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Testimony Before the Subcommittee on Homeland Security, Committee on 
Appropriations, House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EST: 

Thursday, February 15, 2007: 

Coast Guard: 

Preliminary Observations on Deepwater Program Assets and Management 
Challenges: 

Statement of John P. Hutton, Acting Director: 
Acquisition and Sourcing Management: 

GAO-07-446T: 

GAO Highlights: 

Highlights of GAO-07-446T, a testimony for the Subcommittee on Homeland 
Security, Committee on Appropriations, House of Representatives 

Why GAO Did This Study: 

The U.S. Coast Guard’s Deepwater program was designed to upgrade or 
replace its aging legacy aircraft and vessels with assets focusing on 
the Coast Guard’s traditional at-sea roles. After the September 11, 
2001 terrorist attacks, the Coast Guard took on additional security 
missions, resulting in revisions to the Deepwater plan. GAO’s prior 
work raised concerns about Coast Guard’s efforts to upgrade or acquire 
assets on schedule, and manage and effectively monitor the system 
integrator. 

This testimony provides GAO’s preliminary observations on (1) events 
and issues surrounding the Coast Guard’s bridging strategy to convert 
the legacy 110-foot patrol boats to 123-foot patrol boats; (2) the 
status of the Coast Guard’s efforts to acquire new or upgraded 
Deepwater assets; and (3) the Coast Guard’s ability to effectively 
manage the Deepwater program, hold contractors accountable, and control 
costs through competition. GAO’s preliminary observations are based on 
audit work performed from August 2006 to February 2007. 

What GAO Found: 

Numerous events since January 2001 led up to the failure of the Coast 
Guard’s bridging strategy to convert its legacy 110-foot patrol boats 
into 123-foot patrol boats. These converted boats were removed from 
service on November 30, 2006 because of operational and safety 
concerns. According to the Coast Guard Commandant, actions are being 
taken to mitigate the impact of the removal of these patrol boats on 
mission activities. For example, patrol hours of some 110-foot patrol 
boats have been increased through the addition of crews from the 123-
foot patrol boats, and other Coast Guard vessels have been deployed to 
assist in carrying out missions. 

The delivery record for the 10 classes of upgraded or new Deepwater 
aircraft and vessels is mixed. Specifically, 7 of the 10 asset classes 
are on or ahead of schedule. Among these, 5 first-in-class assets have 
been delivered on or ahead of schedule; 2 others remain on time but 
their planned delivery dates are in 2009 or beyond; therefore, delays 
could still potentially occur. Three Deepwater asset classes are 
currently behind schedule due to various problems related to designs, 
technology, or funding. For example, the Fast Response Cutter (a new 
vessel), which had been scheduled for first-in-class delivery in 2007, 
has been delayed by at least 2 years in part because work on its design 
was suspended until technical problems can be addressed. 

From the program’s outset, GAO has raised concerns about the risks 
involved with the Coast Guard’s acquisition strategy. In 2004, GAO 
reported that program management, contractor accountability, and cost 
control were all challenges, and made recommendations in these areas. 
Insufficient staffing, ineffective performance measures, and the Coast 
Guard’s lack of knowledge about the extent to which the contractor was 
using competition have contributed to program risk. The Coast Guard has 
taken some actions to address these issues. GAO plans to continue to 
assess the Coast Guard’s Deepwater program, including its efforts to 
address GAO recommendations, and will report the findings later this 
year. 

Figure: Deepwater Vessel and Aircraft Classes: 

[See PDF for Image] 

Source: U.S. Coast Guard. 

[End of Figure] 

What GAO Recommends: 

This testimony contains no recommendations. In 2004, GAO made 11 
recommendations on management and oversight, contractor accountability, 
and cost control through competition, and reported in April 2006 that 
progress had been made but continued monitoring was warranted. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-446T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact John P. Hutton at (202) 
512-4841 or huttonj@gao.gov. 

[end of section] 

Mr. Chairman and Members of the Subcommittee: 

I appreciate the opportunity to participate in today's hearing to 
discuss our preliminary observations on the status of the United States 
Coast Guard's Integrated Deepwater System program. These observations 
are based upon our ongoing analysis for this Committee and the Senate 
Appropriations Committee, and we plan to provide a more complete 
analysis when we issue our report later this year. 

Deepwater is a 25-year, $24-billion effort to upgrade or replace 
existing Coast Guard aircraft and vessels in order to carry out its 
missions along our coastlines and farther out at sea. An initial 
emphasis of the Deepwater program was to improve existing assets, known 
as "legacy" assets, as a bridging strategy until new assets could be 
delivered and begin operating. One of the key legacy assets to be 
improved was the 110-foot patrol boat, which was to be converted to a 
123-foot patrol boat by lengthening the hull and modernizing various 
components. While the Coast Guard originally planned to convert all 49 
of its 110-foot patrol boats to 123-foot patrol boats, it halted the 
patrol boat conversion program after 8 boats because of hull buckling 
and the inability of these converted patrol boats to meet post- 
September 11, 2001 mission requirements. 

The Deepwater program is eventually to include 10 major classes of new 
or upgraded assets--5 major classes each of aircraft and vessels. By 
2027, under these 10 asset classes, a total of 215 vessels and 240 
aircraft are to be acquired or upgraded. To carry out this effort, the 
Coast Guard has relied on an acquisition strategy that allows a prime 
contractor (system integrator) to manage the acquisition process, 
including identifying the assets needed, and then using tiers of 
subcontractors to design and build the assets. 

Since 2001, we have reviewed the Deepwater program and have informed 
Congress, the Department of Homeland Security (DHS), and the Coast 
Guard of the problems, risks, and uncertainties inherent with such a 
large acquisition. In March 2004, we made recommendations to the Coast 
Guard to address three broad areas of concern: improving program 
management, strengthening contractor accountability, and promoting cost 
control through greater competition among potential 
subcontractors.[Footnote 1] In April 2006, we issued a follow-on report 
describing efforts the Coast Guard had taken to address the outstanding 
recommendations.[Footnote 2] 

This statement offers preliminary observations on the Coast Guard's 
management of the Deepwater program. Specifically, it discusses: 

* events and issues surrounding the problems encountered with the Coast 
Guard's bridging strategy to convert the legacy 110-foot patrol boats 
to 123-foot patrol boats; 

* the status of the Coast Guard's efforts to acquire new or upgraded 
Deepwater assets; and: 

* the Coast Guard's ability to effectively manage the Deepwater 
program, hold contractors accountable, and control costs through 
competition. 

