Coast Guard Acquisitions: Better Information on Performance and Funding Needed to Address Shortfalls
Published: 2014-06-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony summarizes the information contained in GAO's June 2014 report, entitled Coast Guard Acquistions: Better Information on Performance and Funding Needed to Address Shortfalls , GAO-14-450 .
section_title: What GAO Found
paragraphs: The selected Coast Guard assets that GAO reviewed are generally demonstrating improved performance--according to Coast Guard operators--but GAO found that they have yet to meet all key requirements. Specifically, two assets, the HC-144 patrol aircraft and Fast Response Cutter, did not meet all key requirements during operational testing before being approved for full-rate production, and Department of Homeland Security (DHS) and Coast Guard guidance do not clearly specify when this level of performance should be achieved. Additionally, the Coast Guard changed its testing strategy for the Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR) system and, as a result, is no longer planning to test the system's key requirements. Completing operational testing for the C4ISR system would provide the Coast Guard with the knowledge of whether this asset meets requirements.
As acquisition program costs increase across the portfolio, consuming significant amounts of funding, the Coast Guard is farther from fielding its planned fleet today than it was in 2009, in terms of the money needed to finish these programs. In 2009, GAO found that the Coast Guard needed $18.2 billion to finish its 2007 baseline, but now needs $20.7 billion to finish these assets.
To inform Congress of its budget plans, the Coast Guard uses a statutorily required 5-year Capital Investment Plan, but the law does not require the Coast Guard to report the effects of actual funding levels on individual projects and, thus, it has not done so. For example, the Coast Guard has received less funding than planned in its annual budgets, but has not reflected the effects of this reduced funding in terms of increased cost or schedule for certain projects. Without complete information, Congress cannot know the full cost of the portfolio.
The Coast Guard has repeatedly delayed and reduced its capability through its annual budget process and, therefore, it does not know the extent to which it will meet mission needs and achieve desired results. This is because the Coast Guard does not have a long-term fleet modernization plan that identifies all acquisitions needed to meet mission needs over the next two decades within available resources. Without such a plan, the Coast Guard cannot know the extent to which its assets are affordable and whether it can maintain service levels and meet mission needs. Congress should consider requiring the Coast Guard to include additional information in its Capital Investment Plan. In addition, the Secretary of DHS should clarify when minimum performance standards should be achieved, conduct C4ISR testing, and develop a long-term modernization plan. DHS concurred with the recommendations, but its position on developing a long-term plan does not fully address GAO's concerns as discussed in the report.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Coast Guard’s plan to buy  the assets it needs to meet current and future mission demands. We have  been reviewing the Coast Guard’s efforts to purchase a new fleet since  2001 and have repeatedly found that the Department of Homeland  Security (DHS) and the Coast Guard recognize, but have yet to address,  the continued unaffordability of the Coast Guard’s portfolio given the  funds needed to complete the fleet and the funds available each year.  While the Coast Guard has made progress in more closely following  acquisition best practices, such as taking steps to increase competition, it  does not have a long term plan that balances its estimated needs and  resources as it continues its 30-year recapitalization effort. Instead, the  Coast Guard continues to pursue a set of acquisitions that is not  affordable, leading it to repeatedly delay and reduce capability on an  annual basis to address budget constraints. Simply put, it is unlikely that  these short-term budget decisions will amount to a good long-term  investment strategy.
In our report to this subcommittee that we are releasing today, we found,  among other things, that DHS and Coast Guard guidance is unclear  regarding when minimum performance standards should be achieved,  that the Coast Guard did not plan to operationally test its Command,  Control, Communications, Computers, Intelligence, Surveillance, and  Reconnaissance (C4ISR) system, and that the Coast Guard does not  have a long-term fleet modernization plan. We made a number of  recommendations to address these issues.
Today, I will (1) describe how selected assets are performing in the field  as well as results from recent operational test events; (2) provide  summary cost information on the Coast Guard’s portfolio of acquisitions;  and (3) discuss the extent to which the Coast Guard is experiencing  capability gaps given known affordability issues. My testimony will  summarize the findings and recommendations from our report.
