Coast Guard Acquisitions: Limited Strategic Planning Efforts Pose Risk for Future Acquisitions
Released: 2017-07-25T00:00:00

Letter

The Coast Guard Develops Annual 5- year CIPs but Needs to Complete Long- Term Planning Document

Previous 5-year CIPs’ Funding Projections Have Not Matched Annual Budget Requests

Since 2012, the Coast Guard has been legislatively required to submit a CIP annually to certain Congressional committees, alongside its budget proposal, that includes, among other things, projected funding for capital assets in such areas as acquisition, construction, and improvements needed for the upcoming 5 fiscal years. Specifically, this 5-year CIP is intended to provide insight into the proposed budget for the upcoming fiscal year and the following 4 years. The 5-year CIP reports the assets’ cost and schedule per the acquisition program baseline; however, we found that it does not consistently reflect current total cost estimates or the effects of tradeoffs that are made as part of the annual budget cycle. For example, in 2014 we reported that in the Fiscal Year 2014 CIP, the Coast Guard proposed decreasing the number of Fast Response Cutters procured per year to two, as opposed to three to six as previously planned for, without altering the total cost estimate in the CIP. Figure 1 highlights the differences using historical estimates depicted in the Coast Guard’s Fiscal Year 2013 CIP, which projects acquisition funding from fiscal years 2013 through 2017, as compared to its requested and appropriated funds during this same time period.

Moreover, the 5-year CIP does not prioritize acquisition programs in its out year projections which, in part, has led to the Coast Guard’s acquisition funding projections frequently exceeding both the requested and appropriated funding amounts. Furthermore, this document does not display tradeoffs or priorities and limits the Coast Guard’s ability to manage affordability of its acquisition portfolio, including accurately forecasting its total cost projections.

Furthering the affordability concern, the Offshore Patrol Cutter procurement, for which planned acquisition costs are estimated at $12.1 billion through final delivery in 2034—making it the most expensive Coast Guard acquisition program in its recapitalization effort—will create additional strain on the Coast Guard’s acquisition budget. According to the Commandant of the Coast Guard, the Offshore Patrol Cutter is its top priority. As such, the Coast Guard will prioritize its budget requests for the Offshore Patrol Cutter before other assets potentially limiting funds requested for other acquisition programs. Figure 2 provides the Coast Guard’s acquisition funding projections from its fiscal year 2017 CIP, for fiscal years 2017 through 2021.

As depicted in figure 2, for fiscal years 2017 through 2021, the Coast Guard’s projected acquisition funding levels for its major programs exceeds its average budget request of roughly $1.1 billion from 2013 to 2017. Beginning around 2019, these projected acquisition funding levels exceed the average appropriated funding amount of roughly $1.3 billion that the Coast Guard has received from 2013 to 2017, and which is greater than the Coast Guard’s average annual requests. This disconnect highlights that the 5-year CIP does not account for the reality of the constrained budget environment the Coast Guard faces. From our analysis of this CIP, we concluded that in order for the Coast Guard to acquire many of its needed assets over the next 5 years, it will need significantly more appropriated funds than what the Coast Guard typically requests.

Beginning in September 2018, the Offshore Patrol Cutter will absorb roughly one half to about two-thirds of the Coast Guard’s annual acquisition funding requests until 2032 if historic funding request levels over the past 4 years continue to remain about the same. Any remaining Coast Guard acquisition programs will have to compete for acquisition funds not requested for the Offshore Patrol Cutter. For instance, the Coast Guard must also recapitalize other assets such as the polar icebreakers—to alleviate an expected capability gap—and refurbish other legacy vessels, such as its fleet of river buoy tenders, as these assets continue to age beyond their expected service lives and, in some cases, have been removed from service without a replacement.

Over the last year, in public hearings before Congress, senior Coast Guard officials have stated a need for over $2 billion per year for acquisitions. However, in the President’s Budget, the Coast Guard requested $1.1 billion for fiscal year 2017 and $1.2 billion for fiscal year 2018. As we previously reported, in an effort to address the funding constraints it has faced annually, the Coast Guard has been in a reactive mode, delaying and reducing its capabilities through the annual budget process by moving planned acquisitions into future years, and does not have a plan to realistically set forth affordable priorities. The Coast Guard currently has no method in place to capture the effects of these deferred acquisitions on its future portfolio, which will result in significant capability gaps if funding does not materialize and a “bow wave” of near- term unfunded requirements will be created, negatively affecting future acquisition efforts.