The preliminary findings and observations noted in this testimony are 
based on our review of key documents, including the 2005 Deepwater 
Acquisition Program Baseline; schedule information provided by the 
Coast Guard; Coast Guard memoranda regarding the 123-foot patrol boat 
conversion; and Coast Guard's human capital plan, its award fee and 
award term documentation, and its competition monitoring plan. We 
conducted interviews with Coast Guard officials at agency headquarters 
in Washington, D.C; officials in Coast Guard's System Integration 
Program Office in Arlington, VA; and Coast Guard contractor staff. In 
addition, we interviewed Coast Guard officials during visits to the 
Pacific and Atlantic Area Commands and their associated Maintenance and 
Logistics Commands and at the Coast Guard's Aircraft Repair and Supply 
Center. Our work was conducted from August 2006 to February 2007 in 
accordance with generally accepted government auditing standards. 
Appendix I contains a list of related GAO products. 

Summary: 

Numerous events, dating back to January 2001, resulted in the failure 
of the Coast Guard's bridging strategy to convert its legacy 110-foot 
patrol boats into 123-foot patrol boats. These converted boats were 
removed from service on November 30, 2006 because of operational and 
safety concerns. Specifically, the Coast Guard cited that the 123-foot 
patrol boats in service in Key West, Florida displayed deck cracking, 
hull buckling, and shaft alignment problems related to other structural 
issues. The mission of these boats involved, among other things, drug 
interdiction, intercepting illegal aliens, and providing support for 
antiterrorist activities. According to the Commandant of the Coast 
Guard, actions are being taken to mitigate the impact of the removal of 
these patrol boats on mission activities. For example, patrol hours of 
some 110-foot patrol boats have been increased through the addition of 
crews from the 123-foot patrol boats; other Coast Guard vessels have 
been deployed to assist in missions formerly performed by the 123-foot 
patrol boats; and permission has been secured from the U.S. Navy to 
continue using 179-foot cutters on loan for an additional 5 years. We 
will continue to review the actions the Coast Guard is taking to 
mitigate the removal from service of the 123-foot patrol boats. 

Of the 10 classes of upgraded or new Deepwater aircraft and vessels, 
the delivery record for first-in-class assets (that is, the first of 
multiple aircraft or vessels to be delivered within each class) is 
mixed. Specifically, 7 of the 10 asset classes are on or ahead of 
schedule. Among these, 5 first-in-class assets have been delivered on 
or ahead of schedule; and 2 others remain on schedule but their planned 
delivery dates are in 2009 or beyond. Three Deepwater asset classes are 
currently behind schedule due to various problems related to designs, 
technology, or funding. For example, the Fast Response Cutter (a new 
vessel), which had been scheduled for first-in-class delivery in 2007, 
has been delayed by at least 2 years in part because work on its design 
was suspended until technical problems related to its hull and other 
issues can be addressed. The Vertical Unmanned Aerial Vehicle (a new 
aircraft), which had also been scheduled for delivery in 2007, has been 
delayed by 6 years due to evolving technological developments, among 
other things. In addition, the Offshore Patrol Cutter, which had a 
planned delivery date in 2010, has now been delayed by 5 years. 

In 2001, we described the Deepwater project as risky due to the unique, 
untried acquisition strategy for a project of this magnitude within the 
Coast Guard--a "systems of systems" approach with a contractor as the 
integrator. In 2004, we reported that there were significant risks 
related to program management, contractor accountability, and cost 
control, and we made recommendations in all these areas. The Coast 
Guard's ability to effectively manage the program has been challenged 
by staffing shortfalls and poor communication and collaboration among 
Deepwater program staff, contractors, and field personnel. Despite 
documented problems in schedule, performance, cost control, and 
contract administration, measures for holding the contractor 
accountable resulted in an award fee of $4 million (of the maximum $4.6 
million) for the first year. Through the first 4 years of the Deepwater 
contract, the system integrator received award fees that ranged from 87 
percent to 92 percent of the total possible award fee (scores that 
ranged from "very good" to "excellent" based on Coast Guard criteria), 
for a total of over $16 million. Further, the program's ability to 
control Deepwater costs is uncertain given the Coast Guard's lack of 
detailed information on the contractor's competition decisions. While 
the Coast Guard has taken some actions to improve program outcomes, our 
assessment of the program and its efforts to address our 
recommendations continues, and we plan to report on our findings later 
this year. 

Background: 

The Coast Guard is the lead federal agency for maritime security within 
DHS. The Coast Guard is responsible for a variety of missions, 
including ensuring ports, waterways, and coastline security; conducting 
search and rescue missions; interdicting illicit drug shipments and 
illegal aliens; and enforcing fisheries laws. In 1996, in order to 
continue carrying out its responsibilities and operations, the Coast 
Guard initiated the Deepwater program to replace or upgrade its aging 
vessels, aircraft, and other essential equipment. 

As originally conceived, Deepwater was designed around producing 
aircraft and vessels that would function in the Coast Guard's 
traditional at-sea roles--such as interdicting illicit drug shipments 
or rescuing mariners from difficulty at sea--and the original 2002 
Deepwater program was focused on those traditional missions. After the 
terrorist attacks on September 11, 2001, the Coast Guard was also 
assigned homeland security missions related to protection of ports, 
waterways, and coastal areas. Based on its revised mission 
responsibilities, the Coast Guard updated its Deepwater Acquisition 
Program Baseline in November 2005. The new baseline contained changes 
in the balance between new assets to be acquired and legacy assets to 
be upgraded and adjusted the delivery schedule and costs for many of 
these assets. Overall, the Deepwater acquisition schedule was 
lengthened by 5 years, with the final assets now scheduled for delivery 
in 2027. 

Upon its completion, the Deepwater program is to consist of 5 new 
classes of vessels, 1 new class of fixed-wing aircraft, 1 new class of 
unmanned aerial vehicles, 2 classes of upgraded helicopters, and 1 
class of upgraded fixed-wing aircraft.[Footnote 3] The 215 new vessels 
consist of five new asset classes--the National Security Cutter (NSC), 
Offshore Patrol Cutter (OPC), Fast Response Cutter (FRC), Long-Range 
Interceptor (LRI), and Short-Range Prosecutor (SRP). The 240 aircraft 
are composed of two new aircraft classes, the Vertical Unmanned Aerial 
Vehicle (VUAV) and the Maritime Patrol Aircraft (MPA); and three 
upgraded asset classes--the Long-Range Surveillance Aircraft (LRS), 
Medium-Range Recovery Helicopter (MRR), and the Multi-Mission Cutter 
Helicopter (MCH). 

