The Coast Guard has updated policies and processes for major acquisition programs to better reflect best practices and respond to our prior recommendations. The Coast Guard also continues to make progress in reducing its acquisition workforce vacancies, and to some extent is leveraging DOD contracts and expertise to support its major acquisition programs. Some examples are below. Updates to Policies and Processes We found that the Coast Guard revised its Major Systems Acquisition Manual in November 2010 to include a description of the roles and responsibilities of a flag-level Executive Oversight Council, which was formed in 2009 to review programs and provide oversight; aligning roles and responsibilities of independent test authorities to DHS standards, which satisfied one of our prior recommendations; a formal acquisition decision event before a program receives approval for low-rate initial production, which addressed one of our prior recommendations; and a requirement to present an acquisition strategy when DHS is asked to validate the need for a major acquisition program. The Coast Guard has made progress in reducing its acquisition workforce vacancies. From April through November 2010, the percentage of vacancies for government positions dropped from about 20 percent to13 percent. Over the past several years, we have reported on the Coast Guard's efforts to build its in-house acquisition workforce capacity--one of the reasons the Coast Guard initially turned to a contractor as the Deepwater systems integrator was largely because it did not have that in- house capacity. Acquisition workforce vacancies have decreased, but program managers have ongoing concerns about staffing program offices. For example, the HH-65 helicopter program office has funded and filled 10 out of the 33 positions needed. To help make up shortfalls in filling systems engineer and other acquisition workforce positions, the Coast Guard uses support contractors. As of November 2010, the Coast Guard support contractors made up 25 percent of the Coast Guard's acquisition workforce. While we have cited the risks in using support contractors, we previously reported that the Coast Guard has acknowledged these risks and has taken steps to address them, such as releasing guidance on the appropriate oversight of contractors and the work they perform. According to the Coast Guard, it currently has 81 interagency agreements, memorandums of agreement, and other arrangements in place primarily with DOD to support its major acquisition programs. Support from DOD ranges from acquiring products and services from established DOD contracts to using the Navy's engineering and testing expertise. For example, the Coast Guard benefited from discounts by coordinating C- 130J aircraft contracting efforts through the Air Force acquisitions office rather than contracting directly with the aircraft manufacturer. To leverage Navy engineering and testing expertise, most Coast Guard major acquisition programs use the Navy's Commander, Operational Test and Evaluation Forces, to support test activities. Coast Guard program managers, however, do not have a systematic way to gain insight into the existence and details of such agreements. According to Coast Guard contracting officials, the Coast Guard recently began to develop a database of all interagency agreements with DOD and other agencies, but at this point program staff have access to only 5 of the approximately 81 agreements. Today's report contains a recommendation that the Commandant of the Coast Guard take steps to ensure that all interagency agreements are captured in a database or other format and to make this information readily accessible to program staff. DHS agreed with the recommendation. We have previously reported that the Coast Guard has gained insights into the risks it faces in managing its major acquisitions. At the same time, most major programs continue to experience challenges in program execution, resources, and schedule. The Coast Guard assesses program execution using a composite metric that includes the following factors: earned value management, a performance assessment, logistics assessment, testing status, risk assessment, and technical maturity. It also assesses resources using a composite metric that includes several factors, such as budgeting, funding, staffing, and contractor health, that is, contractor personnel and facilities. These challenges are exacerbated by the Coast Guard's budget planning, which includes developing capital investment plans that project outyear funding levels. The Coast Guard has reported that projected funding levels in the fiscal years 2011-2015 capital investment plan were lower than previously planned for some major acquisition programs. This plan includes Deepwater Program assets as well as other acquisitions. Figure 1 illustrates these risks for each major acquisition program. Programs experiencing instability due to reduced projected funding levels. 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 is now termed fleet mix analysis phase 1, was led by the Coast Guard directorate responsible for identifying and providing capabilities. In July 2010, we reported that while the Coast Guard had not yet released the results, officials told us that the analysis considered the 2007 Deepwater baseline to be the "floor" for asset capabilities and quantities and did not impose financial constraints on the outcome. The Coast Guard initiated a second phase of the analysis to impose cost constraints. We recommended in our July 2010 report that since the 2007 DHS-approved baseline of $24.2 billion was no longer feasible because of cost growth, the Coast Guard should conduct a comprehensive review of Deepwater cost, schedule, quantities, and mix of assets needed to meet mission needs, identify trade-offs given fiscal constraints, and report the results to Congress. The Coast Guard's efforts to date have not addressed this recommendation. We recently obtained and analyzed the phase 1 fleet mix analysis. We found that to conduct this analysis, the Coast Guard assessed asset capabilities and mission demands to identify a fleet mix--referred to as the objective fleet mix--that would meet long-term strategic goals. Given