From fiscal years 2005 through 2011, the physical condition of the Coast Guard’s legacy vessels was generally poor. A primary Coast Guard measure of a vessel’s condition—the operational percent of time free of major casualties—shows that the high endurance cutters, medium endurance cutters, and patrol boats generally remained well below target levels from fiscal years 2005 through 2011. For example, over this 7- year period, the operational percent of time free of major casualties averaged about 44 percent for the high endurance cutters and about 65 percent for the medium endurance cutters versus a target of 72 percent; and the patrol boats averaged approximately 74 percent versus a target of 86 percent. Other evidence, such as our review of vessel condition assessments and inspections the Coast Guard conducts of the legacy vessels, also shows that the condition of the legacy vessel fleet is generally declining. For example, a variety of Coast Guard assessments show that legacy vessels’ critical operating systems—such as main diesel engines—have been increasingly prone to mission-degrading casualties. In addition, Coast Guard senior maintenance officials and vessel crew members we interviewed noted increased maintenance challenges because of the advanced age of the legacy vessels. In particular, the maintenance managers for both the high endurance and medium endurance cutters reported that the performance of critical systems on these legacy vessel classes has become increasingly unpredictable and refurbishments of these vessel classes’ least reliable systems have brought limited returns on the investments. Maintenance officials and vessel crew members also reported devoting increasing amounts of time and resources to troubleshoot and resolve maintenance issues because some systems and parts on these legacy vessel classes are obsolete. The Coast Guard has taken two key actions to improve the condition of its legacy vessels. First, in 2009, the Coast Guard reorganized its maintenance command structure to focus on standardization of practices. Under this reorganization, the Coast Guard eliminated its two Maintenance and Logistics Commands and replaced them with a centralized command structure—the Surface Forces Logistics Center— whereby a single product line manager oversees the maintenance of similar classes of vessels. Coast Guard officials reported that this change was made to enable better oversight of the condition of entire classes of the vessel fleet, reduce the workload on vessel crews by providing centralized support for procurement of replacement parts, and implement centralized maintenance plans to address commonly occurring Second, Coast Guard officials also reported that the Coast casualties.Guard was on schedule to complete a 10-year, almost half-billion dollar set of sustainment projects to refurbish selected patrol boats and upgrade medium endurance cutters, known as Mission Effectiveness Projects, which are intended to improve legacy vessel operating and cost performance. Our July 2012 report provides additional information regarding these actions but, as noted in the report, the condition of these legacy vessels continues to decline despite these efforts. Expenditures for the two key types of legacy vessel annual depot-level maintenance—scheduled and unscheduled maintenance—declined from fiscal year 2005 to fiscal year 2007, and then rose from fiscal year 2007 to fiscal year 2011. For example, scheduled maintenance expenditures rose from about $43 million in fiscal year 2007 to about $70 million in fiscal year 2011. Coast Guard officials attributed the increase in scheduled maintenance expenditures to better identifying maintenance needs, increasing the prioritization of completing all scheduled maintenance, and the receipt of supplemental funding. In contrast, unscheduled maintenance expenditures varied by vessel class from fiscal years 2005 through 2011, but the high endurance cutter fleet consistently incurred the greatest share of unscheduled maintenance expenditures. For example, high endurance cutters accounted for 86 percent of all unscheduled maintenance expenditures in fiscal year 2011. Coast Guard officials attributed the comparatively high unscheduled maintenance expenditures to the high endurance cutters’ advanced age and size. According to Coast Guard officials, Standard Support Levels are established when a vessel class enters service or undergoes a service life extension program. For example, the Coast Guard reset the Standard Support Level for the high endurance cutters after conducting a service life extension program between 1987 and 1992—the Fleet Renovation and Modernization Program—but has not reset the Standard Support Levels for the medium endurance cutters or patrol boats. Coast Guard officials indicated that the Coast Guard increases Standard Support Levels using non-pay inflation, but it has not done so every year. noting that supplemental funding had been critical to enable the Coast Guard to fund necessary maintenance for the legacy vessel fleet. Our July 2012 report provides further information regarding the Coast Guard’s annual depot-level maintenance expenditures. Our review found that the Coast Guard’s process for estimating legacy vessel annual depot-level maintenance costs does not fully reflect relevant best practices. GAO’s