Coast Guard: Action Needed As Approved Deepwater Program Remains Unachievable
Released: 2011-07-28T00:00:00

Letter

Background

The Coast Guard is a multimission, maritime military service within DHS. The Coast Guard has a variety of responsibilities including port security and vessel escort, search and rescue, and polar ice operations. To carry out these responsibilities, the Coast Guard operates a number of vessels, aircraft, and information technology programs. Since 2001, we have reviewed the Deepwater Program and reported to Congress, DHS, and the Coast Guard on the risks and uncertainties inherent with this program. In our July 2010 report, we found that DHS and Coast Guard acquisition policies and processes continued to evolve, further establishing the Coast Guard as systems integrator, and that the Coast Guard continued to improve its acquisition workforce and develop means to further reduce vacancies. We also found that as the Coast Guard’s understanding of the assets evolved, achievement of the DHS-approved May 2007 acquisition program baseline of $24.2 billion for the Deepwater Program was not feasible due to cost growth and schedule delays. We concluded that while the Coast Guard had deepened its understanding of the resources needed and capabilities required on an asset level, the Coast Guard had not revalidated its system-level requirements and lacked the analytical framework needed to inform Coast Guard and DHS decisions about asset trade-offs in the future.

A Brief History of the Deepwater Program

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 contracted with ICGS in June 2002 to be the systems integrator for Deepwater and 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, ICGS submitted and priced its proposal as a package; that is, the Coast Guard bought the entire solution and could not reject any individual component.

In 2002, the Coast Guard conducted a performance gap analysis that determined the Deepwater fleet as designed by ICGS would have significant capability gaps in meeting emerging mission requirements following the September 11, 2001, terrorist attacks. The Coast Guard decided, due to fiscal constraints, not to make significant changes to the ICGS planned Deepwater fleet, but did approve several asset capability changes. Following these changes, the Coast Guard submitted a revised cost, schedule, and performance baseline for the overall Deepwater Program to DHS in November 2006. The new baseline established the total acquisition cost of the ICGS solution at $24.2 billion and projected the Coast Guard would complete the acquisition in 2027. DHS approved the baseline in May 2007, shortly after the Coast Guard—acknowledging that it had relied too heavily on contractors to do the work of the government and that government and industry had failed to control costs—announced its intention to take over the role of systems integrator.

With limited insight into how ICGS’s planned fleet would meet overall mission needs, the Coast Guard has acknowledged challenges in justifying the proposed capabilities and making informed decisions about possible trade-offs. In October 2008, the capabilities directorate initiated a fleet mix analysis intended to be a fundamental reassessment of the capabilities and mix of assets the Coast Guard needs to fulfill its Deepwater mission. As we reported last year, officials stated that this analysis did not impose fiscal constraints on the outcome and therefore, the results were unfeasible. As a result of discussions with DHS, the Coast Guard started a second, cost-constrained analysis—fleet mix analysis phase 2. Figure 1 provides a time line of key events in the Deepwater Program.

Key directorates involved in the management of the Deepwater Program include the capabilities, resources, C4 and information technology, and acquisition directorates. Most of the Deepwater assets are considered major acquisitions, as outlined in the Coast Guard’s Major Systems Acquisition Manual. Acquisitions with life-cycle cost estimates equal to or greater than $1 billion are considered level I, and those with cost estimates from $300 million to less than $1 billion are considered level II. These major acquisition programs are to receive oversight from DHS’s acquisition review board, which is responsible for reviewing acquisitions for executable business strategies, resources, management, accountability, and alignment with strategic initiatives. The Coast Guard provides oversight to programs that have life-cycle cost estimates less than $300 million (level III). Table 1 describes in more detail the assets the Coast Guard plans to buy or upgrade under the Deepwater Program, the associated investment level if known, and planned and delivered quantities.

DHS’s acquisition review board not only provides oversight for major acquisition programs, but also supports the department’s Acquisition Decision Authority in determining the appropriate direction for an acquisition at key Acquisition Decision Events (ADE). At each ADE, the Acquisition Decision Authority approves acquisitions to proceed through the acquisition life-cycle phases upon satisfaction of applicable criteria. Additionally, Component Acquisition Executives at the Coast Guard and other DHS components are responsible in part for managing and overseeing their respective acquisition portfolios, as well as approving level III systems acquisitions. The DHS four-phase acquisition process is:  Need phase—define a problem and identify the need for a new acquisition. This phase ends with ADE 1, which validates the need for a major acquisition program.  Analyze/Select phase—identify alternatives and select the best option. This phase ends with ADE-2A, which approves the acquisition to proceed to the obtain phase and includes the approval of the acquisition program baseline.  Obtain phase—develop, test, and evaluate the selected option and determine whether to approve production. During the obtain phase, ADE-2B approves a discrete segment if an acquisition is being developed in segments and ADE-2C approves low-rate initial production. This phase ends with ADE-3 which approves full-rate production.  Produce/Deploy/Support phase—produce and deploy the selected option and support it throughout the operational life cycle. Figure 2 depicts where level I and II Deepwater assets currently fall within these acquisition phases and decision events.

True Cost and Schedule of Deepwater Program Is Not Known

The Deepwater Program as a whole continues to exceed the cost and schedule baselines approved by DHS in May 2007, but several factors preclude a solid understanding of the true cost and schedule of the program. The Coast Guard has developed baselines for some assets, most of which have been approved by DHS, that indicate the estimated total acquisition cost could be as much as $29.3 billion, or about $5 billion over the $24.2 billion baseline. But additional cost growth is looming because the Coast Guard has yet to develop revised baselines for all the Deepwater assets, including the Offshore Patrol Cutter (OPC)—the largest cost driver in the Deepwater Program. In addition, the Coast Guard’s most recent 5-year budget plan, included in DHS’s fiscal year 2012 budget request, indicates further cost and schedule changes not yet reflected in the asset baselines. The reliability of the cost estimates and schedules for selected assets is also undermined because the Coast Guard did not follow key best practices for developing these estimates. Coast Guard and DHS officials agree that the annual funding needed to support all approved Deepwater baselines exceeds current and expected funding levels in this fiscal climate. This contributes to churn in program baselines when programs are not able to execute schedules as planned. The Coast Guard’s acquisition directorate has developed several actionitems to help address this mismatch by prioritizing acquisition program needs, b ut these action items have not been adopted across the Coast Guard.

Additional Cost Grow and Schedule Delays beyond Those in Approv Program Baselines Are Looming

The estimated total acquisition cost of the Deepwater Program, based on approved program baselines as of May 2011, could be as much as approximately $29.3 billion, or about $5 billion more than the $24.2 b baseline approved by DHS in 2007. This represents an increase of approximately 21 percent. As of May 2011, DHS had approved eight revised baselines from the 2007 program and the Coast Guard had approved two based on a delegation of approval authority from DHS. The increase in acquisition cost for these programs alone is about 43 percent. Table 2 compares each Deepwater asset’s acquisition cost estim ate from the 2007 program baseline with revised baselines, if available. illion Coast Guard officials stated that some of the approved acquisition program baselines fall short of the true funding needs. This not only exacerbates the uncertainty surrounding the total cost of the Deepwater acquisition, but also contributes to the approved Deepwater Program no longer being achievable. For example, the NSC program’s approved baseline reflects a total acquisition cost of approximately $4.7 billion. However, Congress has already appropriated approximately $3.1 billion for the program and the Coast Guard’s fiscal years 2012-2016 capital investment plan indicates an additional $2.5 billion is needed through fiscal year 2016 for a total of $5.6 billion to complete the acquisition. This would represent an increase of approximately 19 percent over the approved acquisition cost estimate for eight NSCs. According to section 575 of Title 14 of the U.S. Code, the Commandant must submit a report to Congress no later than 30 days after the Chief Acquisition Officer of the Coast Guard becomes aware of a likely cost overrun for any level I or level II acquisition program that will exceed 15 percent. If the likely cost overrun is greater than 20 percent, the Commandant must include a certification to Congress providing an explanation for continuing the project. Senior Coast Guard acquisition officials stated that they cannot corroborate a total cost of $5.6 billion for the NSC program, or a cost increase of 19 percent, because the Coast Guard has not yet completed a life-cycle cost analysis for the program. However, these officials stated that a certification to Congress for the NSC program is pending as well as one for the MPA program.

We previously reported several schedule delays for assets based on the revised baselines and noted that as the Coast Guard reevaluates its baselines, it gains improved insight into the final delivery dates for all of the assets. While the Coast Guard’s revised baselines identify schedule delays for almost all of the programs, these baselines do not reflect the extent of some of these delays as detailed in the Coast Guard’s fiscal years 2012-2016 capital investment plan. For example, the MPA’s revised baseline has final asset delivery in 2020—a delay of 4 years from the 2007 baseline—but the capital investment plan indicates final asset delivery in 2025—an additional 5-year delay not reflected in the baseline. Coast Guard resource officials responsible for preparing this plan acknowledged that the final asset delivery dates in most of the revised baselines are not current. The forthcoming delays identified in the fiscal years 2012-2016 capital investment plan indicate that the final asset delivery dates approved in the 2007 Deepwater baseline are no longer achievable for most assets. Figure 3 shows delays in final asset delivery dates according to (1) the 2007 baseline; (2) the asset’s revised baseline, if available; and (3) the fiscal years 2012-2016 capital investment plan submitted to Congress.