Table 1 provides an overview, by asset class, of the Deepwater vessels 
to be acquired and table 2 provides an overview of the Deepwater 
aircraft to be acquired or upgraded. As noted in Table 1, the 140-foot 
FRC was designated as a replacement vessel for the 110-foot and 123- 
foot patrol boats. 

Figure 1: Deepwater Vessels to be Acquired: 

[See PDF for image] 

Source: GAO analysis of Coast Guard documentation. 

[End of figure] 

Figure 2: Deepwater Aircraft to be Upgraded or Acquired: 

[See PDF for image] 

Source: GAO analysis of Coast Guard documentation. 

[End of figure] 

Since 2001, we have reviewed the Deepwater program and have informed 
Congress, DHS, and Coast Guard of the problems, risks, and 
uncertainties inherent with such a large acquisition that relies on a 
system integrator to identify the assets needed and then using tiers of 
subcontractors to design and build the assets. In March 2004, we made 
recommendations to the Coast Guard to address three broad areas of 
concern: improving program management, strengthening contractor 
accountability, and promoting cost control through greater competition 
among potential subcontractors (see table 3).[Footnote 4] We have 
issued a number of follow-on reports describing efforts the Coast Guard 
has taken to address these recommendations. (See app. I for a list of 
related GAO products.) 

Table 1: Status of GAO Recommendations to the U.S. Coast Guard 
Regarding Management of the Deepwater Program, as of April 28, 2006: 

Areas of concern; Recommendations to the U.S. Coast Guard; 
Recommendation status. 

Areas of concern: Key components of management and oversight; 
Recommendations to the Coast Guard: Put in place a human capital plan 
to ensure adequate staffing of the Deepwater program; 
Recommendation status: Implemented (human capital plan was 
implemented). 

Areas of concern: Key components of management and oversight; 
Recommendations to the Coast Guard: Improve integrated product teams 
(IPTs) responsible for managing the program by providing better 
training, approving charters for sub-IPTs, and improving systems for 
sharing information between teams; 
Recommendation status: Partially implemented. 

Areas of concern: Key components of management and oversight; 
Recommendations to the U.S. Coast Guard: Provide field operators and 
maintenance personnel with timely information and training on how the 
transition to Deepwater assets will occur and how maintenance 
responsibilities are to be divided between the system integrator and 
Coast Guard personnel; 
Recommendation status: Partially implemented. 

Areas of concern: Procedures for ensuring contractor accountability; 
Recommendations to the U.S. Coast Guard: Develop measurable award fee 
criteria consistent with guidance from the Office of Federal 
Procurement Policy; 
Recommendation Status: Implemented. 

Areas of concern: Procedures for ensuring contractor accountability; 
Recommendations to the U.S. Coast Guard: Provide for better input from 
U.S. Coast Guard performance monitors; 
Recommendation Status: Implemented. 

Areas of concern: Procedures for ensuring contractor accountability; 
Recommendations to the U.S. Coast Guard: Hold the system integrator 
accountable in future award fee determinations for improving 
effectiveness of the IPTs; 
Recommendation Status: Implemented. 

Areas of concern: Procedures for ensuring contractor accountability; 
Recommendations to the U.S. Coast Guard: Establish a baseline for 
determining whether the acquisition approach is costing the government 
more than the traditional asset replacement approach; 
Recommendation Status: Will not be implemented. 

Areas of concern: Procedures for ensuring contractor accountability; 
Recommendations to the U.S. Coast Guard: Establish a time frame for 
when the models and metrics will be in place with the appropriate 
degree of fidelity to be able to measure contractor's progress toward 
improving operational effectiveness; 
Recommendation status: Partially implemented. 

Areas of concern: Procedures for ensuring contractor accountability; 
Recommendations to the U.S. Coast Guard: Establish criteria to 
determine when to adjust the project baseline and document the reasons 
for change; 
Recommendation status: Partially implemented. 

Areas of concern: Control of future costs through competition; 
Recommendations for the U.S. Coast Guard: For subcontracts over $5 
million awarded by the system integrator to the two major 
subcontractors, require notification to the Coast Guard about decision 
to perform the work in-house rather than contracting it out; 
Recommendation status: Implemented. 

Areas of concern: Control of future costs through competition; 
Recommendations for the U.S. Coast Guard: Develop a comprehensive plan 
for holding the system integrator accountable for ensuring adequate 
competition among suppliers; 
Recommendation status: Partially implemented. 

Source: GAO-04-380 and GAO-06-546. 

[End of table] 

Coast Guard Removed 123-foot Patrol Boats from Service for Operational 
and Safety Reasons, and is Acting to Mitigate Operational Impacts: 

Between January 2001 and November 2006, numerous events led up to the 
failure of the Coast Guard's bridging strategy to convert the legacy 
110-foot patrol boats into 123-foot patrol boats. In January 2001, an 
independent study found that the 110-foot patrol boats based in south 
Florida and Puerto Rico were experiencing severe hull corrosion and 
that their structural integrity was deteriorating rapidly.[Footnote 5] 
To address these issues, the Coast Guard's original (2002) Deepwater 
plan included a strategy to convert all 49 of the 110-foot patrol boats 
into 123-foot patrol boats to strengthen the hulls. Also, the plan was 
to provide additional capabilities, such as stern launch and recovery 
capabilities and enhanced and improved command, control, 
communications, computers, intelligence, surveillance, and 
reconnaissance (C4ISR). While Coast Guard originally planned to convert 
all 49 of its 110-foot patrol boats to 123-foot patrol boats, it halted 
the patrol boat conversion program after 8 boats because of continued 
hull buckling and the inability of these converted patrol boats to meet 
post-September 11, 2001 mission requirements. These 8 converted boats 
were removed from service on November 30, 2006 because of operational 
and safety concerns. 