Cost Estimating and Assessment Guide states that a high-quality and reliable cost estimate includes certain best practice characteristics. We determined that the three characteristics relevant to the Coast Guard’s cost estimation process are that the process should be (1) well-documented, (2) comprehensive, and (3) accurate. Our assessment showed that the Coast Guard’s legacy vessel maintenance cost-estimating process partially met the three characteristics, as follows: Partially comprehensive: The Coast Guard’s process for estimating annual legacy vessel depot-level maintenance costs defines the program, among other things, but does not document all cost- influencing ground rules and assumptions (e.g., inflation rate). Partially well-documented: The Coast Guard’s process for estimating annual legacy vessel depot-level maintenance costs discusses the technical baseline description, and the data in the baseline are consistent with the estimate; however, the Coast Guard did not provide documentation that discusses key cost estimating factors, such as how the data were normalized or the reliability of the data. Partially accurate: The Coast Guard’s process for estimating annual legacy vessel depot-level maintenance costs contains few, if any, minor mathematical mistakes and is regularly updated to reflect significant program changes and current status. However, we assessed the cost estimate as being not fully accurate because Coast Guard officials could not provide us with documentation that would allow us to assess the reliability of the historical data used, the accuracy of the calculations, the relationship of the data to the historical contractor bids, or the final estimates for all maintenance costs. To address these issues, in our July 2012 report, we recommended that the Secretary of Homeland Security direct the Commandant of the Coast Guard to ensure that the Coast Guard’s annual depot-level maintenance cost estimates conform to cost estimating best practices. DHS concurred with this recommendation and described actions the Coast Guard has taken or plans to take, but these actions may not fully address the intent of this recommendation. For example, DHS noted that given current fiscal constraints, the Coast Guard will focus on improvements that do not require additional resources. While we agree that federal resources are limited, aligning the cost estimating process for legacy vessel maintenance with best practices would not necessarily require an increased investment of resources. Rather, having a well documented cost estimating process and using accurate historical data should enable the Coast Guard to operate more efficiently. The operational capacity of the Coast Guard’s legacy vessel fleet declined from fiscal years 2006 through 2011. In particular, while performance varied across the legacy vessel classes, two key Coast Guard metrics—operational hours and lost cutter days—show that the legacy vessels did not meet their operational capacity targets and lost considerable planned operational time. For example, the high endurance cutters and 210-foot medium endurance cutters did not meet any of their operational hour targets from fiscal years 2006 through 2011, and the 270-foot medium endurance cutters met their targets only in fiscal year 2008. Specifically, operational hours for the high endurance cutters declined by about 32 percent from fiscal year 2008 to 2011, and the combined operational hours of the 210-foot and 270-foot medium endurance cutters declined nearly 21 percent from fiscal year 2007 to fiscal year 2011.medium endurance cutters, collectively, averaged about 618 lost cutter days per year from fiscal years 2006 through 2011. Further, the number of lost cutter days for the high endurance cutters has been nearly In addition, Coast Guard data show the high and equivalent to three high endurance cutters being out of service for an entire year in each of the last 3 fiscal years. Moreover, lost cutter days for both the 210-foot and 270-foot medium endurance cutters combined more than doubled, from 122 lost cutter days in fiscal year 2006 to 276 lost cutter days in fiscal year 2010. Coast Guard headquarters officials reported that the declining operational capacity of its legacy vessel fleet— particularly the high and medium endurance cutters—has been a prime contributor to the Coast Guard’s declining ability to meet mission requirements and intercept threats beyond U.S. territorial waters. The Naval Engineering Manual defines remaining service life as the time period during which no major expenditures will be required for hull and structural repairs or modernizations, or for machinery or system modernizations based solely on the vessel’s capability to meet existing mission requirements. also increase the vessel fleet’s operational capacity gap because the Coast Guard will not receive sufficient numbers of replacement vessels during this time period to make up for the lost capacity. The ongoing delivery of replacement vessels is expected to help mitigate the existing operational capacity gap for the legacy high endurance cutter and patrol boat fleets. However, Coast Guard officials reported, and our analysis of Coast Guard documents confirms, that the medium endurance cutter fleet will be most affected by delays in delivery of replacement vessels. The