Our analysis of selected assets’ life-cycle cost estimates found that the Coast Guard did not fully follow best practices for developing reliable life- cycle cost estimates, which is at the core of successfully managing a project within cost and affordability guidelines. The Major Systems Acquisition Manual cites our Cost Estimating and Assessment Guide as a source for guidance and best practice information. Furthermore, we found that the Coast Guard is not receiving reliable schedules for selected assets from its contractors, which should be inputs into a programwide schedule. We reviewed the MPA program’s life-cycle cost estimate and schedule because this program has the highest life-cycle cost estimate of all Deepwater assets and has experienced schedule delays. We also reviewed the NSC program’s schedule because this program has the second highest life-cycle cost estimate and has also experienced schedule delays. The Coast Guard was not able to provide us with a current NSC life-cycle cost estimate to review because the program is revising its estimate, an effort that was directed in a December 2008 DHS acquisition decision memorandum. Therefore, we reviewed the C4ISR program’s life-cycle cost estimate because the estimate was complete, but the program did not yet have a DHS-approved acquisition program baseline and there was uncertainty concerning the direction of the program.

Reliable life-cycle cost estimates reflect four characteristics. They are (1) well-documented, (2) comprehensive, (3) accurate, and (4) credible. These four characteristics encompass 12 best practices for reliable program life-cycle cost estimates that are identified in appendix III. The results of our review of the MPA and C4ISR life-cycle cost estimates are summarized in figure 4. Appendix III contains a more detailed discussion of the extent to which the two cost estimates met the four best practices criteria.

While both life-cycle cost estimates addressed elements of best practices, their effectiveness is limited because they do not reflect the current program and have not been updated on a regular basis, which is considered a best practice for an accurate cost estimate. For example, the MPA life-cycle cost estimate was completed in August 2009. While the Coast Guard has obtained actual costs, the program office has not updated the formal estimate with these actual costs. This limits the program’s ability to analyze changes in program costs and provide decision makers with accurate information. The Coast Guard did include a sensitivity analysis to identify cost drivers, but this analysis did not examine possible effects of funding cuts—an area of risk for the MPA program. The Coast Guard completed the C4ISR life-cycle cost estimate in December 2009. DHS reviewed this estimate, but did not validate it. We found that this estimate was minimally credible for several reasons, including that the program did not complete a sensitivity analysis of cost drivers—even though cost drivers were identified and major funding cuts occurred which led to a program breach. C4ISR program officials told us that they are currently revising the 2009 estimate because it is no longer reflective of the current program. Coast Guard C4ISR officials agreed with our analysis and stated that they plan to incorporate the best practices going forward.

We found that neither the MPA nor the NSC programs are receiving schedule data from their contractors that fully meet schedule best practices. Our guidance identifies nine interrelated scheduling best practices that are integral to a reliable and effective master schedule. For example, if the schedule does not capture all activities, there will be uncertainty about whether activities are sequenced in the correct order and whether the schedule properly reflects the resources needed to accomplish work. MPA and NSC contractor schedule data should feed into each program’s integrated master schedule in order to reliably forecast key program dates. However, the NSC program does not have an integrated master schedule that would account for all planned government and contractor efforts for the whole program. The program is currently managing a schedule for only the third cutter out of a total planned eight cutters. The MPA program does have an integrated master schedule which it updates with the contractor schedule data. However, our assessment found the contractor’s schedule for aircraft 12-14 is unreliable. Because an integrated master schedule is intended to connect all government and contractor schedule work, unreliable contractor schedule data will result in unreliable forecasted dates within the integrated master schedule. Figure 5 summarizes the results of our review of the MPA contractor’s schedule for aircraft 12-14 and the NSC 3 schedule. Appendix IV includes a detailed discussion of our analysis.

As shown above, the MPA contractor’s schedule for aircraft 12-14 did not substantially or fully meet any of the nine best practices. Based on our discussions with the program manager, this condition stems, in part, from a lack of program management resources, as the program office does not have trained personnel to create and maintain a schedule. In addition, while program officials stated that they do conduct meetings to provide oversight on production and delivery schedules, it does not appear that management is conducting proper oversight of existing schedule requirements. Program officials stated that they were not interested in obtaining a detailed schedule, even though it is a deliverable in the production contract, because the MPA contract is fixed price and the contractor’s past delivery has been good. However, regardless of contract type, best practices call for a schedule to include all activities necessary for the program to be successfully completed. After we raised concerns about the Coast Guard paying for a detailed schedule that the program office does not plan to request or use, program officials told us that the contractor has been very responsive to Coast Guard’s subsequent direction to update the schedule to incorporate best practices. They said the Coast Guard has modified the schedule reporting procedures so that the contractor will provide monthly reporting of the data.

The NSC 3 schedule substantially met two best practices and partially met six best practices, but the program office did not conduct a schedule risk analysis to predict a level of confidence in meeting the completion date. The purpose of the analysis is to develop a probability distribution of possible completion dates that reflect the project and its quantified risks. This analysis can help project managers understand the most important risks to the project and focus on mitigating them. A schedule risk analysis will also calculate schedule reserve, which can be set aside for those activities identified as high risk. Without this reserve, the program faces the risk of delays to the scheduled completion date if any delays were to occur on critical path activities. Senior Coast Guard acquisition officials stated that the Coast Guard has high confidence in the projected delivery date and uses a full range of project tools, including the schedule, to project the delivery date. Collectively though, we found that the weaknesses in not meeting the nine best practices for the NSC 3 program integrated master schedule increase the risk of schedule slippages and related cost overruns and make meaningful measurement and oversight of program status and progress, as well as accountability for results, difficult to achieve.

Budget Planning for Deepwater Does Not Reflect the Realities of a Cost Constrained Environment, Exacerbating Program Uncertainties

Coast Guard and DHS officials agreed that the annual funding needed to support all approved Deepwater acquisition program baselines exceeds current and expected funding levels, particularly in this constrained fiscal climate. For example, Coast Guard acquisition officials stated that up to $1.9 billion per year would be needed to support the approved Deepwater baselines, but they expect Deepwater funding levels to be closer to $1.2 billion annually over the next several years. Therefore the Coast Guard is managing a portfolio—which includes many revised baselines approved by DHS—that is expected to cost more than what its annual budget will likely support. Our previous work on Department of Defense (DOD) acquisitions shows that when agencies commit to more programs than resources can support, unhealthy competition for funding is created among programs. This situation can lead to inefficient funding adjustments, such as moving money from one program to another or deferring costs to the future.

When a program’s projected funding levels are lower than what the program was previously projected to receive, the program is more likely to have schedule breaches and other problems, as the program can no longer remain on the planned schedule. From September-October 2010, the Coast Guard reported potential baseline breaches to DHS for the C4ISR, HC-130H, and HH-60 programs that were caused, at least in part, by reduced funding profiles in the fiscal years 2011-2015 capital investment plan. For example, in the fiscal years 2008 and 2009 capital investment plans, the Coast Guard had anticipated allocating 20-27 percent of its planned $1.1 billion fiscal year 2011 Deepwater budget to its aviation projects. In its actual fiscal year 2011 budget request, however, the Coast Guard only allocated about 9 percent of the $1.1 billion to aviation projects. The percentage of dollars allocated to surface projects increased—largely driven by an increase of dollars allocated to the FRC program. Figure 6 illustrates how the allocation of acquisition, construction, and improvements dollars in the Coast Guard’s budget request in fiscal years 2008, 2009, 2010, and 2011 differed from prior year plans.

In the October 2010 Blueprint for Continuous Improvement (Blueprint), signed by the Commandant, the Coast Guard’s Assistant Commandant for Acquisition identified the need to develop and implement effective decision making to maximize results and manage risk within resource constraints. The Blueprint outlines several action items, expected to be completed by the end of fiscal year 2011, to accomplish this goal. The action items include:  promoting stability in the Coast Guard’s capital investment plan by measuring the percentage of projects stably funded year to year in the plan,  ensuring acquisition program baseline alignment with the capital investment plan by measuring the percentage of projects where the acquisition program baselines fit into the capital investment plan, and  establishing Coast Guard project priorities.

Acquisition officials responsible for implementing the Blueprint action items acknowledged that successful implementation requires buy-in from leadership. Senior resource directorate officials responsible for capital investment planning told us that the action items in the Blueprint are “noble endeavors,” but that the directorates outside of the acquisition directorate are not held responsible for accomplishing them. According to the Major Systems Acquisition Manual, the Component Acquisition Executive (Vice-Commandant), to whom both the acquisition and resource directorates report, is responsible for establishing acquisition processes to track the extent to which requisite resources and support are provided to project managers.