The first patrol boat conversion was completed in March 2004, on the 
Matagorda. Between March 2004 and late August 2004, the Matagorda 
underwent additional maintenance that was not included in the contract 
to convert it to 123 feet, according to Coast Guard officials. On 
September 10, 2004, while en route to its home port in Key West, the 
Matagorda experienced hull and deck buckling, while transiting the Gulf 
of Mexico. 

By March 2005, 2 other converted 123-foot patrol boats, the Nunivak and 
the Padre, also began experiencing problems with hull buckling. That 
same month, similar hull deformations were discovered in 3 other 123- 
foot patrol boats--the Metompkin, Vashon, and Monhegan. As a result of 
the deteriorating hull conditions, Coast Guard imposed operational 
restrictions in April 2005 on the 123-foot patrol boats. These 
restrictions specified that the converted patrol boats could not 
operate in seas with wave heights exceeding 8 feet (they were 
originally intended to operate in seas up to roughly 13 feet) and that 
they had to operate at reduced speeds. Figure 1 provides a timeline of 
key events that led to the eventual removal from service of the 123- 
foot patrol boats. 

Figure 3: Timeline of Key Events Leading to Removal from Service of 123-
foot Patrol Boats: 

[See PDF for image] 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

The Coast Guard is taking actions to mitigate the operational impacts 
resulting from the removal of the 123-foot patrol boats from service. 
Specifically, in recent testimony, the Commandant of the Coast Guard 
stated that Coast Guard has taken the following actions: 

* multi-crewing certain 110-foot patrol boats with crews from the 123- 
foot patrol boats that have been removed from service so that patrol 
hours for these vessels can be increased; 

* deploying other Coast Guard vessels to assist in missions formerly 
performed by the 123-foot patrol boats; and: 

* securing permission from the U.S. Navy to continue using 179-foot 
cutters on loan from the Navy for an additional 5 years (these were 
originally to be returned to the Navy in 2008) to supplement the Coast 
Guard's patrol craft. 

We will continue to review the actions the Coast Guard is taking to 
mitigate the removal from service of the 123-foot patrol boats as part 
of our ongoing work. 

Deepwater Asset Delivery Schedule is Mixed, with 7 of 10 on or Ahead of 
Schedule and 3 Behind Due to Various Factors: 

Our review of available data show that as of January 2007, of the 10 
classes of Deepwater assets to be acquired or upgraded, 4 are ahead of 
schedule; 3 remain on schedule (and for 1 of these, design problems 
have arisen); and 3 are behind scheduled delivery and face design, 
funding, or technology challenges. Using the 2005 Deepwater Acquisition 
Program Baseline as the baseline, figure 2 indicates, for each asset 
class, whether delivery of the first-in-class (that is, the first of 
several to be produced in its class) is ahead of schedule, on schedule, 
or behind schedule, as of January 2007. 

Figure 4: Comparison of the Estimated Delivery Dates for the First-in- 
Class Deepwater Assets from the 2005 Deepwater Acquisition Baseline and 
as of January 2007: 

[See PDF for image] 

Source: GAO analysis of documentation provided by U.S. Coast Guard. 

[End of figure] 

Among the Deepwater assets, 3 of the 5 aircraft classes are upgrades to 
existing legacy systems, and these are all on or ahead of schedule; 1 
new aircraft class is ahead of schedule; and the remaining new aircraft 
class is 6 years behind schedule. With respect to Deepwater vessels, 
all 5 asset classes are new, and of these, 2 are behind schedule, and a 
third, while on schedule, faces structural modifications. The remaining 
2 new maritime assets are small vessels that are on or ahead of 
schedule at this time. Table 4 provides an overview of schedule status 
for the Deepwater aircraft and vessel classes.

Table 2: Delivery Status of the Deepwater Aircraft and Vessels, as of 
January 2007: 

Asset category: Upgraded legacy aircraft; 
Behind schedule: N/A[A]; 
On schedule: MCH; 
Ahead of schedule: LRS, MRR. 

Asset category: New aircraft; 
Behind schedule: VUAV; 
On schedule: N/ A[A]; 
Ahead of schedule: MPA. 

Asset category: New vessels; 
Behind schedule: OPC, FRC[B]; 
On schedule: NSC, LRI; 
Ahead of schedule: SRP. 

Source: GAO analysis of Coast Guard data. 

[A] There are no such assets in this category. 

[B] The FRC will replace the 110-foot and 123-foot patrol boats. 

[End of table] 

Assets That Are on Schedule as of January 2007: 

The status of each asset class, and our preliminary observations on the 
factors affecting their status, is discussed below. 

Long-Range Interceptor: 

The LRI is a 36-foot small boat that is to be carried and deployed on 
each NSC and OPC. Coast Guard has one LRI on contract for delivery in 
August 2007, to match delivery of the first NSC. 

Short-Range Prosecutor: 

According to the Coast Guard, the SRP is on schedule at this time and 8 
have been delivered to date. Coast Guard is currently planning to 
pursue construction and delivery of the remaining SRPs outside of the 
system integrator contract. By doing so, the Coast Guard expects to 
achieve a cost savings. 

Maritime Patrol Aircraft: 

The MPA is a commercial aircraft produced in Spain that is being 
acquired to replace the legacy HU-25 aircraft and will permit the Coast 
Guard to carry out missions, such as search and rescue, marine 
environmental protection, and maritime security. The first MPA was 
delivered to the Coast Guard in December 2006, and the second and third 
are due for delivery by April 2007. Pilots and aircrew participated in 
training classes in Spain, and Coast Guard is to take responsibility 
for the development and implementation of MPA's maintenance and 
logistics. 

Long-Range Surveillance Aircraft: 

The LRS is an upgraded legacy fixed-wing aircraft that includes 6 C- 
130Js and 16 C-130Hs. The first aircraft entered the modification 
process in January 2007, and five additional aircraft are to be 
modified by July 2008. In fiscal year 2008, funding has been requested 
to upgrade the C-130H radar and avionics, and for the C-130J fleet 
introduction. 

Medium-Range Recovery Helicopter: 

The MRR is an upgraded legacy HH-60 helicopter. It began receiving a 
series of upgrades beginning in fiscal year 2006, which will continue 
into fiscal year 2012, including the service life extension program and 
radar upgrades. 