The Coast Guard is Developing a Long-Term Acquisition Planning Document, but Its Completion Date and Contents are Unknown

In 2014, we recommended that the Coast Guard develop a 20-year fleet modernization plan that would identify all acquisitions necessary for maintaining at least its current level of service and the fiscal resources necessary to build these assets. DHS concurred with this recommendation and the Coast Guard is in the process of developing this document to guide and manage the affordability of its acquisition portfolio. Such an analysis would facilitate a full understanding of the affordability challenges facing the Coast Guard while it builds the Offshore Patrol Cutter, among other major acquisitions. Coast Guard officials report an ongoing effort to produce a 20-year plan—which the Coast Guard refers to as a 20-year CIP—but has not articulated a timeframe for when this plan will be completed or what information it will include. As we stated in our 2014 report, in line with the Office of Management and Budget’s capital planning guidance referenced by the Coast Guard’s Major Systems Acquisition Manual, we would expect the 20-year CIP to include, among other things: an analysis of the portfolio of assets already owned by the agency the performance gap and capability necessary to bridge the old and new assets, and a justification for new acquisitions proposed for funding.

As we have noted in our past work, a long-term plan that also includes acquisition implications, such as sustainment costs, and support infrastructure and personnel needs, would enable tradeoffs to be identified and addressed in advance, leading to better informed choices and making debate possible before irreversible commitments are made to individual programs. Without this type of plan, decision makers do not have the information they need to better understand and address the Coast Guard’s long-term outlook.

Potential Risks Exist in the Coast Guard’s Accelerated Acquisition Schedule for Heavy Icebreakers and Coast Guard Plans to Mitigate Potential Icebreaking Capability Gap

Coast Guard Has Initiated a New Acquisition for Heavy Icebreakers, but Accelerated Acquisition Schedule Poses Potential Risk

The Coast Guard initiated the acquisition of a new fleet of heavy polar icebreakers in 2013, but now faces potential schedule and cost risks in implementing an accelerated acquisition approach. In June 2016, we reported that the Coast Guard’s heavy icebreaking fleet had been operating at a reduced capacity after one of its ships, the Polar Sea, suffered a catastrophic engine failure in 2010, rendering it inactive. As a result, the Coast Guard reports that it has not been able to provide year- round access to both the Arctic and Antarctic regions. Specifically, from 2010 to 2013, the Coast Guard was unable to fulfill the National Science Foundation’s request for the annual resupply of its McMurdo Station research center in Antarctica as both of its heavy polar icebreakers were inactive due to maintenance needs. The Coast Guard resumed this annual mission in 2014 following the reactivation of its other heavy icebreaker, the Polar Star, which is shown in figure 3.

In order to provide continued access to the Arctic and Antarctic regions, the Coast Guard initiated a program in 2013 to acquire a fleet of three new heavy polar icebreakers. The Coast Guard is currently planning for the first new heavy polar icebreaker to be delivered in fiscal year 2023, which has been accelerated from a previous estimate of 2026. The accelerated schedule was implemented at the direction of the last Administration, and confirmed by the current Administration. To meet its goal of delivering the first icebreaker in fiscal year 2023, the Coast Guard has partnered with the Navy to leverage the Navy’s shipbuilding expertise. These agencies established an integrated program office, which was formalized in January 2017, to collaborate on developing and implementing an acquisition approach.

The Coast Guard has made progress in advancing through the acquisition process for the new heavy polar icebreaker by completing certain efforts, such as establishing requirements and engaging the shipbuilding industry, but the accelerated schedule it is pursuing poses potential risk. Specifically, there is a risk that the acquisition planning documents required to receive DHS approval to begin development efforts—and which are necessary under DHS acquisition policy for the anticipated contract award in fiscal year 2019—might not be completed on schedule. The Coast Guard acknowledged this in its 2017 annual program review and stated that should the acquisition planning documents not be completed and approved by the end of fiscal year 2017, the program may be unable to meet its schedule for entering the obtain phase in early fiscal year 2018. Should this happen, officials reported they may be unable to release the request for proposals for detailed design and construction—a key step in the acquisition process— as scheduled in mid-fiscal year 2018, which could delay the contract award scheduled in fiscal year 2019 and extend the proposed delivery date.