In addition to the acquisition directorate’s recognition of the need to establish priorities to address known upcoming resource constraints, in August 2010, the Coast Guard’s flag-level Executive Oversight Council— chaired by the Assistant Commandant for Acquisition with representatives from other directorates—tasked a team to recommend strategies to revise acquisition program baselines to better align with annual budgets. This acknowledgment that program baselines must be revised to fit fiscal constraints, however, is not reflected in the Coast Guard’s most recent capital investment plan. Table 3 presents planned funding projections for Deepwater assets as outlined in the fiscal years 2012-2016 capital investment plan. With the exception of fiscal year 2012, the Coast Guard is planning for funding levels well above the expected funding level of $1.2 billion.

This outyear funding plan seems unrealistic, especially in light of the rapidly building fiscal pressures facing our national government and DHS’s direction for future budget planning. To illustrate, in fiscal year 2015, the Coast Guard plans to request funding for construction of three major Deepwater surface assets: NSC, OPC, and FRC, but the Coast Guard has never requested funding for construction of three major Deepwater surface assets in the same year before. In a recent testimony, the Commandant of the Coast Guard stated that the plan for fiscal year 2015 reflects the Coast Guard’s actual need for funding in that year. If program costs and schedules are tied to this funding plan and it is not executable, these programs will likely have schedule and cost breaches. When a program has a breach, the program manager must develop a remediation plan that explains the circumstances of the breach and propose corrective action and, if required, revise the acquisition program baseline.

Execution of the Deepwater Program Is Progressing, but Key Decisions Remain for the Design and Testing of Deepwater Assets

The Coast Guard continues to strengthen its acquisition management capabilities. As lead systems integrator, the Coast Guard is faced with several decisions to help ensure that the promised capabilities of assets still in design are achieved. For example, whether or not the planned system-of-systems design is achievable largely depends on the Coast Guard’s ability to make important decisions regarding the design of the C4ISR program, as the Coast Guard has continued to define and redefine its strategy for this program since 2007. For those assets already under construction and operational, preliminary tests have yielded mixed results and identified issues that need to be addressed prior to upcoming test events. As part of its role as lead systems integrator, the Coast Guard is gaining a better understanding of each asset’s cost, schedule, and technical risks, but this information is not always fully conveyed in the Coast Guard’s quarterly reports to Congress.

Coast Guard Continues to Strengthen Its Acquisition Management Capabilities

The Coast Guard continues to strengthen its acquisition management capabilities in its role of lead systems integrator and decision maker for Deepwater acquisitions. We recently reported that the Coast Guard updated its Major Systems Acquisition Manual in November 2010 to better reflect best practices, in response to our prior recommendations, and to more closely align its policy with the DHS Acquisition Management Directive 102-01. We also reported that according to the Coast Guard, it currently has 81 interagency agreements, memorandums of agreement, and other arrangements in place, primarily with DOD agencies, which helps programs leverage DOD expertise and contracts. To further facilitate the acquisition process, the Coast Guard’s Acquisition Directorate has increased the involvement of the Executive Oversight Council as a structured way for flag-level and senior executive officials in the requirements, acquisition, and resources directorates, among others, to discuss programs and provide oversight on a regular basis.

In addition to these efforts to strengthen its management capabilities, the Coast Guard has significantly reduced its relationship with ICGS. ICGS’s remaining responsibilities include completing construction of the third NSC and a portion of the C4ISR project. In moving away from ICGS, the Coast Guard has awarded fixed-price contracts directly to prime contractors. For example, since our last report in July 2010, the Coast Guard: (1) awarded a sole source fixed price contract for the fourth NSC and long lead materials for the fifth NSC to Northrop Grumman Shipbuilding Systems, (2) exercised fixed price options for four additional FRCs on the contract with Bollinger Shipyards, and (3) awarded a fixed price contract to EADS for three MPAs with options for up to six additional aircraft, following a limited competition in which EADS made the only offer. In addition, the Coast Guard has developed acquisition strategies intended to inject competition into future procurements where possible. For example, the Coast Guard is planning to buy a “reprocurement data licensing package” from Bollinger Shipyards. This information package, according to project officials, is expected to provide the Coast Guard with the specifications to allow full and open competition of future FRCs. Our previous work has shown that when the government owns technical specifications, its does not need to rely on one contractor to meet requirements. As part of its acquisition strategy for the OPC, the Coast Guard plans to award multiple preliminary design contracts and then select the best value contract design for a detailed design and production contract. This planned acquisition strategy will also include an option for a data and licensing package, similar to the FRC. In May 2011, the Coast Guard released a draft of the OPC specifications for industry review in advance of releasing a request for proposals, currently planned to occur in the fall of 2011. Lastly, the Coast Guard is in the process of holding a competition for the over-the-horizon cutter small boat through a small business set-aside acquisition approach.

Key Decisions Remain for Assets in Design to Ensure Promised Capabilities Are Achieved

Several Deepwater assets remain in the “analyze/select” or “need” phases of the Coast Guard’s acquisition process which involve decisions that affect the system-of-systems design. At the start of our review, these included portions of the C4ISR project, OPC, cutter small boats, unmanned aircraft system, and portions of the HH-60 helicopter.

The Deepwater Program was designed to improve the detection and engagement of potential targets in the maritime domain. Key to the Coast Guard’s success is engaging targets of interest, such as a terrorist activity within the U.S. maritime domain. To do this, the Coast Guard goes through a process of surveying the maritime domain, detecting and classifying targets, and then responding to the situation. The planned system-of-systems design connects the Deepwater assets through a single command and control architecture—C4ISR—that is designed to increase the probability of mission success by improving the accuracy and speed of this process. For example, as envisioned, the MPA would conduct more efficient searches in conjunction with other assets. During a search for a missing vessel, the MPA would receive information from the operational commander regarding the location of the distress signal and then communicate search information back to the commander and with other on-scene Coast Guard assets. The commander and the MPA could then increase the speed of the response by locating the closest available cutter and informing it of injuries and other issues.

Figure 7 depicts the Deepwater concept of using information technology to more quickly and successfully execute missions.

To achieve the system-of-systems design, the Coast Guard planned for C4ISR to be the integrating component of Deepwater. This was expected to improve mission performance by increasing the success rate and frequency of engaging targets. However, the $600 million ICGS- developed Coast Guard command and control system, currently on the NSC, MPA, and HC-130J, does not achieve the system-of-systems vision. After taking over as lead systems integrator in 2007, the Coast Guard has changed its C4ISR strategy multiple times in an effort to achieve a common software system for all Deepwater assets that facilitates data sharing between these assets and external partners. But as the Coast Guard continues to change its strategy, decisions remain regarding how to achieve this promised capability in a feasible manner. These decisions relate to realizing the overall goal of sharing data between all of the Deepwater assets, creating and updating acquisition documents, and developing a strategy for designing and managing the C4ISR technical baselines.

The Coast Guard has yet to achieve the promised capability of an interoperable system with communication and data sharing between all assets and may limit some of the planned capability. According to the approved Deepwater mission needs statement, data sharing, centralized networks, and information from sensors are critical for the Coast Guard and DHS to achieve mission performance in a resource-constrained world. While according to information technology officials, the Coast Guard has voice communications between assets, the currently operational Deepwater assets— NSC, MPA, HC-130J, HH-60, and HH-65—do not yet have the capability to fully share data with each other or commanders. In addition, the Coast Guard has not fully established a centralized network for C4ISR, creating communications problems. For example, the NSC and MPA use classified systems to record and process C4ISR data while the HC-130J and HC-130H have unclassified systems. According to operators, sharing data gathered by the MPA during the Deepwater Horizon oil spill incident was difficult because all information gathered by the MPA was maintained on a classified system. According to senior officials, the Coast Guard recognizes that classification issues inhibit fully sharing data and is working to address these issues through changes to Coast Guard policies, which have not been finalized.

Furthermore, it is unclear whether or not full data interoperability between all assets remains a goal for the Deepwater program. Overall, according to the Coast Guard’s recent cost estimating baseline document, the C4ISR system will be installed on only 127 air and surface assets, which is fewer than half of the approximately 300 assets within the Deepwater acquisition. For example, senior acquisition officials stated that the helicopters are not going to be equipped with the C4ISR software that is planned to enable data sharing with commanders and other assets, but this has not yet been reflected in project documentation. A senior official with the information technology directorate questioned the extent to which the level of shared data communications as set forth in the mission needs statement would help the Coast Guard more efficiently achieve mission success because some Coast Guard assets, such as the cutters, rarely work in tandem. Additionally, project officials stated that the vision of full data-sharing capability between assets, depicted above, is transforming into a “hub and spoke” model where assets share data with shore-based command centers that maintain the operating picture and maritime awareness; this also has yet to be detailed in project documentation. Given these uncertainties, the Coast Guard does not have a clear vision of the C4ISR required to meet its missions.