the significant increase in the number of assets needed for this objective fleet mix from the approved Deepwater program of record--the $24.2 billion baseline--the Coast Guard developed, based on risk metrics, incremental fleet mixes to bridge the two. Table 1 shows the quantities of assets for each incremental mix, according to the Coast Guard's analysis. Phase 1 also analyzed the performance of these fleet mixes to gain insight into mission performance gaps. However, the analysis was not cost constrained, as noted above. For instance, the Coast Guard estimated that the costs associated with the objective fleet mix could be as much as $65 billion. This is approximately $40 billion higher than the DHS-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 because of cost and do not plan to use them to provide recommendations on a baseline for fleet mix decisions. In May 2010, the Coast Guard undertook phase 2, a cost-constrained fleet mix analysis. Officials responsible for the analysis explained that it will primarily assess the rate at which the Coast Guard could acquire the Deepwater program of record within a high and low bound of annual acquisition cost constraints. They told us that the lower- and upper- bound constraints are, respectively, $1.2 billion and $1.7 billion annually; however, the basis for selecting these cost constraints is not documented. Based on our review of recent budget data, this upper bound for Deepwater is more than Congress has appropriated for the Coast Guard's entire acquisition portfolio in recent years. Moreover, the Coast Guard 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 of record. Alternative fleet mixes will be assessed, but these mixes are based on purchasing additional assets after the program of record is acquired, if funding remains within the yearly cost constraints. Coast Guard officials stated that they are only analyzing the program of record or a larger fleet mix because they found that the first phase of the analysis validated pursuing, at the minimum, the program of record. The Coast Guard expects to complete its phase 2 analysis in the summer of 2011. Because fleet mix analysis 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. Furthermore, it is our understanding that DHS is conducting a study examining the mix of surface assets, which is expected to be completed later this year. As part of our ongoing work, we will continue to monitor these efforts as they relate to the fleet mix analysis. In conclusion, I would like to emphasize several key points as we continue to review the Coast Guard's management of acquisitions. It is important to recognize that the Coast Guard continues to make progress in strengthening its capabilities to manage its acquisition portfolio by updating acquisition policies and practices, reducing vacancies in the acquisition workforce, and leveraging DOD contracts and resources to help support its major acquisitions. Nevertheless, the Coast Guard still faces significant challenges in carrying out these major acquisitions within a fiscally constrained environment, especially given continued cost growth and schedule delays that are exacerbated in part by unrealistic budget plans. Additionally, as costs continue to grow and capabilities are delayed, the Coast Guard has yet to consider the trade-offs in capabilities, quantities, and costs of the Deepwater assets--a significant portion of its major acquisition portfolio--in order to identify an affordable fleet. We expect to continue reviewing and reporting on its progress in this regard. Chairman LoBiondo, Ranking Member Larsen, this concludes my prepared statement. I would be happy to respond to any questions you or other members of the subcommittee may have at this time. If you have any questions on matters discussed in this statement, please contact John P. Hutton 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 statement. Other individuals making key contributions to this testimony include Michele Mackin, Assistant Director; John Neumann, Assistant Director; Jessica Drucker; Laurier Fish; Carlos Gomez; Kristine Hassinger; Morgan Delaney Ramaker; William Russell; Molly Traci; and Rebecca Wilson. The NSC is intended to be the flagship of the Coast Guard's fleet, with an extended on- scene presence, long transits, and forward deployment. The cutter and its aircraft and small boat assets are to operate worldwide. The OPC is intended to conduct patrols for homeland security functions, law enforcement, and search and rescue operations. It will be designed for long-distance transit, extended on-scene presence, and operations with multiple aircraft and small boats. The FRC, also referred to as the Sentinel class, is conceived as a patrol boat with high readiness, speed, adaptability, and endurance to perform a wide range of missions. The MEC sustainment project is intended to improve the cutters' operating and cost performance by replacing obsolete, unsupportable, or maintenance-intensive equipment. The PB sustainment project is intended to improve the boats' operating and cost performance by replacing obsolete, unsupportable, or maintenance-intensive equipment. The MPA is a transport and surveillance, fixed-wing aircraft intended to be used to perform search and rescue missions, enforce laws and treaties, and transport cargo and personnel. The HC-130J is a four-engine turbo-prop aircraft that the Coast Guard has deployed with improved interoperability, Command, Control, Communications, Computer, Intelligence, Surveillance, and Reconnaissance (C4ISR), and sensors to enhance surveillance, detection, classification, identification, and prosecution. The HC-130H is the legacy Coast Guard long-range surveillance aircraft, which the Coast Guard intends to update in multiple segments. HH-65 Multi-mission Cutter Helicopter The HH-65 Dolphin is the Coast Guard's short-range recovery helicopter. It is being upgraded to improve its engines, sensors, navigation equipment, avionics, ability to land on the NSC, and other capabilities in multiple segments. The HH-60 is a medium-range recovery helicopter designed to perform search and rescue missions offshore in all weather conditions. The Coast Guard has planned upgrades to the helicopter's