Coast Guard is refurbishing its medium endurance cutters through the Mission Effectiveness Project to increase these cutters’ reliability and reduce longer-term maintenance costs, and third-party assessments show that the performance of those medium endurance cutters that have completed the project has improved. Even if the most optimistic projections were realized, though, and the Mission Effectiveness Project was to extend the medium endurance cutters’ service lives by 15 years, the medium endurance cutters would remain in service increasingly beyond the end of their originally-expected service lives before full deployment of their replacement vessels—the offshore patrol cutters. In particular, according to current plans, some of the 270- foot medium endurance cutters are to remain in service as late as 2033— up to 21 years beyond the end of their originally-expected service lives— before they are replaced. Coast Guard officials reported that a further refurbishment of the medium endurance cutters will be necessary to meet operational requirements and that the Coast Guard is in the early stages of developing plans for addressing the expected gap between remaining medium endurance cutter fleet service lives and the delivery of the replacement offshore patrol cutters. Coast Guard efforts to sustain its legacy vessel fleet and meet mission requirements until the replacement vessels are delivered are also challenged by uncertainties regarding the future mix of vessels, as well as the implementation of a rotational crew concept for the replacement vessel for the high endurance cutters, known as the national security cutter. The Coast Guard’s fiscal year 2013 to 2017 5-year Capital Investment Plan does not allocate funds for the acquisition of the last two replacement national security cutters, as called for by the program of record, and it is unclear how this could affect the decommissioning schedule of the high endurance cutters, the last of which the Coast Guard currently plans to decommission in fiscal year 2023. The Coast Guard has established operational hour targets for the number of hours its vessels are expected to conduct operations or missions each fiscal year and uses these targets to inform planning decisions, such as setting performance targets and corresponding resource allocations. Although senior Coast Guard headquarters officials reported considering various factors when setting overall mission performance targets annually, these officials reported doing so based on the assumption that vessel class assets will achieve 100 percent of their operational hour targets. Our analysis of Coast Guard data, though, makes it clear that the Coast Guard’s legacy vessel fleet has increasingly fallen below operational hour targets in recent years, and this trend is expected to continue. In addition, Coast Guard officials reported that the decline in legacy vessel operational capacity has challenged the Coast Guard’s ability to meet its mission performance targets. Further, Coast Guard operational commanders reported taking actions to mitigate the effect of declining legacy vessel capacity, such as diverting vessels tasked to other missions to help complete operations. Nevertheless, the Coast Guard has not revised legacy vessel operational hour targets because, according to Coast Guard officials, doing so would lower its mission performance targets. However, these targets have gone unmet because of the declining operational capacity of the legacy vessel fleet. Because it sets mission performance targets and allocates resources on the assumption that legacy vessels will achieve 100 percent of operational hour targets, the Coast Guard’s allocation of resources is not realistic. Further, because the Coast Guard uses vessels’ operational hour targets to set agency-wide performance targets and to allocate resources, consistent achievement of its performance targets is at increased risk. In our July 2012 report, we recommended that the Secretary of Homeland Security direct the Commandant of the Coast Guard to adjust legacy vessel fleet operational hour targets to reflect actual capacity, as appropriate by class. DHS did not concur with this recommendation and noted, among other things, that reducing the operational hour targets would fail to fully utilize those assets not impacted by maintenance issues. We disagree with DHS’s position because, as noted in the July 2012 report, while senior Coast Guard officials reported that the Coast Guard adjusts its mission performance targets annually, it does not also adjust legacy vessel operational hour targets annually. These officials also stated that the Coast Guard’s mission performance targets are based on each vessel class’s capacity, with the assumption that each vessel will operate at 100 percent of its planned operating time. Thus, we do not believe that reducing the operational hour targets would result in a failure by the Coast Guard to fully utilize assets not impacted by maintenance challenges and continue to believe that this recommendation has merit. Chairman LoBiondo, Ranking Member Larsen, and members of the subcommittee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time. For questions about this statement, please contact Stephen L. Caldwell at (202) 512-9610 or caldwells@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement include Christopher Conrad (Assistant Director) and Michael C. Lenington. Additional contributors include Jason Berman, Chloe Brown, and Lara Miklozek. 