The Coast Guard is also currently managing the C4ISR program without key acquisition documents, including an acquisition program baseline that reflects the planned program, a credible life-cycle cost estimate, and an operational requirements document for the entire program.  The Coast Guard has replanned the C4ISR project baseline multiple times since 2007, which, under ICGS, contained a high-level description of the system with no requirements document to provide further detail. In November 2009, the Coast Guard submitted a revised baseline to DHS that provided some additional detail of the planned capabilities, including capabilities designed to protect the homeland, but also delayed development of these capabilities due to concerns about the reliability and affordability of the ICGS system. DHS approved the baseline in February 2011, but by that time it was out of date. For example, according to this baseline, the Coast Guard was planning to reach a milestone for developing improved capabilities on selected assets in early fiscal year 2010—an event that was indefinitely deferred before the baseline was approved and is now scheduled to take place no sooner than 2017. Coast Guard officials stated that a revised acquisition program baseline is currently being drafted.  A key input into the acquisition program baseline is a credible life- cycle cost estimate, but the Coast Guard is currently revising the C4ISR estimate and officials stated that the current cost estimate no longer reflects the current status of the program.  An operational requirements document for the entire project has not yet been completed; project officials told us that requirements documents for portions of the system are in the review process or under development. However, the documents in review do not include C4ISR requirements for the OPC. C4ISR project officials stated that those requirements are included in the OPC’s operational requirements document, but acknowledged that these requirements are vague.

In addition to inadequate or incomplete acquisition documentation, the Coast Guard also lacks technical planning documents necessary to both articulate the vision of a common C4ISR baseline—a key goal of the C4ISR project—and to guide the development of the C4ISR system in such a way that the system on each asset remains true to the vision. While Coast Guard officials told us that their goal is still a common software baseline, we have identified at least four software variants in operation or under development but whose commonality is not clear: the legacy Coast Guard system prior to Deepwater, the ICGS-developed Coast Guard command and control system (ICGS system),  a Coast Guard-developed command and control system called  a forthcoming Seawatch-ICGS hybrid system for the NSC.

The Coast Guard continues to maintain a legacy C4ISR system which is operational on the 210-foot and 270-foot cutters and maintains the ICGS system on the NSC, MPA, and HC-130J. The Coast Guard also planned to put the ICGS system on the 110-foot patrol boats that were to be converted to 123-foot boats. According to FRC program officials, after this conversion failed for structural reasons and the FRC program was accelerated to offset the loss of planned patrol boat capability, the Coast Guard planned to use the legacy C4ISR system for the FRC. However, due to obsolescence of the legacy system, the Coast Guard’s information technology directorate developed a new system called Seawatch for FRC. The Coast Guard has since decided to also incorporate Seawatch into the upgrades to the original ICGS system for NSCs five through eight and plans to do so for NSCs one through four, but this effort is currently not funded. Until this Seawatch-ICGS hybrid system is installed on the first four NSCs, the Coast Guard will have to maintain two systems for the NSC. Further, according to C4ISR project officials, the Coast Guard is currently analyzing the extent to which the Seawatch-ICGS hybrid system meets the requirements for the OPC.

The C4ISR project has yet to identify a software system that will meet the requirements of the HC-130H, HH-60, and HH-65 aircraft and that is also compatible with surface assets. The Coast Guard is redesigning the ICGS system currently on the MPA and HC-130J to replace some parts that are now obsolete so that the Coast Guard can hold a competition for the system. The goal is to develop a common software baseline for the MPA and the HC-130J to address variations in the ICGS system currently on these assets. Once the Coast Guard finishes developing this common software baseline for the MPA and HC-130J, it will be a new baseline in addition to the four baselines identified above. While some officials in the capabilities directorate told us that Seawatch could become the common command and control system for the Coast Guard, Seawatch system developers in the information technology directorate told us that Seawatch is not currently suitable for aviation assets. Table 4 shows the software system currently installed on each asset and the anticipated system for the asset.

According to Coast Guard information technology officials, the abundance of software baselines could increase the overall instability of the C4ISR system and complexity of the data sharing between assets. Moreover, additional baselines may continue to proliferate because each asset is now responsible for managing and funding technology obsolescence as opposed to having a Coast Guard-wide technology obsolescence prevention program. From 2008 to 2010, the Coast Guard had funded a technology obsolescence program to avoid costly C4ISR system replacements by proactively addressing out-of-date technology. For example, program officials stated that the Coast Guard established a uniform software baseline for 12 MPA mission system pallets under this program. The Coast Guard is currently developing a policy to manage obsolete technology now that the technology obsolescence program is no longer funded.

Important decisions remain to be made regarding the OPC, the largest cost driver in the Deepwater program. DHS approved the OPC’s requirements document in October 2010 despite unresolved concerns about three key performance parameters—seakeeping, speed, and range—that shape a substantial portion of the cutter’s design. For example, DHS questioned the need for the cutter to conduct full operations during difficult sea conditions, which impact the weight of the cutter and ultimately its cost. The Coast Guard has stated that limiting the ability to conduct operations during difficult sea conditions would preclude operations in key mission areas. While it approved the OPC requirements document, DHS at the same time commissioned a study to further examine these three key performance parameters. According to Coast Guard officials, the study conducted by the Center for Naval Analysis found that the three key performance parameters were reasonable, accurate, and adequately documented. By approving the operational requirements document before these factors were resolved, DHS did not ensure that the cutter was affordable, feasible, and unambiguous and required no additional trade-off decisions, as outlined in the Major Systems Acquisition Manual. Our previous work on DHS acquisition management found that the department’s inability to properly execute its oversight function has led to cost overruns, schedule delays, and assets that do not meet requirements.

In addition to the three performance parameters discussed above, other decisions, with substantial cost and capability implications for the OPC, remain unresolved. For example, it is not known which C4ISR system will be used for the OPC, whether the cutter will have a facility for processing classified information, and whether the cutter will have air search capabilities. The Coast Guard’s requirements document addressed these capabilities but allowed them to be removed if design, cost, or technological limitations warrant. According to Coast Guard officials, remaining decisions must be made before the acquisition program baseline is approved as part of the program’s combined acquisition decision event 2A/B and the request for proposals is issued, both of which are planned for the fall of 2011. In addition, following the approval of the requirements document, the Coast Guard formed a ship design team tasked with considering the affordability and feasibility of the OPC.

This team has met with Assistant Commandants from across the Coast Guard on several occasions to discuss issues that impact the affordability and feasibility of the cutter, including, among others, the size of the living quarters, the aviation fuel storage capacity, and the range of the cutter. The Coast Guard has stated that affordability is a very important aspect of the OPC project and that the request for proposal process will inform the project’s efforts to balance affordability and capability.

The cutter small boats project was delayed when the initial ICGS plan was halted due to unrealistic requirements that we have reported on in the past. The Coast Guard has since made decisions on providing small boats for the NSC, but key decisions remain regarding the Coast Guard’s overall strategy for buying a standard cutter small boat fleet, including quantities. According to project officials, a standard cutter boat fleet is an important capability for the Coast Guard because it permits shared training and maintenance and allows for sharing small boats among the larger cutters, potentially reducing acquisition and maintenance costs.

There are two types of cutter small boats that the Coast Guard plans to use to engage targets—a 36-foot version launched from the NSC and potentially the future OPC and a 25-foot version planned for the three largest Deepwater cutters: NSC, OPC, and FRC. Following the failure of ICGS’ cutter small boats, the Coast Guard identified requirements for the cutter small boat project to supply the three large cutters with at least 135 small boats. However, in August 2010, DHS changed the project to a nonmajor acquisition after the Coast Guard downsized the scope of the project to only 27 cutter small boats—which includes a mix of 25-foot and 36-foot boats—for the NSC, thus lowering the life-cycle cost for the project. As a result, the program is no longer subject to DHS’s review or independent testing. Project officials told us that despite this change in quantities, a standard cutter boat for all three cutters nevertheless remains a key goal; in fact, the current 25-foot small boat project plan recognizes the potential for the project to buy up to 101 small boats, which includes the ability for other DHS components to buy boats off of that contract. The project plan for the 36-foot boats is not yet complete. If the Coast Guard intends to still buy a standard cutter boat fleet, depending on the mix, the life-cycle cost of the project could mean the project is actually a major system acquisition subject to DHS review.

The UAS was envisioned as a key component of the Deepwater system that would enhance surveillance capability on board the NSC and OPC and also from land. Congress has appropriated over $100 million since 2003 to develop an unmanned aerial vehicle, but the Coast Guard terminated the program due to cost increases and technical risks in June 2007. In February 2009, DHS approved a strategy for the Coast Guard to acquire UASs, but the Coast Guard has not yet decided what specific solutions are required to perform operations. Lead asset delivery was originally scheduled for 2008, but the Coast Guard is waiting until Navy technology for cutter-based UASs advances and is partnering with Customs and Border Protection for use of the maritime land-based UAS, Guardian. There are some indications that the Coast Guard UAS program will continue to incur substantial delays. For example, there is currently no funding for the program in the Coast Guard’s fiscal years 2012-2016 capital investment plan and the Coast Guard does not expect the C4ISR software for the UAS to share data with other assets to be ready for operations until 2024. Until the Coast Guard buys UASs, the planned capability of the major cutter fleet is limited. Without a UAS, for instance, the DHS Inspector General estimates that the aerial surveillance capability of the NSC is reduced from 58,160 square nautical miles to 18,320 square nautical miles, a 68 percent decline.

