, the  Commanding Officer of an NSC had to impose speed restrictions on the  vessel because of engine overheating when the seawater temperature  was greater than 68 degrees. In addition, cold climate issues on the cutter  include a lack of heaters to keep oil and other fluids warm during  operations in cold climates, such as the arctic. Further, Coast Guard  operators state that operating near ice must be done with extreme caution  since the ice can move quickly and the NSC could sustain significant  damage if it comes in contact with the ice. In June 2014 we reported that  while senior Coast Guard officials acknowledged that there were issues to  address, they stated that the Coast Guard has not yet determined what, if  any, fixes are necessary and that it depends on where the cutter  ultimately operates.
section_title: Fast Response Cutter
paragraphs: In April 2015, the Coast Guard accepted delivery of the 13th of 58 FRCs  and now has 32 of the cutters on contract. As we reported in April 2015,  the Coast Guard is introducing additional competition into this purchase  by recompeting the construction contract for the remaining 26 vessels;  this contract is planned to be awarded in fiscal year 2016. According to  the Coast Guard, the FRC has already been used to rescue over 400  undocumented immigrants, seize nearly $20 million in contraband, and  apprehend several suspected drug smugglers. The fiscal year 2016  Capital Investment Plan includes $1.47 billion over the next 5 years to  continue purchasing these assets by which time the Coast Guard plans to  have fielded 42 FRCs.
As we reported in June 2014, operational testers within the Department of  the Navy determined in July 2013 that the FRC, without the cutter’s small  boat, is operationally effective—meaning that testers determined that the  asset enables mission success. However, these operational testers also  determined that the FRC is not operationally suitable because a key  engine part failed, which lowered the amount of time the ship was  available for missions to an unacceptable level. Despite the mixed test  results, Navy and DHS testers as well as Coast Guard program officials  all agreed that the FRC is a capable vessel, and the Coast Guard plans to  confirm that it has resolved these issues during follow-on testing planned  to be completed by the end of fiscal year 2015.
section_title: Offshore Patrol Cutter
paragraphs: The Coast Guard is using a two-phased, competitive strategy to select a  contactor to construct the Offshore Patrol Cutter (OPC), as we reported in  April 2015. First, the Coast Guard conducted a full and open competition  to select three contractors to perform preliminary and contract design  work, and in February 2014, the Coast Guard awarded firm-fixed price  contracts to three shipbuilders. Second, by the end of fiscal year 2016,  the Coast Guard plans to award a contract to one of these shipbuilders to  complete the detailed design of the vessel and construct the first 9 to 11  ships, at which time the Coast Guard plans to recompete the contract for  the remaining vessels. The Coast Guard currently plans to begin  construction on the lead ship in fiscal year 2018—one year later than  planned in its most recent program baseline—and deliver this ship in  2022. The Coast Guard attributes the schedule delay to procurement  delays, including a bid protest. The fiscal year 2016 Capital Investment  Plan has $1.5 billion in funding for the OPC, which funds the design work  and construction of the first three vessels. After the first 3 of the planned  fleet of 25 OPCs are built, the Coast Guard plans to increase its purchase  to 2 OPCs per year until the final asset is delivered, currently scheduled  for fiscal year 2035.
section_title: Potential Surface Fleet Capability Gaps
paragraphs: As we reported in July 2012, the Coast Guard faces capability gaps in its  surface fleet over the next several years as the projected service life of its  Medium Endurance Cutter fleet expires before planned delivery of the  OPCs, which will replace these aging cutters. The Coast Guard  completed a refurbishment of the Medium Endurance Cutters in  September 2014 to increase their reliability and reduce longer-term  maintenance costs. Senior Coast Guard officials responsible for this  project reported that these efforts may provide up to 15 years of  additional service life to the fleet. However, they noted that this estimate  is optimistic and that the refurbishment provided needed upgrades to the  Medium Endurance Cutters, but was not designed to further extend the  cutters’ service lives.
As depicted in figure 2, even with the most optimistic projection for the  current service life of the Medium Endurance Cutters, we estimated in our  July 2012 report that there was a gap before the planned OPC deliveries.  The figure shows the service lives for each of the 27 210’-foot and 270’- foot Medium Endurance Cutters if the service life extensions provide 5,  10, or 15 years of additional service, and the planned delivery of the 25  OPCs.