To assess the operational performance of the Coast Guard assets, we  selected all four major acquisition programs that were fielded between  fiscal year 2007 and 2014 and that the Coast Guard planned to test—the  Maritime Patrol Aircraft (HC-144), Fast Response Cutter, National  Security Cutter, and the C4ISR system. For each asset, we reviewed  post-deployment reports and test reports and interviewed officials  responsible for the testing and operation of these assets. To assess the  cost of the Coast Guard’s portfolio and steps taken to address  affordability concerns, we reviewed each asset’s acquisition program  baseline as well as the Coast Guard’s budget and discussed the  acquisition portfolio with Coast Guard, DHS, and Office of Management  and Budget (OMB) officials and followed up on previous efforts to address  affordability. We also reviewed the Coast Guard’s Capital Investment  Plan and compared it to relevant law that specifies the plan’s contents. To  assess what, if any, capability gaps exist given the Coast Guard’s  affordability issues, we reviewed funding needs, mission needs, future  plans, and performance data and reviewed the Coast Guard’s fiscal year  2014 and 2015 budgets. We also reviewed the Coast Guard’s estimates  of its overall fleet performance and current or potential performance gaps.
Our work was conducted in accordance with generally accepted  government auditing standards. Our report provides further details on our  scope and methodology.
subsections: section_title: Operators Extol New Assets’ Performance Compared to Aging Counterparts, but These Assets Have Yet to Meet Key Requirements
paragraphs: Coast Guard operators and commanding officers told us that the National  Security Cutter, Fast Response Cutter, and HC-144 are performing well  during missions and are an improvement over the vessels and aircraft  they are replacing. Operators primarily attribute the performance  improvements to better endurance and communications capabilities,  which help to position and keep these assets in high-threat areas.  Specifically, these new assets have greater fuel capacity and efficiency,  engine room and boat launch automation, handling/seakeeping, and food  capacity, all of which increase endurance and effectiveness. To date, the  improved capabilities of the four newly fielded assets have led to mission- related successes, according to Coast Guard asset commanders.
In addition to performance in the field, each major acquisition is required  to undergo operational testing by an independent test agency—in this  case, the Navy’s Commander of Operational Test and Evaluation Force.  Operational testing is important, as it characterizes the performance of  the asset in realistic conditions. During operational testing, the test  agency determines whether the asset is operationally effective (whether  or not an asset can meet its missions) and operationally suitable (whether  or not the agency can support the asset to an acceptable standard). The  Fast Response Cutter and the HC-144 completed initial operational  testing in September 2013 and October 2012, respectively. Based on the  results, neither asset met all key requirements during this testing. The  Fast Response Cutter partially met one of six key requirements, while the  HC-144 met or partially met four of seven key requirements. The Fast  Response Cutter was found to be operationally effective (with the  exception of its cutter boat) though not operationally suitable, and the HC- 144 was found to be operationally effective and suitable.
It is important to recognize that this was the initial operational testing and  that the Coast Guard has plans in place to address most of the major  issues identified. For example, in order to address issues with the  seaworthiness of the Fast Response Cutter’s small boat, the Coast Guard  will supply the Fast Response Cutter with a small boat developed for the  National Security Cutter. However, DHS officials approved both assets to  move into full rate production, and we found that guidance is not clear  regarding when the minimum performance standards should be met—or  what triggers the need for a program manager to submit a performance  breach memorandum indicating that certain performance parameters  were not demonstrated. The Coast Guard did not report that a breach had  occurred for the HC-144 or the Fast Response Cutter, even though  neither of these programs met certain key performance parameters  during operational testing. Without clear acquisition guidance, it is difficult  to determine when or by what measure an asset has breached its key  performance parameters and, therefore, when DHS and certain  congressional committees are to be notified. We recommended that DHS  and the Coast Guard revise their acquisition guidance to specify when  minimum performance standards should be met and clarify the  performance data that should be used to determine whether a  performance breach has occurred. DHS concurred with these  recommendations and stated that it plans to make changes to its  acquisition guidance by June 30, 2015.
By not fully validating the capabilities of the National Security Cutter until  late in production, the Coast Guard may have to spend more to ensure  the ship meets requirements and is logistically supportable. The Coast  Guard recently evaluated the National Security Cutter through operational  testing, even though 7 of 8 National Security Cutters are under contract,  but results are not expected until early fiscal year 2015. Coast Guard  program officials stated that, prior to the operational test, the National  Security Cutter had demonstrated most of its key performance  parameters through non-operational tests and assessments, but we found  that a few performance requirements, such as those relating to the  endurance of the vessel and its self-defense systems, have yet to be  assessed. Further, several issues occurred prior to the start of operational  testing that required retrofits or design changes to meet mission needs.  The total cost to conduct some of these retrofits and design changes has  not yet been determined, but the cost of major changes for all eight hulls  identified to date has totaled approximately $140 million, which is about  one-third of the production cost of a single National Security Cutter. The  Coast Guard continues to carry significant risk by not fully validating the  capabilities of the National Security Cutter until late in production, which  could result in the Coast Guard having to spend even more money in the  future, beyond the changes that have already been identified.