The HH-60 project office is continuing to make progress upgrading the Coast Guard’s largest helicopter, but decisions remain concerning the extent to which the Coast Guard will use the helicopter for surveillance. According to the current acquisition program baseline, the Coast Guard plans to replace the existing weather radar on the HH-60 with a surface search radar to improve detection and classification capabilities. The project office originally planned to begin this work in fiscal year 2006, but is now planning to begin the work in fiscal year 2012. Officials at the Coast Guard’s Aviation Logistics Center, where the helicopter depot maintenance is conducted, stated that funding for the workforce currently conducting the upgrades on the HH-60 will expire in the summer of 2014. These officials expressed concern that if the Coast Guard delays surface search radar work further, there will be a loss of learning on the production line, leading to an increase in the cost of the project due to production restart costs. Furthermore, project officials told us that the Coast Guard is developing a preliminary-operational requirements document that will address requirements for the HH-60’s C4ISR capabilities. These remaining decisions for the HH-60 will shape the extent to which the helicopter shares information collected by the surface search radar with operational commanders and other Coast Guard assets.

Preliminary Test Events Have Yielded Mixed Results in Advance of Initial Operational Testing

None of the Deepwater assets have completed initial operational test and evaluation, a major test event which identifies deficiencies by evaluating operational effectiveness during the execution of simulated operational missions. The NSC, MPA, and FRC are scheduled to complete this testing in fiscal years 2012 and 2013. The HC-130J will not undergo any operational testing or assessments by an independent operational test authority, and the other Deepwater assets are not yet scheduled to start this testing. In advance of this testing, the Coast Guard has completed preliminary tests for the NSC, MPA, and FRC, such as operational assessments, which the Coast Guard is using to mitigate risk and address problems during asset development prior to initial operational test and evaluation. The Coast Guard also conducts acceptance testing, which helps ensure that the functionality of the delivered asset meets contract requirements and may help demonstrate that it will meet defined mission needs. Using these tests, officials have identified issues that need to be addressed prior to initial operational testing on the following assets.

During acceptance testing for the second NSC in October 2010, Coast Guard officials identified five key issues, also identified on NSC 1 in an operational assessment completed in September 2010: reliability and maintenance problems with the crane on the back of the cutter,  an unsafe ammunition hoist for the main gun,    an impractical requirement for using the side rescue door in difficult instability with the side davit for small boat launch, insufficient power to a key system used for docking the cutter, and sea conditions.

Senior acquisition directorate officials stated that there are currently workarounds for some of these issues and the cutters do meet contractual requirements. Program officials added that funding and design changes have yet to be finalized for these five issues and in some cases, correcting these issues will likely require costly retrofits.

In January 2011, Coast Guard officials canceled the Aircraft Ship Integrated Secure and Traverse (ASIST)—a system intended to automate the procedure to land, lock down, and move the HH-65 helicopter from the deck to the hangar on the NSC—after significant deficiencies were identified during testing conducted by the U.S. Naval Air Warfare Center. Examples of deficiencies included increased pilot workload during landing, excessive stress on the helicopter components as the aircraft moved across the deck into the hangar, and failure to reduce the number of people needed to secure the helicopter as the system was designed to do. In addition, testing officials determined that the system could cause injury to the aircrew because the landing operator could not communicate with the pilot in a timely manner, and the system demonstrated unpredictable failures to locate the aircraft while it was hovering over the NSC’s flight deck. The ASIST system was identified by ICGS as a solution to a Coast Guard requirement. Several Coast Guard officials told us that the Coast Guard was aware of potential problems with ASIST as early as 2007, but the Coast Guard moved forward with it until testing was complete. The Coast Guard invested approximately $27 million to install the system on three NSCs, purchase long lead materials for the fourth NSC, and modify one HH-65 helicopter for the test event. The Coast Guard is now exploring solutions in use by the Navy to replace the system. For the two operational NSCs, officials stated that operators secure the HH-65 using legacy cutter technology.

In a May 2009 operational assessment, an independent test authority— the Navy’s Commander Operational Test and Evaluation Force—found that, while the MPA airframe provides increased capability for cargo and passenger transport, the C4ISR system on the aircraft’s mission system pallet is a significant area of risk. Deficiencies included poor performance of the two main sensors used to identify and track targets, need for system reboots that result in system downtime—which we observed during our visit with the pallet operators in Mobile, Alabama in January 2011—and a lack of training equipment. The operators told us that issues with these capabilities persist and that other aspects of the system prevent operators from working efficiently. For example, the operators stated that the screens on the pallet are too small for the number of applications that normally run simultaneously and the main camera needs to be held on target manually because it cannot automatically locate previously identified targets. Since our visit, the Coast Guard has installed a software upgrade which officials stated corrected several problems inherent with the previous version. DHS Test and Evaluation officials told us that the Coast Guard is not permitted to buy additional pallets until successful completion of initial operational testing, scheduled for September 2011. These officials told us that they were optimistic that testing would be successful.

The MPA’s acquisition plan does not include a strategy to buy additional mission system pallets; currently, the Coast Guard has received all 12 of the pallets under contract with ICGS. According to officials, the Coast Guard is planning to seek a full-rate production decision for the MPA by the end of fiscal year 2012, at which point almost one-third of the planned 36 MPA airframes will have been purchased. Prior to a full-rate production decision, in accordance with the Major Systems Acquisition Manual, the program must have identified a preferred solution and an acquisition plan for buying the pallet. Currently, the Coast Guard is assessing how to buy future pallets. Options include continuing to buy the pallet directly from Lockheed Martin or conducting a full and open competition to determine if another vendor can build the pallet. Senior Coast Guard acquisition officials stated that they determined the Coast Guard does not have sufficient capability to build the pallet itself.

The FRC program is planning to use the first cutter for initial operational test and evaluation. The original delivery date for the lead cutter was scheduled for January 2011, but that date has slipped to December 2011. Officials told us that the delay is due to a last minute design change, directed by the Coast Guard’s engineering and logistics technical authority, to enhance the structure of the cutter. An early operational assessment that reviewed design plans for the FRC was completed in August 2009 and identified 74 design issues, 69 of which were corrected during the assessment. Officials explained that they are confident in the reliability of the FRC design and do not expect any major operational issues to arise during initial operational testing and evaluation. In addition, program officials explained that the Coast Guard has used a lead vessel for initial operational test and evaluation in the past and is now also planning to conduct an operational assessment on the lead FRC to reduce risk. Officials from the Navy’s Commander Operational Test and Evaluation Force, however, stated that there are risks associated with using the first cutter for initial operational test and evaluation; operators are not as familiar with the system, the logistics enterprise may not be fully operational to support the asset, and enough time may not have passed to collect sufficient data on what operational issues need to be addressed prior to testing.

The Coast Guard currently has 6 HC-130Js in operation, but the aircraft did not undergo any operational testing or assessments by an independent operational test authority. As we reported last year, DHS and Coast Guard had agreed that no further testing or documentation was necessary for the HC-130J because production of the aircraft was complete, and a report was developed 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. However, since our last report, the Navy received funding to buy two additional HC-130Js for the Coast Guard. As a result, DHS officials stated that they may revisit the decision to not fully test the HC-130J. Officials at the Aviation Logistics Center stated that they are concerned that initial operational test and evaluation was never completed and that current operations essentially serve as an assessment of capability. The mission system, a C4ISR suite of components which is similar to the suite on the MPA, has had problems such as unplanned reboots. These officials stated that operational testing might have helped to identify these issues sooner. Also, since HC-130J spare parts have not been sufficient, these officials explained that the Coast Guard has “demissionized” two HC-130Js to provide spare parts for the remaining four HC-130Js. These two HC-130Js are now partially mission capable, meaning they cannot use the electronic suite of C4ISR equipment. Coast Guard acquisition officials told us that fiscal year 2011 funding for HC-130J spares should allow the Coast Guard to re-missionize these assets.

Coast Guard’s Quarterly Reports to Congress Do Not Fully Capture Program Risks

As part of its role in program execution, the Coast Guard is gaining a better understanding of each asset’s cost, schedule, and technical risks, but not all of this information is transparent to Congress. The Coast Guard maintains two different quarterly reports to track information on its major acquisitions, including narrative and mitigation actions pertaining to risks, and Coast Guard officials told us that the same database is used to populate both reports. One is the Quarterly Project Report which is an internal acquisition report used by Coast Guard program managers. The other, known as the Quarterly Acquisition Report to Congress (QARC), was required by various appropriations laws to be submitted to the congressional appropriations committees and to rank on a relative scale the cost, schedule, and technical risks associated with each acquisition project. We found that this statutory requirement is no longer in effect. However, the Coast Guard and DHS continue to submit the QARC pursuant to direction in committee and conference reports and the Coast Guard’s Major Systems Acquisition Manual. These committee and conference reports generally reiterate an expectation that the Coast Guard submit the QARC by the 15th day of the fiscal quarter.