Further, the Navy and Coast Guard have established a preliminary cost estimate of $1.15 billion for the lead heavy polar icebreaker, though they are working to reduce this estimate. For example, Coast Guard officials stated that they have identified $97 million in potential savings, which is based partially on reduced power requirements, since modern icebreaker designs are more efficient than the Coast Guard’s existing heavy icebreaker. To meet its accelerated schedule, the program will need to be fully funded in fiscal year 2019. In fiscal year 2017, Congress appropriated a total of $150 million to the Navy for the polar icebreaker’s advanced procurement and the explanatory statement of the DHS Appropriations Act, 2017 reflected $25 million for the Coast Guard acquisition of a polar icebreaker.

Another potential challenge is that the Coast Guard may be executing the polar icebreaker acquisition with Navy funding. For example, $150 million in polar icebreaker funding was provided to the Navy. While this approach alleviates some of the affordability issues within the Coast Guard’s budget, it is unclear exactly what roles the Navy and Coast Guard will have if this funding arrangement continues. For instance, if the Navy receives the funding then it would be responsible for contracting for the icebreakers, but the program would follow DHS’s acquisition guidance.

This would be an unusual relationship and it is unclear how potential conflicts would be resolved. This is an issue we will pursue in our ongoing work on the acquisition of the polar icebreaker.

Coast Guard Plans to Extend Polar Star’s Service Life to Reduce Capability Gap, but Estimated Cost of Service Life Extension May Be Unrealistic

As noted, the Coast Guard currently has only one operational heavy icebreaker, the Polar Star. We reported in June 2016 that, following its reactivation in 2013, the Polar Star’s end of service life is projected to be between fiscal years 2020 and 2023. As the new heavy polar icebreaker is not expected to be delivered until at least 2023, there could be a gap in the Coast Guard’s heavy icebreaking capability. To ensure that the Coast Guard retains a heavy icebreaking capability until a new heavy icebreaker is operational, the Coast Guard completed a study in January 2017 to determine the cost of reactivating Polar Sea and extending the life of the Polar Star for 7 to 10 years as potential “bridging” strategies. Table 1 shows the results of the study, reported in January 2017.

The Coast Guard is not currently planning to pursue any of these four options identified in the January 2017 study as they were deemed too expensive, among other reasons. Instead, Coast Guard officials stated they are planning to conduct a limited service life extension of the Polar Star to address key components and keep it operational until fiscal year 2025, when a second new heavy polar icebreaker is expected to be delivered. According to officials, the Coast Guard is currently conducting an assessment of the Polar Star to determine what systems would need to be overhauled and replaced to meet this goal. An official cost estimate for this effort has not been completed yet, but the fiscal year 2017 CIP includes a total of roughly $75 million towards this effort in fiscal years 2019 through 2021. However, the $75 million estimate may be unrealistic based on the assumptions the Coast Guard used, such as continuing to use parts from the Polar Sea as has been done in previous maintenance events. As a result of the finite parts available from the Polar Sea, the Coast Guard may have to acquire new parts for the Polar Star that could increase the $75 million estimate.

In conclusion, as the Coast Guard continues its recapitalization effort, it is important that it plans for the affordability of its future portfolio so that it can minimize the capability gaps that can occur when legacy assets reach the end of their service lives before new assets become operational. We have made several recommendations in recent years intended to help the Coast Guard plan for these future acquisitions and the difficult tradeoff decisions that it will likely face. If the Coast Guard fully implements these recommendations, it could provide decision makers with critical knowledge needed to prioritize its constrained acquisition funding. Without these efforts, the Coast Guard will continue, as it has in recent years, to plan its future acquisitions through the annual budgeting process, a process that has led to delayed and reduced capabilities. A thorough plan regarding the affordability of its future acquisitions would provide timely information to decision makers on how to spend scarce taxpayer dollars in support of a modern, capable Coast Guard fleet.

Chairman Hunter, Ranking Member Garamendi, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions.

GAO Contact and Staff Acknowledgments

If you or your staff have any questions about this statement, please contact Marie A. Mak, (202) 512-4841 or makm@gao.gov. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony include Jennifer Grover, Director; Richard A. Cederholm, Assistant Director; Dawn Hoff, Assistant Director; Peter W. Anderson; Jason Berman; Erin Butkowski; John Crawford; Laurier Fish; Camille Henley; Hugh Paquette; and Roxanna T. Sun.

Appendix I: List of GAO Recommendations Related to the Coast Guard’s Planning Efforts for Future Acquisitions

GAO has made several recommendations in recent years related to the Coast Guard’s efforts to conduct long-term planning. Table 2 contains a selected list of the recommendations, whether DHS or the Coast Guard concurred or not, and the status of its implementation.