Multi-Mission Cutter Helicopter: 

The MCH is an upgraded legacy HH-65 helicopter. According to Coast 
Guard officials, the MCH assets will not have a single delivery date, 
as the process involves three phases of upgrades. Phase I is the 
purchase and delivery of new engines and engine control systems, Phase 
II is a service-life extension program, and Phase III includes 
communications upgrades. A Coast Guard official stated that 84 of the 
95 HH-65s should be re-engined by June 2007, and all 95 should be 
finished by October 2007. The fiscal year 2008 congressional 
justification states that Phase II began in fiscal year 2007 and will 
end in fiscal year 2014, and that Phase III is to begin in fiscal year 
2008 and is to end in fiscal year 2014. 

Deepwater Asset Reported to Be on Schedule as of January 2007, Despite 
Design Issues: 

National Security Cutter: 

According to Coast Guard documentation, the NSC is on schedule for 
delivery despite required modifications regarding its structural 
integrity. In particular, the Coast Guard Commandant recently stated 
that internal reviews by Coast Guard engineers, as well as by 
independent analysts, have concluded that the NSC, as designed, will 
need structural reinforcement to meet its expected 30-year service 
life. In addition, the DHS Office of Inspector General recently 
reported that the NSC design will not achieve a 30-year service life 
based on an operating profile of 230 days underway per year in general 
Atlantic and North Pacific sea conditions and added that Coast Guard 
technical experts believe the NSC's design deficiencies will lead to 
increased maintenance costs and reduced service life.[Footnote 6] 

To address the structural modifications of the NSC, Coast Guard is 
taking a two-pronged approach. First, Coast Guard is working with 
contractors to enhance the structural integrity of the hulls of the 
remaining six NSCs that have not yet been constructed. Second, after 
determining that the NSC's deficiencies are not related to the safe 
operation of the vessel in the near term, Coast Guard has decided to 
address the structural modifications of the hulls of the first two 
cutters as part of planned depot-level maintenance about 5 years after 
they are delivered. The Commandant stated that he decided to delay the 
repairs to these hulls to prevent further delays in construction and 
delivery. 

Deepwater Assets Behind Schedule as of January 2007: 

Offshore Patrol Cutter: 

Coast Guard officials have stated that further work on the development 
of the OPC is on hold and the Coast Guard did not request funding for 
the OPC in fiscal years 2007 or 2008. Delivery of the first OPC has 
been delayed by 5 years--from 2010 to 2015. 

Fast Response Cutter: 

Concerns about the viability of the design of the FRC have delayed the 
delivery of the first FRC by at least 2 years. As we have previously 
reported,[Footnote 7] design and delivery of the original FRC was 
accelerated as a bridging strategy to offset the failed conversion of 
the 110-foot patrol boats into 123-foot patrol boats. According to the 
2005 Deepwater Acquisition Program Baseline, the first FRC was 
scheduled to be delivered in 2007--11 years earlier than the 2018 date 
listed in the original (2002) Deepwater plan. Coast Guard suspended 
design work on the FRC in late February 2006; however, because of 
design risks, including excessive weight and horsepower requirements. 
As a result, Coast Guard is moving forward with a "dual-path approach" 
for acquiring new patrol boats to replace its existing 110-foot and 123-
foot patrol boats. 

The first component of this dual path approach is to have the Deepwater 
system integrator purchase a commercial (off-the-shelf) patrol boat 
design that can be adapted for Coast Guard use.[Footnote 8] According 
to Coast Guard officials, unlike the original plans, this FRC class is 
not expected to meet all performance requirements originally specified, 
but is intended as a way to field an FRC more quickly than would 
otherwise occur and that can, therefore, serve as an interim 
replacement for the deteriorating fleet of 110-foot patrol boats. The 
Coast Guard Commandant recently stated that the Coast Guard expects 
delivery of the commercial FRCs in the first half of fiscal year 2010, 
about 2 years behind the estimated delivery date specified in the 2005 
Deepwater Acquisition Program Baseline. 

The second component of the dual-path approach is to eventually acquire 
another cutter--a redesigned FRC.[Footnote 9] However, due to 
continuing questions about the feasibility of its planned composite 
hull, Coast Guard has now further delayed a decision about its 
development or acquisition until it receives results from two studies. 
First, the Coast Guard is conducting a business case analysis comparing 
the use of composite versus steel hulls. Second, the Coast Guard told 
us that DHS's Science and Technology Directorate will be conducting 
tests on composite hull technology, and that it will wait to see the 
results of these tests before making a decision on the redesigned FRC. 
Until recently, the Coast Guard anticipated delivery of the redesigned 
FRC in 2009 or 2010. However, the decision to not request funding for 
this redesigned FRC in fiscal year 2008, and to await the results of 
both studies before moving forward, will likely further delay delivery 
of the redesigned FRC. 

Vertical Unmanned Aerial Vehicle: 

According to the Coast Guard, evolving technological developments and 
the corresponding amount of funding provided in fiscal year 2006 have 
delayed the delivery of the VUAV by 6 years--from 2007 to 2013. As a 
result, the Coast Guard has adjusted the VUAV development plan. The 
fiscal year 2008 DHS congressional budget justification indicates that 
the Coast Guard does not plan to request funding for the VUAV through 
fiscal year 2012. Coast Guard originally intended on matching the NSC 
and VUAV delivery dates so that the VUAV could be launched from the NSC 
to provide surveillance capabilities beyond the cutter's visual range 
or sensors. However, with the delay in the VUAV's development schedule, 
it no longer aligns with the NSC's initial deployment schedule. 
Specifically, Coast Guard officials stated that the VUAV will not be 
integrated with the NSC before fiscal year 2013, 6 years later than 
planned. Coast Guard officials stated that they are discussing how to 
address the operational impacts of having the NSC operate without the 
VUAV. In addition, Coast Guard officials explained that since the time 
of the original contract award, the Department of Defense has 
progressed in developing a different unmanned aerial vehicle--the Fire 
Scout--that Coast Guard officials say is more closely aligned with 
Coast Guard needs. Coast Guard has issued a contract to an independent 
third party to compare the capabilities of its planned VUAV to the Fire 
Scout. 

Preliminary Observations on the Status of Deepwater Program Management, 
Contractor Accountability, and Cost Control: 

Since the inception of the Deepwater program, we have expressed 
concerns about the risks involved with the Coast Guard's system-of- 
systems acquisition approach and the Coast Guard's ability to manage 
and oversee the program. Our concerns have centered on three main 
areas: program management, contractor accountability, and cost control 
through competition. We have made a number of recommendations to 
improve the program--most of which the Coast Guard has agreed with and 
is working to address. However, while actions are under way, a project 
of this magnitude will likely continue to experience other problems as 
more becomes known. We will continue our work focusing on the Coast 
Guard's efforts to address our recommendations and report on our 
findings later this year. 