We found that the Coast Guard’s fiscal year 2010 QARCs did not always include risks identified in the Quarterly Project Reports. The Coast Guard’s Major Systems Acquisition Manual states that the QARC incorporates the Quarterly Project Report for each major acquisition project. The Quarterly Project Report includes, among other things, the top three project risks. In comparing both sets of reports—the Quarterly Project Report and the QARC—from fiscal year 2010, we found that over 50 percent of medium and high risks identified in the internal Quarterly Project Reports were not included in the QARC. For example, the Coast Guard reported to Congress that the OPC program had no risks in fiscal year 2010, but several were identified in the internal report—including concerns about affordability. In addition, for all of fiscal year 2010, the Coast Guard reported no risks for the MPA project in the QARC even though several were identified in the internal report.

Before transmittal to Congress, the QARCs are reviewed by officials within the Coast Guard’s resource directorate, the DHS Chief Financial Officer’s office, and the Office of Management and Budget. Resource directorate officials told us they do not include risks in the QARC if those risks contradict the Coast Guard’s current budget request. For example, the resource directorate did not include the risk related to spare parts for the MPA in the fiscal year 2010 reports to Congress because the Coast Guard did not request funding for spare parts. DHS officials told us that they do not remove medium and high risks from the report. Office of Management and Budget officials stated that they will discuss several items with the Coast Guard, including factors that the agency may want to consider with regard to the medium and high risks identified in their draft submissions, but that the Office of Management and Budget does not direct the Coast Guard to remove medium or high risks from the reports before they are transmitted. We could not obtain documentation to determine at what point in the review process the decision is made to not include risks.

For all four quarters of fiscal year 2010, the QARC was submitted consistently late. And as of May 2011, the Coast Guard had not submitted the first quarter fiscal year 2011 report to Congress—a delay of at least 4 months—but the second quarter fiscal year 2011 internal report was already complete. According to senior Coast Guard acquisition directorate officials, the QARC is intended to be the program manager’s communication with Congress about risks. However, when risks are not included, the Coast Guard is not presenting to Congress a complete and timely picture of the risks some assets face.

Coast Guard Has Not Completed a Comprehensive Trade-Off Analysis for the Deepwater Assets

To support its role as systems integrator, the Coast Guard planned to complete a fleet mix analysis in July 2009 to eliminate uncertainty surrounding future mission performance and to produce a baseline for the Deepwater acquisition. We previously reported that the Coast Guard expected this analysis to serve as one tool, among many, in making future capability requirements determinations, including future fleet mix decisions. The analysis, which began in October 2008 and concluded in December 2009, is termed fleet mix analysis phase 1. Officials from the Coast Guard’s capabilities directorate comprised the majority of the project team for the analysis, which also included contractor support to assist with the analysis. As of May 2011, DHS had not yet released phase 1 to Congress. We received the results of the analysis in December 2010.

To conduct the fleet mix analysis, the Coast Guard assessed asset capabilities and mission demands in an unconstrained fiscal environment to identify a fleet mix—referred to as the “objective fleet mix”—that would meet long-term strategic goals. The objective fleet mix resulted in a fleet that would double the quantity of assets in the program of record, the $24.2 billion baseline. For example, the objective fleet mix included 66 cutters beyond the program of record. Given the significant increase in the number of assets needed for this objective fleet mix, the Coast Guard developed, based on risk metrics, incremental fleet mixes to bridge the objective fleet mix and the program of record. Table 5 shows the quantities of assets for each incremental mix, according to the Coast Guard’s analysis.

While the analysis provided insight on the performance of fleets larger than the program of record, the analysis was not cost-constrained. The Coast Guard estimated the total acquisition costs associated with the objective fleet mix could be as much as $65 billion—about $40 billion higher than the approved $24.2 billion baseline. As a result, as we reported last year, Coast Guard officials stated that they do not consider the results to be feasible due to cost and do not plan to use it to provide recommendations on a baseline for fleet mix decisions. Since we last reported, Coast Guard officials stated that phase 1 supports continuing to pursue the program of record.

Because the first phase of the fleet mix analysis was not cost constrained, it does not address our July 2010 recommendation that the Coast Guard present to Congress a comprehensive review of the Deepwater Program that clarifies the overall cost, schedule, quantities, and mix of assets required to meet mission needs, including trade-offs in light of fiscal constraints given that the currently approved Deepwater Program is no longer feasible. The Coast Guard has undertaken what it refers to as a cost-constrained analysis, termed fleet mix analysis phase 2; however, according to the capabilities directorate officials responsible for the analysis, the study primarily assesses the rate at which the Coast Guard could acquire the Deepwater program of record within a high ($1.7 billion) and low ($1.2 billion) bound of annual acquisition cost constraints. These officials stated that this analysis will not reassess whether the current program of record is the appropriate mix of assets to pursue and will not assess any mixes smaller than the current program. Alternative fleet mixes are being assessed, but only to purchase additional assets after the program of record is acquired, if funding remains within the yearly cost constraints. The Coast Guard expects to complete its phase 2 analysis in the summer of 2011. As we reported in April 2011, because phase 2 will not assess options lower than the program of record, it will not prepare the Coast Guard to make the trade-offs that will likely be needed in the current fiscal climate.

Further, despite Coast Guard statements that phase 2 was cost constrained, there is no documented methodology for establishing the constraints that were used in the analysis, and we found confusion about their genesis. The acquisition directorate, according to the study’s charter, was to provide annual funding amounts, but Coast Guard officials responsible for phase 2 told us that DHS’s Program Analysis & Evaluation office provided the lower bound and the acquisitions directorate provided the upper bound. An official from the Program Analysis & Evaluation office stated that DHS informally suggested using historical funding levels of $1.2 billion to establish an average annual rate but was unaware that the Coast Guard was using this number as the lower bound for the study. A senior Coast Guard acquisition directorate official stated that the directorate agreed with using the $1.2 billion as the lower constraint and had verbally suggested the upper bound of $1.7 billion. Based on our review of historical budget data, $1.7 billion for Deepwater is more than Congress has appropriated for the entire Coast Guard’s acquisition portfolio since 2007 and as such, is not likely a realistic constraint. Coast Guard officials stated that the upper bound was not necessarily a realistic level, rather an absolute upper bound to establish the range of possible acquisition levels. In addition, the Coast Guard does not have documentation of the cost constraints; according to a Coast Guard official, these cost constraints were verbally communicated to the contractor.

In addition to the Coast Guard’s analysis, DHS’s Program Analysis & Evaluation office is conducting a study, at the request of the Office of Management and Budget, to gain insight into alternatives to the Deepwater surface program of record. Office of Management and Budget officials told us that they recommended DHS conduct this study because DHS was in a position to provide an objective evaluation of the program and could ensure that the analysis of the trade-offs of requirements in a cost constrained environment would align with the Department’s investment priorities. A DHS official involved in the study stated that the analysis will examine performance trade-offs between the NSC, OPC, a modernized 270’ cutter, and the Navy’s Littoral Combat Ship. The official also explained that the analysis is based on a current estimate of surface asset acquisition costs, which serves as a cap to guide surface asset trade-offs. This cutter study is expected to be completed in the summer of 2011. This official also stated that the cutter study is not expected to contain recommendations, but Office of Management and Budget officials told us they plan to use the results to inform decisions about the fiscal year 2013 budget. A DHS official responsible for this study stated that this analysis and the Coast Guard’s fleet mix analysis will provide multiple data points for considering potential changes to the program of record, including reductions in the quantities planned for some of the surface assets. However, as noted above, Coast Guard capabilities directorate officials have no intention of examining fleet mixes smaller than the current, planned Deepwater program.

Conclusions

Over the past 4 years, the Coast Guard has strengthened its acquisition management capabilities in its role as lead systems integrator and decision maker for Deepwater acquisitions. Now, the Coast Guard needs to take broader actions to address the cost growth, schedule delays, and expected changes to planned capabilities that have made the Deepwater program, as presented to Congress, unachievable. Today’s climate of rapidly building fiscal pressures underscores the importance of assessing priorities—from an acquisition, resource, and capabilities perspective—so that more realistic planned budgets can be submitted to Congress. Such a step would help alleviate what has become a pattern of churn in revising program baselines when planned funding does not materialize.

At the same time, decision makers in the Coast Guard and Congress need accurate and timely information. Cost and schedule estimates that are not based on current and comprehensive information do not provide an effective basis for assessing the status of acquisition programs. Further, the quarterly acquisition reports to Congress were intended by the Coast Guard to convey program risks, but the Coast Guard is not consistent in reporting cost, schedule, and technical risks and has not submitted the reports in the time frame requested by Congress. From a broader perspective, it is unclear how, or whether, DHS and the Coast Guard will reconcile and use the multiple studies—the DHS cutter study and the Coast Guard’s two fleet mix analyses—to make trade-off decisions regarding the program of record that balance effectiveness with affordability. Without a process for doing so, decisions may not adequately balance mission needs and affordability.

