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. 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. 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. 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.