Program Management: 

In 2004, we reported that the Coast Guard had not effectively 
implemented key components needed to manage and oversee the system 
integrator. Specifically, we reported at that time and subsequently on 
issues related to integrated product teams (IPT), the Coast Guard's 
human capital strategy, and communication with field personnel 
(individuals responsible for operating and maintaining the assets). Our 
preliminary observations on the Coast Guard's progress in improving 
these program management areas, based on our ongoing work, follow. 

Integrated Product Teams: 

In 2004, we found that IPTs, the Coast Guard's primary tool for 
managing the Deepwater program and overseeing the contractor, had not 
been effective due to changing membership, understaffing, insufficient 
training, lack of authority for decision making, and inadequate 
communication. We recommended the Coast Guard take actions to address 
IPT effectiveness. We subsequently reported that IPT decision-making 
was to a large extent stove-piped, and some teams lacked adequate 
authority to make decisions within their realm of 
responsibility.[Footnote 10] Coast Guard officials believed 
collaboration among the subcontractors was problematic and that the 
system integrator wielded little influence to compel decisions among 
them. For example, proposed design changes to assets under construction 
were submitted as two separate proposals from both subcontractors 
rather than one coherent plan. According to Coast Guard performance 
monitors, this approach complicated the government review of design 
changes because the two proposals often carried overlapping work items, 
thereby forcing the Coast Guard to act as the system integrator in 
those situations. Although some efforts have been made to improve the 
effectiveness of the IPTs--such as providing them with more timely 
charters and entry-level training--our preliminary observations are 
that more improvements are needed. 

The Coast Guard's ability to assess IPT performance continues to be 
problematic. Former assessments of IPT effectiveness simply focused on 
measures such as frequency of meetings, attendance, and training. As a 
result, IPTs received positive assessments while the assets under their 
realm of responsibility--such as the National Security Cutter--were 
experiencing problems. The new team measurements include outcome-based 
metrics such as cost and schedule performance of assets (ships, 
aircraft, and command, control, communications, computers, 
intelligence, surveillance, and reconnaissance (C4ISR)). However, 
Deepwater's overall program management quarterly report shows that the 
connection between IPT performance and program results continues to be 
misaligned.[Footnote 11] For example, the first quarterly report to 
incorporate the new measurements, covering the period October to 
December 2006, indicates that the IPTs' performance for all domains is 
"on-schedule or non-problematic" even while some assets' cost or 
schedule performance is rated "behind schedule or problematic." 
[Footnote 12] Further, even though the Deepwater program is addressing 
fundamental problems surrounding the 123-foot patrol boat and FRC, IPTs 
no longer exist for these assets. In some cases, Coast Guard officials 
stated they have established work groups outside of the existing IPT 
structure to address identified issues and problems related to assets, 
such as the NSC. We will continue to review the IPTs' roles and 
relevance in the management of the Deepwater program. 

Human Capital: 

We also reported in 2004 that the Coast Guard had not adequately 
staffed its program management function for Deepwater. Although its 
Deepwater human capital plan set a goal of a 95 percent or higher "fill 
rate" annually for both military and civilian personnel, funded 
positions were below this goal. We recommended that the Coast Guard 
follow the procedures in its Deepwater human capital plan to ensure 
that adequate staffing was in place and that turnover of Coast Guard 
military personnel was proactively addressed. The Coast Guard 
subsequently revised its Deepwater human capital plan in February 2005 
to emphasize workforce planning, including determining needed 
knowledge, skills, and abilities and developing ways to leverage 
institutional knowledge as staff rotate out of the program. We reported 
in 2005 that the Coast Guard also took some short-term steps to improve 
Deepwater program staffing, such as hiring contractors to assist with 
program support functions, shifting some positions from military to 
civilian to mitigate turnover risk, and identifying hard-to-fill 
positions and developing recruitment plans specifically for them. 

However, in February 2007, Coast Guard officials told us that key human 
capital management objectives outlined in the revised plan have not 
been accomplished and that the staffing levels needed to accomplish the 
known workload have not been achieved. In one example, a manager cited 
the need for five additional staff per asset under his domain to 
satisfy the current workload in a timely manner: contracting officer's 
technical representative, scheduler, cost estimator, analyst, and 
configuration manager. Further, a February 2007 independent analysis 
found that the Coast Guard does not possess a sufficient number of 
acquisition personnel or the right level of experience needed to manage 
the Deepwater program.[Footnote 13] The Coast Guard has identified an 
acquisition structure re-organization that includes human capital as 
one component of the reform. We will continue to monitor the 
implementation of the reorganization as part of our ongoing work. 

Communications with Field Personnel: 

In 2004, we found that the Coast Guard had not adequately communicated 
to field personnel decisions on how the new and old assets were to be 
integrated during the transition and whether Coast Guard or system 
integrator personnel--or both--would be responsible for maintenance. We 
recommended that the Coast Guard provide timely information and 
training on the transition to Deepwater assets. In 2006, we reported 
that the Coast Guard had taken some steps to improve communications 
between Deepwater program and field personnel, including having field 
personnel as members on some IPTs. However, we continued to express 
concerns that field personnel were not receiving important information 
regarding training, maintenance, and integration of new Deepwater 
assets. 

During our ongoing work, the field personnel involved in operating and 
maintaining the assets and Deepwater program staff we interviewed 
expressed continued concern that maintenance and logistics plans had 
not been finalized. Another official commented that there continues to 
be a lack of clarity defining roles and responsibilities between the 
Coast Guard and system integrator for maintenance and logistics. Coast 
Guard officials stated in fall 2006 that the system integrator was 
contractually responsible for developing key documents related to plans 
for the maintenance and logistics for the NSC and Maritime Patrol 
Aircraft. However, Deepwater program officials stated that because the 
Coast Guard was not satisfied with the level of detail provided in 
early drafts of these plans, it was simultaneously developing "interim" 
plans that it could rely on while the system integrator continued to 
develop its own versions. While the Coast Guard's more active role may 
help its ability to ensure adequate support for Deepwater assets that 
are coming on-line in the near term, our on-going work will continue to 
focus on this issue. 