avionics, sensors, radars, and C4ISR systems in multiple segments. The land-based and cutter-based UASs are in the Need phase. The UAS strategy is to range UASs and low altitude cutter-based tactical UASs to fulfill mission requirements while emphasizing (1) commonality with existing Department of Homeland Security and Department of Defense programs, (2) ensuring that projects mature, and (3) where possible, leveraging other government organizations' UAS development and nonrecurring engineering costs. The RB-M is intended to replace the aging 41-foot utility boats and other medium nonstandard boats. The Coast Guard is incrementally acquiring C4ISR capabilities, including upgrades to existing cutters and shore installations, acquisitions of new capabilities, and development of a common operating picture to provide operationally relevant information and knowledge across the full range of Coast Guard operations. CG-LIMS will replace or integrate legacy logistics business processes and their supporting information systems. NAIS is a data collection, processing, and distribution system that provides information to enhance safety of navigation and improve Maritime Domain Awareness. IOC is intended to improve operational capabilities, situational awareness, tactical decision making and joint, coordinated emergency response. Rescue 21 is an advanced command, control, and communications system intended to improve the Coast Guard's search and rescue mission by leveraging direction-finding technology to more accurately locate the source of distress calls. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary:
The U.S. Coast Guard manages a broad major acquisition portfolio. GAO has reported extensively on the Coast Guard's significant challenges with its major acquisition programs, including its Deepwater Program. GAO has also recognized steps the Coast Guard has taken to improve acquisition management. Additionally, GAO has recommended that the Coast Guard complete a review of the Deepwater Program to clarify the mix of assets that are needed to meet mission needs and trade-offs while considering fiscal constraints, because the program had exceeded its $24.2 billion baseline. This testimony updates (1) Coast Guard efforts to manage major acquisitions, (2) challenges programs are facing in the areas of cost and schedule, and (3) the status of the Deepwater fleet mix analysis. This statement is largely based on GAO-11-480 , which is being issued today. In that report, GAO recommended that the Coast Guard formalize its database of agreements with the Department of Defense (DOD). The Department of Homeland Security agreed with the recommendation. This statement also draws from prior GAO reports and ongoing work related to Deepwater. GAO reviewed the first phase of the Coast Guard's fleet mix analysis, contract documents, and budget information. GAO also interviewed Coast Guard officials responsible for conducting the fleet mix analysis. For the new information, GAO obtained Coast Guard views and incorporated technical comments where appropriate The Coast Guard continues to improve its acquisition management capabilities by updating policies, reducing acquisition workforce vacancies, and leveraging DOD contracts. In November 2010, the Coast Guard updated its "Major Systems Acquisition Manual" to further incorporate best practices and respond to prior GAO recommendations, such as aligning the roles and responsibilities of independent test authorities to DHS standards. Additionally, the Coast Guard reduced its acquisition workforce vacancies from about 20 to 13 percent from April through November 2010. Shortfalls in hiring staff for certain key areas persist, though, and some programs continue to be affected by unfilled positions. The Coast Guard has entered into 81 memorandums of agreement and other arrangements--primarily with DOD--to support its major acquisition programs, but program staff currently have access to only 5 of the 81 agreements. Most of the Coast Guard's 17 major acquisition programs continue to experience challenges in program execution, schedule, and resources. Furthermore, the Coast Guard's unrealistic budget planning exacerbates these challenges. When programs receive funding lower than planned, schedule breaches and other problems are more likely to occur. In fact, 4 of the major acquisition programs have reported a baseline breach caused, at least in part, by reduced projected funding levels. Additionally, projected funding levels in the Coast Guard's fiscal years 2012-2016 capital investment plan are significantly higher than budgets previously appropriated or requested and therefore may be unrealistic. This is particularly true given the rapidly building fiscal pressures facing the nation. For example, the Coast Guard plans to request $2.35 billion for acquisitions in fiscal year 2015--including funding for construction of three major Deepwater surface assets--but the agency has not received more than $1.54 billion in any recent year. The Coast Guard has developed action items to address budget planning challenges. In July 2010, GAO recommended that because of significant cost growth in the Deepwater Program, the Coast Guard should review the cost and mix of assets and identify trade-offs given fiscal constraints. The Department of Homeland Security agreed with the recommendation; however, the Coast Guard has not yet implemented it. The Coast Guard began a fleet mix analysis in 2008 that considered the current Deepwater Program to be the "floor" for asset capabilities and quantities and did not impose cost constraints on the various fleet mixes. Consequently, the results will not be used as a basis for trade-off decisions. The Coast Guard has now begun a second analysis, which includes an upper cost constraint of $1.7 billion annually--more than Congress has appropriated for the entire Coast Guard acquisition portfolio in recent years. Further, Coast Guard officials told GAO that this analysis will not assess options lower than the current program of record. It therefore will not prepare the Coast Guard to make the trade-offs that will likely be needed in the current fiscal climate. The Coast Guard expects to complete the analysis this summer.