At the individual project level, knowledge-based decisions are needed as Deepwater enters its fourth year with the Coast Guard as systems integrator. Uncertainties about the C4ISR systems, which were intended to be the key to making Deepwater a system of systems, continue and are compounded as assets are designed and delivered without a coherent vision for the overall program. This includes the MPA mission system pallet, which is needed to carry out the full range of this aircraft’s planned missions but for which the Coast Guard has not developed an acquisition strategy. Because DHS approved the requirements document for the OPC despite significant unknowns concerning feasibility, capability, and affordability, future decisions about this asset must be based on a more rigorous knowledge base. And the ambiguities about cutter small boat quantities suggest that this program’s risk level may need to be reassessed.

Recommendations for Executive Action

To provide Congress with information needed to make decisions on budgets and the number of assets required to meet mission needs within realistic fiscal constraints, we recommend that the Secretary of Homeland Security develop a working group that includes participation from DHS and the Coast Guard’s capabilities, resources, and acquisition directorates to review the results of multiple studies—including fleet mix analysis phases 1 and 2 and DHS’s cutter study—to identify cost, capability, and quantity trade-offs that would produce a program that fits within expected budget parameters. DHS should provide a report to Congress on the findings of the study group’s review in advance of the fiscal year 2013 budget submission.

To help the Coast Guard address the churn in the acquisition project budgeting process and help ensure that projects receive and can plan to a more predictable funding stream, we recommend that the Commandant of the Coast Guard take the following two actions: Implement GAO’s Cost Estimating and Assessment Guide’s best practices for cost estimates and schedules as required by the Major Systems Acquisition Manual, with particular attention to maintaining current cost estimates and ensuring contractor’s schedules also meet these best practices.  As acquisition program baselines are updated, adopt action items consistent with those in the Blueprint related to managing projects within resource constraints as a Coast Guard-wide goal, with input from all directorates. These action items should include milestone dates as well as assignment of key responsibilities, tracking of specific actions, and a mechanism to hold the appropriate directorates responsible for outcomes, with periodic reporting to the Vice- Commandant.

To help ensure that Congress receives timely and complete information about the Coast Guard’s major acquisition projects, we recommend that the Commandant of the Coast Guard and the Secretary of the Department of Homeland Security: include in the project risk sections of the Quarterly Acquisition Report to Congress the top risks for each Coast Guard major acquisition, including those that may have future budget implications such as spare parts; and submit the Quarterly Acquisition Report to Congress by the 15th day of the start of each fiscal quarter.

Because DHS approved the OPC operational requirements document although significant uncertainties about the program’s feasibility, capability, and affordability remained, we recommend that the Secretary of DHS take the following two actions:  ensure that all subsequent Coast Guard decisions regarding feasibility, capability, and affordability of the OPC’s design are thoroughly reviewed by DHS in advance of the program’s next acquisition decision event (ADE 2A/B); and  determine whether a revised operational requirements document is needed before the program’s next acquisition decision event (ADE 2A/B).

To increase confidence that the assets bought will meet mission needs, we recommend that the Commandant of the Coast Guard take the following three actions:  As the Coast Guard reevaluates and revises its C4ISR project documentation—including the operational requirements document, acquisition program baseline, and life-cycle cost estimate—determine whether the system-of-systems concept for C4ISR is still the planned vision for the program. If not, ensure that the new vision is comprehensively detailed in the project documentation.  Develop and finalize a strategy for the acquisition of the MPA mission system pallets before a full-rate production decision is made.  Specify the quantities of cutter small boats that the Coast Guard plans to purchase, given that the current project plan does not clearly do so, and categorize the appropriate acquisition level in accordance with a life-cycle cost that reflects these planned quantities.

Matter for Congressional Consideration

To help ensure that it receives timely and complete information about the Coast Guard’s major acquisition projects, Congress should consider enacting a permanent statutory provision that requires the Coast Guard to submit a quarterly report within 15 days of the start of each fiscal quarter on all major Coast Guard acquisition projects and require the report to rank for each project the top five risks and, if the Coast Guard determines that there are no risks for a given project, to state that the project has no risks. In addition, Congress should consider restricting the availability of the Coast Guard’s Acquisition, Construction and Improvements appropriation after the 15th day of any quarter of any fiscal year until the report is submitted.

Agency Comments and Our Evaluation

DHS provided us with written comments on a draft of this report. In its comments, DHS concurred with all of the recommendations. The written comments are reprinted in appendix II. We also provided draft sections of the report to Office of Management and Budget officials, who provided us technical comments via e-mail; we incorporated their comments as appropriate.

With respect to our first recommendation, that DHS form a working group to review the results of the fleet mix and cutter studies and report to Congress in advance of the fiscal year 2013 budget, DHS agreed to initiate the review and analysis of the studies and report to Congress on the findings. However, DHS added that given available resources, competing priorities and demands, and the Office of Management and Budget’s timeline for fiscal year 2013 budget submission, this will occur as soon as reasonably practical. We understand that department officials have multiple demands on their time, but we believe that DHS should make every effort to report to Congress on the findings of this review before submitting its next budget. The Deepwater assets account for billions in acquisition dollars, and Office of Management and Budget officials told us that they plan to use the results of the DHS cutter study to inform the fiscal year 2013 budget. The working group’s findings could provide the Congress with important insights into costs, capabilities, and quantity trade-offs prior to receiving the department’s budget request.

In concurring with our recommendation to implement GAO’s Cost Estimating and Assessment Guide’s best practices for cost estimates and schedules as required by the Major Systems Acquisition Manual, the Coast Guard noted that implementing some of these best practices may not always be cost effective in a production environment. However, the Coast Guard agreed to establish an appropriate cost estimate update frequency for each project and review Integrated Master Schedules and make schedule adjustments as needed. Sustained attention to the Cost Estimating and Assessment Guide’s practices will be very important, particularly as one of the largest acquisitions of the Deepwater program— the OPC—is expected to proceed to ADE-2A/B in fall 2011.

DHS also agreed with our recommendation that as the Coast Guard updates its acquisition program baselines, these baselines must conform to known resource constraints. However, in responding to this recommendation, DHS and the Coast Guard did not address plans for developing action items to manage projects within resource constraints as a Coast Guard-wide goal, citing instead the existing senior-level resource governance process and annual budget process. We recognize that part of the standard budget development process includes trade-off decisions regarding recapitalization versus operation and maintenance funding. However, under this standard process, DHS and the Coast Guard have continued to face the problem of approved acquisition programs not being feasible. We also recognize that the Blueprint for Continuous Improvement is an acquisition directorate document that does not reflect resource priorities across the entire budget. However, this key document is signed by the Commandant, and the October 2010 version does include several budget-related action items, such as establishing project priorities. Our recommendation, to adopt action items “consistent” with those in the Blueprint regarding managing projects within resource constraints—with input from all directorates—reflects our belief that the Coast Guard needs to be more proactive in addressing its mismatch of expected funding levels and actual funding needs for approved acquisition programs.

With respect to our recommendations concerning the comprehensiveness and timeliness of the Coast Guard’s quarterly acquisition reports to Congress, DHS agreed to report the top risks for each major acquisition and to submit the reports to Congress by the 15th day of the start of each fiscal quarter. However, DHS stated that OMB policy limits the Coast Guard’s ability to report project risks that are pre-decisional or address out-year funding plans. We made this recommendation because no risks had been included in the quarterly reports to Congress for two programs in fiscal year 2010. DHS also noted that the it strives to submit the reports on time, but that this is difficult, especially given the time required to coordinate its release outside of the department. We believe that when risks are not included and the reports are not transmitted in a timely manner, Congress will not have a complete and timely picture of the risks some assets face.

DHS agreed to thoroughly review all subsequent Coast Guard decisions regarding feasibility, capability, and affordability of the OPC’s design in advance of the program’s ADE 2A/B. DHS also agreed with our recommendation to determine whether a revised operational requirements document is needed before ADE 2A/B. In its response, DHS stated that an independent validation study, directed by the Deputy Secretary as part of the approval of the OPC operational requirements document, found that the key parameters of range, speed, and sea- keeping were reasonable, accurate, and adequately documented. We have not yet reviewed this study.

DHS also agreed with our three recommendations to increase confidence that the assets bought will meet mission needs. With respect to C4ISR, DHS stated that the Coast Guard remains committed to the system-of- systems concept and plans to provide DHS with an affordable and executable C4ISR acquisition program baseline that leverages work already completed. With respect to the mission system pallet, DHS stated that the Coast Guard plans to present a revised mission system pallet acquisition strategy to the DHS Acquisition Review Board for the full-rate production decision planned for the fourth quarter fiscal year 2012. This will follow initial operational test and evaluation of the current configuration of both the Maritime Patrol Aircraft and the mission system pallet. Finally, DHS stated that the Coast Guard will work with the department to determine the appropriate acquisition level for the small boats project. DHS also noted that the current approved project plan is for 27 small boats which have a life-cycle cost estimate that categorizes the project as a non major acquisition. The response, however, did not address the fact that the approved project plan recognizes the potential to buy up to 101 small boats. We maintain that, moving forward, the Coast Guard needs to specify the quantities of small boats it plans to purchase to ensure that the project’s acquisition level is appropriately categorized.