Concerns Remain with Holding System Integrator Accountable: 

Our 2004 review revealed that the Coast Guard had not developed 
quantifiable metrics to hold the system integrator accountable for its 
ongoing performance. For example, the process by which the Coast Guard 
assessed performance to make the award fee determination after the 
first year of the contract lacked rigor. At that time, we also found 
that the Coast Guard had not yet begun to measure contractor 
performance against Deepwater program goals--the information it would 
need by June 2006 to decide whether to extend the system integrator's 
contract award term by up to another 5 years. Additionally, we noted 
that the Coast Guard needed to establish a solid baseline against which 
to measure progress in lowering total ownership cost--one of the three 
overarching goals of the Deepwater program. Furthermore, the Coast 
Guard had not developed criteria for potential adjustments to the 
baseline. Preliminary observations from our ongoing work on the Coast 
Guard's efforts to improve system integrator accountability follow. 

Award Fee Criteria: 

In 2004 we found the first annual award fee determination was based 
largely on unsupported calculations. Despite documented problems in 
schedule, performance, cost control, and contract administration 
throughout the first year, the program executive officer awarded the 
contractor an overall rating of 87 percent, which fell in the "very 
good" range as reported by the Coast Guard award fee determining 
official. This rating resulted in an award fee of $4 million of the 
maximum $4.6 million. The Coast Guard continued to report design, cost, 
schedule, and delivery problems, and evaluation of the system 
integrator's performance continued to result in award fees that ranged 
from 87 percent to 92 percent of the total possible award fee (with 92 
percent falling into the "excellent" range), or $3.5 to $4.8 million 
annually, for a total of over $16 million the first 4 years on the 
contract. The Coast Guard continues to revise the award fee criteria 
under which it assesses the system integrator's performance. 

The current award fee criteria demonstrate the Coast Guard's effort to 
use both objective and subjective measures and to move toward clarity 
and specificity with the criteria being used. For example, the criteria 
include 24 specific milestone activities and dates to which the system 
integrator will be held accountable for schedule management. However, 
we recently observed two changes to the criteria that could affect the 
Coast Guard's ability to hold the contractor accountable. First, the 
current award fee criteria no longer contain measures that specifically 
address IPTs, despite a recommendation we made in 2004 that the Coast 
Guard hold the system integrator accountable for IPT effectiveness. The 
Coast Guard had agreed with this recommendation and, as we reported in 
2005, it had incorporated award fee metrics tied to the system 
integrator's management of Deepwater, including administration, 
management commitment, collaboration, training, and empowerment of the 
IPTs. Second, a new criterion to assess both schedule and cost 
management states that the Coast Guard will not take into account 
milestone or cost impacts determined by the government to be factors 
beyond the system integrator's control. However, a Coast Guard official 
stated that there are no formal written guidelines that define what 
factors are to be considered as being beyond the system integrator's 
control, what process the Coast Guard is going to use to make this 
determination, or who is ultimately responsible for making those 
determinations. 

Award Term Evaluation: 

The Deepwater program management plan included three overarching goals 
of the Deepwater program: increased operational effectiveness, lower 
total ownership cost, and customer satisfaction to be used for 
determining whether to extend the contract period of performance, known 
as the award term decision. We reported in 2004 that the Coast Guard 
had not begun to measure the system integrator's performance in these 
three areas, even though the information was essential to determining 
whether to extend the contract after the first 5 years.[Footnote 14] We 
also reported that the models the Coast Guard was using to measure 
operational performance lacked the fidelity to capture whether 
improvements may be due to Coast Guard or contractor actions, and 
program officials noted the difficulty of holding the contractor 
accountable for operational effectiveness before Deepwater assets are 
delivered. We made a recommendation to Coast Guard to address these 
issues. 

According to a Coast Guard official, the Coast Guard evaluated the 
contractor subjectively for the first award term period in May 2006, 
using operational effectiveness, total ownership costs, and customer 
satisfaction as the criteria. The result was a new award term period of 
43 of a possible 60 months. To measure the system's operational 
effectiveness, the Coast Guard has developed models to simulate the 
effect of the Deepwater assets' capabilities on its ability to meet its 
missions and to measure the "presence" of those assets. However, in its 
assessment of the contractor, the Coast Guard assumed full operational 
capability of assets and communications and did not account for actual 
asset operating data. Furthermore, the models still lacked the fidelity 
to capture whether operational improvements are attributable to Coast 
Guard or contractor actions. As a result the contractor received credit 
for factors beyond its control--although no formal process existed for 
approving such factors. Total ownership cost was difficult to measure, 
thus the contractor was given a neutral score, according to Coast Guard 
officials.[Footnote 15] Finally, the contractor was rated "marginal" in 
customer satisfaction. 

The Coast Guard has modified the award term evaluation criteria to be 
used to determine whether to grant a further contract extension after 
the 43-month period ends in January 2011. The new criteria incorporate 
more objective measures. 

* While the three overall Deepwater program objectives (operational 
effectiveness, total ownership costs, and customer satisfaction) 
carried a weight of 100 percent under the first award term decision, 
they will represent only about a third of the total weight for the 
second award term decision. The criteria include items such as new 
operational effectiveness measures that will include an evaluation of 
asset-level key performance parameters, such as endurance, operating 
range, and detection range. 

* The new award term criteria have de-emphasized measurement of total 
ownership cost, concentrating instead on cost control. Program 
officials noted the difficulty of estimating ownership costs far into 
the future, while cost control can be measured objectively using actual 
costs and earned value data. In 2004, we recommended that the Coast 
Guard establish a total ownership cost baseline that could be used to 
periodically measure whether the Deepwater system-of-systems 
acquisition approach is providing the government with increased 
efficiencies compared to what it would have cost without this approach. 
Our recommendation was consistent with the cost baseline criteria set 
forth in the Deepwater program management plan. The Coast Guard agreed 
with the recommendation at the time, but subsequently told us it does 
not plan to implement it. 

In our current work, we will explore the implication of the revised 
award term evaluation criteria and the Coast Guard's ability to measure 
the overarching goals of the acquisition strategy. 