The Coast Guard has not yet evaluated the C4ISR system through  operational testing even though the system has been fielded on nearly all  new assets. Instead of evaluating that system’s key performance  parameters, Coast Guard officials decided to test the system in  conjunction with other assets—such as the HC-144 and the Fast  Response Cutter—to save money and avoid duplication. However, the  C4ISR system was not specifically evaluated during the HC-144 and Fast  Response Cutter tests because those assets’ test plans did not fully  incorporate testing the effectiveness and suitability of the C4ISR system.  The Coast Guard now plans to test the key performance parameters for  the next generation C4ISR system when follow on testing is conducted on  the National Security Cutter; this testing has yet to be scheduled. By not  testing the system, the Coast Guard has no assurance that it is  purchasing a system that meets its operational needs. To address this  issue, we recommended that the Coast Guard assess the C4ISR system  by fully integrating this assessment into other assets’ operational test  plans or by testing the C4ISR program on its own. In response, the Coast  Guard stated that it now plans to test the C4ISR system’s key  performance parameters during follow on testing for the National Security  Cutter.
section_title: Program Cost Increases across the Portfolio Are Consuming Funding, While Affordability Issues Have Not Been Addressed or Accurately Represented
paragraphs: As the Coast Guard continues to refine cost estimates for its major  acquisitions, the expected cost of its acquisition portfolio has grown.  There has been $11.3 billion in cost increases since 2007 across the  eight programs that have consistently been part of the portfolio—the  National Security Cutter, the Offshore Patrol Cutter, the Fast Response  Cutter, the HC-144, the HC-130H/J, HH-65, C4ISR, and Unmanned  Aircraft System. These cost increases are consuming a large portion of  funding. Consequently, the Coast Guard is farther from fielding its  planned fleet today than it was in 2009, in terms of money needed to  finish these programs. Senior Coast Guard acquisition officials told us  that many of the cost increases are due to changes from preliminary  estimates and that they expect to meet their current cost estimates.  However, the Coast Guard has yet to construct the largest asset in the  portfolio—the Offshore Patrol Cutter—and if the planned costs for this  program increase, difficulties in executing the portfolio as planned will be  further exacerbated. Figure 1 shows the total cost of the portfolio and cost  to complete the major programs included in the Coast Guard’s 2007  baseline in 2009 and 2014.
Coast Guard, DHS, and OMB 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. According to  budget documents, Coast Guard acquisition funding levels have been  about $1.5 billion for each of the past 5 years, and the President’s budget  requests $1.1 billion for fiscal year 2015. To date, efforts to address this  affordability imbalance have yet to result in the significant trade-off  decisions that would be needed to do so. We have previously  recommended that DHS and the Coast Guard establish a process to  make the trade-off decisions needed to balance the Coast Guard’s  resources and needs. While they agreed with the recommendation, they  have yet to implement it.
In the meantime, the extent of expected costs—and how the Coast Guard  plans to address them through budget trade-off decisions—is not being  clearly communicated to Congress. The mechanism in place for reporting  to certain congressional committees, the Capital Investment Plan, does  not reflect the full effects of these trade-off decisions on the total cost and  schedule of its acquisition programs. This information is not currently  required by statute, but without it, decision makers do not have the  information to understand the full extent of funding that will be required to  complete the Coast Guard’s planned acquisition programs. For example,  in the Fiscal Years 2014 through 2018 Capital Investment Plan, cost and  schedule totals did not match the funding levels presented for many  programs. The plan proposed lowering the Fast Response Cutter  procurement to two per year but still showed the total cost and schedule  estimates for purchasing three or six per year—suggesting that this  reduced quantity would have no effect on the program’s total cost and  schedule. Given that decreasing the quantity purchased per year would  increase the unit and total acquisition cost, the Coast Guard estimated  that the decision to order fewer ships will likely add $600 to 800 million in  cost and 5 years to the cutter’s final delivery date, but this was absent  from the plan. Reporting total cost and delivery dates that do not reflect  funding levels could lead to improper conclusions about the effect of  these decisions on the program’s total cost and schedule and the overall  affordability of the Coast Guard’s acquisition portfolio. In our report, we  suggest that Congress consider amending the law that governs the 5- year Capital Investment Plan to require the Coast Guard to submit cost  and schedule information that reflects the impact of the President’s  annual budget request on each acquisition across the portfolio.