Coast Guard also provided technical comments which we incorporated into the report as appropriate, such as when we were provided with documentation to support the comments. The Coast Guard requested that we remove the term “Deepwater” and replace it with “major acquisitions.” We did not make this change because, at the time of this report, Congress had not yet passed the fiscal year 2012 appropriations act which may address DHS’s and Coast Guard’s proposal to eliminate the term “Integrated Deepwater System” from its annual appropriation. Furthermore, the program baseline for one of the Coast Guard’s largest major acquisitions—the OPC—still remains part of the 2007 Deepwater acquisition program baseline.

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 VI.

Appendix I: Scope and Methodology

In conducting this review, we relied in part on the information and analysis in our past work, including reports completed in 2008, 2009, 2010, and 2011. Additional scope and methodology information on each objective of this report follows.

To determine the extent to which the Deepwater Program’s planned cost and schedule baselines have been exceeded, 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 reviewed budget documents and compared them against revised program baselines to identify any differences in reported cost and schedule estimates. To assess cost estimating and scheduling practices of selected Deepwater Programs, we selected the Maritime Patrol Aircraft (MPA), National Security Cutter (NSC), and command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) programs. We reviewed the MPA program’s cost estimate and schedule because this program has the highest life-cycle cost estimate of all Deepwater assets and has experienced schedule delays. We also reviewed the NSC program’s schedule because the program has the second highest life-cycle cost estimate and has also experienced schedule delays. The Coast Guard was not able to provide us with a current NSC life-cycle cost estimate because the program is revising the estimate. As a result, we selected the C4ISR life-cycle cost estimate to review because the estimate was complete but the program did not yet have a Department of Homeland Security-approved acquisition program baseline and there was uncertainty concerning the direction of the program. In performing our analysis, we focused on the schedules and cost estimates available at the time of our review and evaluated them using the criteria set forth in GAO’s cost guide. In assessing the program’s cost estimates, we used the GAO cost guide to evaluate the estimating methodologies, assumptions, and results to determine whether the life-cycle cost estimates were comprehensive, accurate, well-documented, and credible. We also used the GAO guide to determine the extent to which each schedule was prepared in accordance with the best practices that are fundamental to having a reliable schedule.

We discussed the results of our assessments with the program offices and cost estimators. We supplemented these analyses by interviewing Coast Guard officials from the capabilities, acquisition, and resources directorates to determine any challenges the Coast Guard is facing in achieving these baselines as well as some of the potential implications of schedule and cost breaches. Further, we analyzed five capital investment plans that were included in the 2008 through 2012 budgets, breach memos, and the acquisition directorate’s October 2010 Blueprint for Continuous Improvement to identify any funding issues and the extent to which they were factors leading to breaches in established program baselines. We also interviewed Coast Guard program staff and DHS officials from the Cost Analysis Division and Acquisition Program Management Division to corroborate program information.

To determine the progression of the execution, design, and testing of Deepwater assets, we reviewed the following documents: Coast Guard’s Major Systems Acquisition Manual, asset operational requirements documents, acquisition strategies and plans, acquisition program baselines, program briefings to the Coast Guard’s Executive Oversight Council and associated meeting minutes, acquisition decision memorandums, test reports, and contracts. We also reviewed Quarterly Project Reports, and Quarterly Acquisition Reports to Congress, and various appropriations laws and related committee and conference reports regarding the reports to Congress. For fiscal year 2010, we compared the program risks identified in the Quarterly Project Reports to the risks identified in the Quarterly Acquisition Reports to Congress. We also reviewed the dates the fiscal year 2010 Quarterly Acquisition Reports to Congress had been transmitted to Congress. We interviewed officials responsible for collecting and reviewing information for these reports including officials from the Coast Guard’s acquisition and resources directorates, DHS’s Chief Financial Officer’s office, and the Office of Management and Budget. For design and testing, we also interviewed Coast Guard officials from the capabilities, resources, and acquisition directorates as well as the Navy’s Commander Operational Test and Evaluation Force and DHS’s Science and Technology Test & Evaluation and Standards Division. In addition, we met with Coast Guard operators at the Aviation Training Center in Mobile, Alabama, and Coast Guard officials at the Aviation Logistics Center. In addition, we also met with contractor and Coast Guard officials at Northrop Grumman Shipbuilding facilities in Pascagoula, Mississippi to discuss NSC construction and with a Bollinger Shipyards’ official in Lockport, Louisiana to discuss Fast Response Cutter construction and toured their respective shipyards. We also met with Coast Guard officials at Lockheed Martin facilities in Moorestown, New Jersey; and the Command, Control, and Communications Center in Portsmouth, Virginia to discuss their role in the C4ISR project.

To assess the current status of the Coast Guard’s fleet mix analysis and determine how the Coast Guard and DHS are using the analysis to inform acquisition decisions, we reviewed key documents including charters and statement of works for the two fleet mix analysis phases. We also reviewed the December 2009 final report for the fleet mix analysis phase 1. We interviewed Coast Guard officials from the capabilities, resources, and acquisition directorates and Coast Guard officials overseeing work for phase 1 and phase 2. Additionally, we interviewed a senior DHS official from the office of Program Analysis and Evaluation and Office of Management and Budget officials to identify the scope of the Office of Management and Budget-directed cutter study and to understand similarities and differences between that study and the Coast Guard’s fleet mix analysis.

We conducted this performance audit between September 2010 and July 2011 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.

Appendix II: Comments from the Department of Homeland Security and Coast Guard

Appendix III: Assessments of MPA and C4ISR Cost Estimates

This appendix provides the results of our analysis of the extent to which the processes and methodologies used to develop and maintain the MPA and C4ISR cost estimates meet the characteristics of high-quality cost estimates. The four characteristics of high-quality estimates are explained and mapped to the 12 steps of such estimates in table 6.

Tables 7 and 8 provide the detailed results of our analysis of the MPA and C4ISR program cost estimates. “Not met” means the Coast Guard provided no evidence that satisfies any of the criterion. “Minimally” means the Coast Guard provided evidence that satisfies a small portion of the criterion. “Partially” means the Coast Guard provided evidence that satisfies about half of the criterion. “Substantially” means the Coast Guard provided evidence that satisfies a large portion of the criterion. “Fully met” means the Coast Guard provided evidence that completely satisfies the criterion.

Appendix IV: Assessments of MPA and NSC Schedules

Tables 9 and 10 provide the results of our analysis of the extent to which the processes and methodologies used to develop and maintain schedules for the Maritime Patrol Aircrafts 12-14 and NSC 3 meet the nine best practices associated with effective schedule estimating. “Not met” means the program provided no evidence that satisfies any of the criterion. “Minimally” means the Coast Guard provided evidence that satisfies a small portion of the criterion. “Partially” means the Coast Guard provided evidence that satisfies about half of the criterion. “Substantially” means the Coast Guard provided evidence that satisfies a large portion of the criterion. “Fully met” means the Coast Guard provided evidence that completely satisfies the criterion.

Appendix V: Allocation of Deepwater Acquisition, Construction, and Improvement Dollars in the Fiscal Years 2008, 2009, 2010, and 2011 Capital Investment Plans (Then-Year Dollars)

V: Allocation of Deepwater cquisition, Construction, and Improvement Appendix A Dol an Year Dollarslars in the Fiscal Years 2008, 2009, 2010, d 2011 Capital Investment Plans (Then- )

Appendix VI: GAO Contacts and Staff Acknowledgments

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; Molly Traci; William Carrigg; Tisha Derricotte; Jennifer Echard; Laurier Fish; Carlos Gomez; Kristine Hassinger; Jason Lee; Karen Richey; and Rebecca Wilson.

Related GAO Products

Coast Guard: Opportunities Exist to Further Improve Acquisition Management Capabilities. GAO-11-480. Washington, D.C.: April 13, 2011.

Coast Guard: Observations on Acquisition Management and Efforts to Reassess the Deepwater Program. GAO-11-535T. Washington, D.C.: April 13, 2011.

Coast Guard: Deepwater Requirements, Quantities, and Cost Require Revalidation to Reflect Knowledge Gained. GAO-10-790. Washington, D.C.: July 27, 2010.

Department of Homeland Security: Assessments of Selected Complex Acquisitions. GAO-10-588SP. Washington, D.C.: June 30, 2010.

Coast Guard: Observations on the Requested Fiscal Year 2011 Budget, Past Performance, and Current Challenges. GAO-10-411T. Washington, D.C.: February 25, 2010.

Coast Guard: Better Logistics Planning Needed to Aid Operational Decisions Related to the Deployment of the National Security Cutter and Its Support Assets. GAO-09-497. Washington, D.C.: July 17, 2009.

Coast Guard: As Deepwater Systems Integrator, Coast Guard Is Reassessing Costs and Capabilities but Lags in Applying Its Disciplined Acquisition Approach. GAO-09-682. Washington, D.C.: July 14, 2009.

Coast Guard: Observations on Changes to Management and Oversight of the Deepwater Program. GAO-09-462T. Washington, D.C.: March 24, 2009.

Coast Guard: Change in Course Improves Deepwater Management and Oversight, but Outcome Still Uncertain. GAO-08-745. Washington, D.C.: June 24, 2008.

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 GAO-06-764. Washington, D.C.: June 23, 2006.

Efforts.

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.