Coast Guard budget officials recently told us that the Coast Guard is  studying whether to perform additional service life extension work on the  Medium Endurance Cutters to keep them operational until the OPCs are  delivered. Coast Guard officials could not tell us when a decision will be  made about this work and the fiscal year 2016 Capital Investment Plan  does not include funds for this effort.
section_title: The Coast Guard Faces Affordability Challenges as Funding Needs for the Offshore Patrol Cutter Loom
paragraphs: As we have found in recent years, the Coast Guard faces a significant  challenge in the affordability of its overall fleet, driven primarily by the  upcoming OPC procurement, which is planned to cost $12.1 billion. The  OPC will absorb about two-thirds of the Coast Guard’s acquisition funding  between 2018 and 2032 while it is being built. As a result, remaining  Coast Guard acquisition programs will have to compete for a small  percentage of funding during this time.
We found in June 2014 that there are gaps between what the Coast  Guard estimates it needs to carry out its program of record for its major  acquisitions and what it has traditionally requested and received. For  example, senior Coast Guard officials have stated a need for over $2  billion per year, but the Coast Guard has received $1.5 billion or less over  the past 5 years. The President’s budget requests $1 billion for fiscal year  2016. In an effort to address the funding constraints it has faced annually,  the Coast Guard has been in a reactive mode, delaying and reducing its  capability through the annual budget process but without a plan to  realistically set forth affordable priorities. The Coast Guard, DHS, and  Office of Management and Budget officials have acknowledged that the  Coast Guard cannot afford to recapitalize and modernize its assets in  accordance with the current plan at current funding levels. Efforts are  underway to address this issue, but so far, these efforts have not led to  the difficult trade-off decisions needed to improve the affordability of the  Coast Guard’s portfolio. We recommended in 2014 that the Coast Guard  develop a 20-year fleet modernization plan that identifies all acquisitions  needed to maintain the current level of service—aviation and surface— and the fiscal resources needed to buy the identified assets. We  recommended that the plan should consider trade-offs if the fiscal  resources needed to execute the plan are not consistent with annual  budgets. The Coast Guard concurred with our recommendation, but its  response did not fully address our concerns or set forth an estimated date  for completion.
In June 2014, we also reported that the Coast Guard faces a potentially  expensive recapitalization of other surface assets, such as the polar  icebreakers and its fleet of river buoy tenders, as these assets continue to  age beyond their expected service lives and, in some cases, have been  removed from service without a replacement. These issues pose  additional potential challenges to the affordability of the Coast Guard’s  overall acquisition portfolio.
Icebreakers—According to program officials, due to funding constraints,  the Coast Guard chose not to invest in either of its heavy icebreakers as  they approached the end of their service lives. Thus, both heavy  icebreakers were out of service from 2010 to 2013 and the Coast Guard  could not complete missions, such as resupplying a science laboratory in  Antarctica. The Coast Guard has recently returned one of these heavy  icebreakers back to service, but still has one fewer heavy icebreaker than  it has historically operated and several fewer than it needs, according to  the Coast Guard’s June 2013 heavy icebreaker mission need statement.  The fiscal year 2016 President’s Budget asks for $4 million for continued  preparatory studies to develop a cost estimate, among other things. The  associated fiscal year 2016 Capital Investment Plan contains $166 million  for polar icebreakers over the next five years but does not identify what  this money is for, though it is far short of the estimated $831 million  needed to build the vessel. The Coast Guard is currently working with  several U.S. government agencies to develop requirements and establish  a plan to build a heavy icebreaker that could be jointly funded by the U.S.  government agencies that need the asset to accomplish its missions.
River Buoy Tenders—The Coast Guard is facing a gap in its river buoy  tender fleet and has yet to formalize an acquisition project to replace this  fleet—a project estimated to cost over $1.5 billion.
HH-60 and HH-65 Helicopter Fleets—The HH-60 and HH-65 helicopter  fleets will approach the end of their lifespans between 2022 and 2026 and  will need to either be replaced or have a service life extension performed  to keep them operational. Regardless of the future path, significant  acquisition dollars will be required to maintain annual flight hours for the  next 20 years, according to Coast Guard program officials.
Chairman Hunter, Ranking Member Garamendi, and Members of the  Subcommittee, this concludes my prepared statement. I would be  pleased to respond to any questions.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: If you or your staff have any questions about this statement, please  contact Michele Mackin at (202) 512-4841 or mackinm@gao.gov. In  addition, contact points for our Offices of Congressional Relations and  Public Affairs may be found on the last page of this statement. Individuals  who made key contributions to this testimony include Katherine Trimble,  Assistant Director; Laurier R. Fish; John Crawford; and Peter W.  Anderson.
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