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: This testimony discusses the condition of the Coast Guard's legacy vessel fleet, and challenges the Coast Guard faces in sustaining these vessels and meeting mission requirements. The Coast Guard, within the Department of Homeland Security, is the principal federal agency responsible for maritime safety, security, and environmental stewardship. The legacy vessel fleet is critical for executing Coast Guard missions, which include defense operations; search and rescue; and securing ports, waterways, and coastal areas. The comments will focus on the legacy 378-foot high endurance cutters, 270-foot and 210-foot medium endurance cutters, and 110-foot patrol boats, and are based on findings from the report we released in July 2012. This testimony summarizes the findings of our July 2012 report and addresses (1) how the physical condition of the Coast Guard's legacy vessel fleet changed from fiscal years 2005 through 2011, and key actions the Coast Guard has taken related to the physical condition of its legacy fleet; (2) key annual maintenance expenditure trends for the legacy vessel fleet, and the extent to which the Coast Guard's cost estimating process has followed established best practices; and (3) the operational capacity of the legacy vessel fleet and the extent to which the Coast Guard faces challenges in sustaining the legacy vessel fleet and meeting mission requirements. For information, contact contact Stephen L. Caldwell at (202) 512-9610 or caldwells@gao.gov . From fiscal years 2005 through 2011, the physical condition of the Coast Guard's legacy vessels was generally poor. A primary Coast Guard measure of a vessel's condition--the operational percent of time free of major casualties--shows that the high endurance cutters, medium endurance cutters, and patrol boats generally remained well below target levels from fiscal years 2005 through 2011. The Coast Guard has taken two key actions to improve the condition of its legacy vessels. First, in 2009, the Coast Guard reorganized its maintenance command structure to focus on standardization of practices. Under this reorganization, the Coast Guard eliminated its two Maintenance and Logistics Commands and replaced them with a centralized command structure--the Surface Forces Logistics Center--whereby a single product line manager oversees the maintenance of similar classes of vessels. Coast Guard officials reported that this change was made to enable better oversight of the condition of entire classes of the vessel fleet, reduce the workload on vessel crews by providing centralized support for procurement of replacement parts, and implement centralized maintenance plans to address commonly occurring casualties. Second, Coast Guard officials also reported that the Coast Guard was on schedule to complete a 10-year, almost half-billion dollar set of sustainment projects to refurbish selected patrol boats and upgrade medium endurance cutters, known as Mission Effectiveness Projects, which are intended to improve legacy vessel operating and cost performance. Expenditures for the two key types of legacy vessel annual depot-level maintenance--scheduled and unscheduled maintenance--declined from fiscal year 2005 to fiscal year 2007, and then rose from fiscal year 2007 to fiscal year 2011. Further, annual depot-level maintenance expenditures often exceeded the Coast Guard's budgeted funds for depot-level maintenance for the legacy vessels--known as Standard Support Levels--from fiscal years 2005 through 2011. Our review found that the Coast Guard's process for estimating legacy vessel annual depot-level maintenance costs does not fully reflect relevant best practices. GAO's Cost Estimating and Assessment Guide states that a high-quality and reliable cost estimate includes certain best practice characteristics. We determined that the three characteristics relevant to the Coast Guard's cost estimation process are that the process should be (1) well-documented, (2) comprehensive, and (3) accurate. The operational capacity of the Coast Guard's legacy vessel fleet declined from fiscal years 2006 through 2011. In particular, while performance varied across the legacy vessel classes, two key Coast Guard metrics--operational hours and lost cutter days--show that the legacy vessels did not meet their operational capacity targets and lost considerable planned operational time. Coast Guard efforts to sustain its legacy vessel fleet and meet mission requirements until the replacement vessels are delivered are also challenged by uncertainties regarding the future mix of vessels, as well as the implementation of a rotational crew concept for the replacement vessel for the high endurance cutters, known as the national security cutter. The Coast Guard's fiscal year 2013 to 2017 5-year Capital Investment Plan does not allocate funds for the acquisition of the last two replacement national security cutters, as called for by the program of record, and it is unclear how this could affect the decommissioning schedule of the high endurance cutters, the last of which the Coast Guard currently plans to decommission in fiscal year 2023.