section_title: Long Term Plan Needed to Address Gaps That Are Materializing as Coast Guard Shapes Its Capability through the Budget Process
paragraphs: To address budget constraints, the Coast Guard is repeatedly delaying  and reducing its capability through its annual budget process. However,  the Coast Guard does not know the extent to which its mission needs can  be tailored through the annual budget process and still achieve desired  results. In addition, this approach puts pressure on future budgets and  delays fielding capability, which is reducing performance. Thus, the Coast  Guard’s ability to meet future needs is uncertain and gaps are  materializing in its current fleet. In fact, the Coast Guard has already  experienced a gap in heavy icebreaking capability and is falling short of  meeting operational hour goals for its major cutter fleet—comprised of the  National Security Cutter and the in-service high and medium endurance  cutters. These capability gaps may persist, as funding replacement  assets will remain difficult at current funding levels.
Without a long-term plan that considers service levels in relation to  expected acquisition funding, the Coast Guard does not have a  mechanism to aid in matching its requirements and resources. For  example, the Coast Guard does not know if it can meet its other  acquisition needs while the Offshore Patrol Cutter is being built.  According to the current program of record, acquisition of the Offshore  Patrol Cutter will conclude in about 20 years and will account for about  two-thirds of the Coast Guard’s overall acquisition budget during this time  frame. In addition, as we have previously found, the Coast Guard is  deferring costs—such as purchasing unmanned systems or replacing its  Buoy Tender fleet—that could lead to an impending spike in the  requirement for additional funds. The Coast Guard has no method in  place to capture the effects of deferring such costs on the future of the  acquisition portfolio.
The Coast Guard is not currently required to develop a long-term fleet  modernization plan that considers its current service levels for the next 20  years in relation to its expected acquisition funding. However, the Coast  Guard’s acquisition guidance supports using a long range capital planning  framework. According to OMB capital planning guidance referenced by  the Coast Guard’s Major Systems Acquisition Manual, each agency is  encouraged to have a plan that defines its long-term capital asset  decisions. This plan should include, among other things, (1) an analysis  of the portfolio of assets already owned by the agency and in  procurement, (2) the performance gap and capability necessary to bridge  the old and new assets, and (3) justification for new acquisitions proposed  for funding. OMB officials stated that they support DHS and the Coast  Guard conducting a long term review of the Coast Guard’s acquisitions to  assess the capabilities it can afford.
A long-term plan can enable trade-offs to be seen and addressed in  advance, leading to better informed choices and making debate possible  before irreversible commitments are made to individual programs.  Without this type of plan, decision makers do not have the information  they need to better understand the Coast Guard’s long-term outlook.  When we discussed such an approach with the Coast Guard, the  response was mixed. Some Coast Guard budget officials stated that such  a plan is not worthwhile because the Coast Guard cannot predict the level  of funding it will receive in the future. However, other Coast Guard  officials support the development of such a plan, noting that it would help  to better understand the effects of funding decisions. Without such a plan,  we believe it will remain difficult for the Coast Guard to fully understand  the extent to which future needs match the current level of resources and  its expected performance levels—and capability gaps—if funding levels  remain constant. Consequently, we recommended that the Coast Guard  develop a 20-year fleet modernization plan that identifies all acquisitions  needed to maintain the current level of service and the fiscal resources  necessary to build the identified assets. While DHS concurred with our  recommendation, the response does not fully address our concerns or set  forth an estimated date for completion, as the response did for the other  recommendations. We continue to believe that a properly constructed 20- year fleet modernization plan is necessary to illuminate what is feasible in  the long term and will also provide a basis for informed decisions that  align the Coast Guard’s needs and resources.
Chairman Hunter, Ranking Member Garamendi, and Members of the  Subcommittee, this concludes my prepared statement. I would be  pleased to respond to any questions that you may have at this time.
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 are Katherine Trimble,  Assistant Director; Laurier R. Fish; Peter W. Anderson; William Carrigg;  John Crawford; Sylvia Schatz; and Lindsay Taylor.
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