Establishing Criteria and Documenting Changes to the Baseline: 

Establishing a solid baseline against which to measure progress in 
lowering total ownership cost is critical to holding the contractor 
accountable. The Coast Guard's original plan, set forth in the 
Deepwater program management plan, was to establish as its baseline the 
dollar value of replacing assets under a traditional, asset-by-asset 
approach as the "upper limit for total ownership cost." In practice, 
the Coast Guard decided to use the system integrator's estimated cost 
of $70.97 billion plus 10 percent (in fiscal year 2002 dollars) for the 
system-of-systems approach as the baseline. In 2004, we recommended 
that the Coast Guard establish criteria to determine when the total 
ownership cost baseline should be adjusted and ensure that the reasons 
for any changes are documented. 

Since then, the Coast Guard established a process that would require 
DHS approval for adjustments to the total ownership cost 
baseline.[Footnote 16] The Deepwater Program Executive Officer 
maintains authority to approve baseline revisions at the asset or 
domain level. However, depending on the severity of the change, these 
changes are also subject to review and approval by DHS. In November 
2005, the Coast Guard increased the total ownership cost baseline 
against which the contractor will be evaluated to $304 billion. 
Deepwater officials stated that the adjustment was the result of 
incorporating the new homeland security mission requirements and 
revising dollar estimates to a current year basis. Although the Coast 
Guard is required to provide information to DHS on causal factors and 
propose corrective action for a baseline breach of 8 percent or more, 
the 8 percent threshold has not been breached because the threshold is 
measured against total program costs and not on an asset 
basis.[Footnote 17] For example, the decision to stop the conversion of 
the 49 110-foot patrol boats after 8 hulls did not exceed the 
threshold; nor did the damages and schedule delay to the NSC attributed 
to Hurricane Katrina. During our ongoing work, Coast Guard officials 
acknowledged that only a catastrophic event would ever trigger a 
threshold breach. According to a Coast Guard official, DHS approval is 
pending on shifting the baseline against which the system integrator is 
measured to an asset basis. 

Limited Knowledge of Cost Control Achieved Through Competition: 

Further, our 2004 report also had recommendations related to cost 
control through the use of competition. We reported that, although 
competition among subcontractors was a key mechanism for controlling 
costs, the Coast Guard had neither measured the extent of competition 
among the suppliers of Deepwater assets nor held the system integrator 
accountable for taking steps to achieve competition.[Footnote 18] As 
the two first-tier subcontractors to the system integrator, Lockheed 
Martin and Northrop Grumman have sole responsibility for determining 
whether to provide the Deepwater assets themselves or hold 
competitions--decisions commonly referred to as "make or buy." We noted 
that the Coast Guard's hands-off approach to make-or-buy decisions and 
its failure to assess the extent of competition raised questions about 
whether the government would be able to control Deepwater program 
costs. 

The Coast Guard has taken steps to establish a reporting requirement 
for the system integrator to provide information on competition on a 
semi-annual basis. The system integrator is to provide detailed plans, 
policies, and procedures necessary to ensure proper monitoring, 
reporting, and control of its subcontractors. Further, reports are to 
include total procurement activity, the value of competitive 
procurements, and the subcontractors' name and addresses. The system 
integrator provided the first competition report in October 2006. 
However, because the report did not include the level of detail 
required by Coast Guard guidelines, a Coast Guard official deemed that 
the extent of competition could not be validated by the information 
provided and a request was made to the system integrator for more 
information. We will continue to assess the Coast Guard's efforts to 
hold the system integrator accountable for ensuring an adequate degree 
of competition. 

Mr. Chairman, this concludes my testimony. I would be happy to respond 
to any questions Members of the Committee may have. 

GAO Contact and Staff Acknowledgments: 

For further information about this testimony, please contact: 

John Hutton, Acting Director, Acquisition and Sourcing Management, 
(202) 512-4841, huttonj@gao.gov: 

Stephen L. Caldwell, Acting Director, Homeland Security & Justice, 
(202) 512-9610, caldwells@gao.gov: 

[End of section] 

In addition to the contacts named above, Penny Berrier Augustine, Amy 
Bernstein, Christopher Conrad, Adam Couvillion, Kathryn Edelman, 
Melissa Jaynes, Crystal M. Jones, Michele Mackin, Jessica Nierenberg, 
Raffaele Roffo, Karen Sloan, and Jonathan R. Tumin made key 
contributions to this report. 

Appendix I: RElated GAO Products: 

Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts, 
GAO-06-764 (Washington, D.C.: June 23, 2006). 

Coast Guard: Changes to Deepwater Plan Appear Sound, and Program 
Management Has Improved, but Continued Monitoring is Warranted, GAO-06- 
546 (Washington, D.C.: Apr. 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.: Jul. 22, 2005). 

Coast Guard: Preliminary Observations on the Condition of Deepwater 
Legacy Assets and Acquisition Management Challenges, GAO-05-651T 
(Washington, D.C.: Jun. 21, 2005). 

Coast Guard: Preliminary Observations on the Condition of Deepwater 
Legacy Assets and Acquisition Management Challenges, GAO-05-307T 
(Washington, D.C.: Apr. 20, 2005). 

Coast Guard: Deepwater Program Acquisition Schedule Update Needed, GAO- 
04-695 (Washington, D.C.: Jun. 14, 2004). 

Contract Management: Coast Guard's Deepwater Program Needs Increased 
Attention to Management and Contractor Oversight, GAO-04-380 
(Washington, D.C.: Mar. 9, 2004). 

Coast Guard: Actions Needed to Mitigate Deepwater Project Risks, GAO- 
01-659T (Washington, D.C.: May 3, 2001). 

Coast Guard: Progress Being Made on Deepwater Project, but Risks 
Remain, GAO-01-564 (Washington, D.C.: May, 2, 2001). 

FOOTNOTES 

[1] GAO, Contract Management: Coast Guard's Deepwater Program Needs 
Increased Attention to Management and Contractor Oversight, GAO-04-380 
(Washington, D.C.: Mar. 9, 2004). 

[2] GAO, Coast Guard: Changes to Deepwater Appear Sound, and Program 
Management Has Improved, but Continued Monitoring is Warranted, GAO-06-
546 (Washington, D.C.: Apr. 28, 2006). 

[3] In addition to these asset classes, Coast Guard plans to procure 
surveillance data from another unmanned aerial vehicle, the RQ-4A. 
Because this is not to be acquired as a capital investment, we do not 
include it among the assets to be acquired or upgraded. 

[4] GAO-04-380 

[5] CSC Advanced Marine, Evaluation of the 110' WPB Class Cutter Fleet 
(January 2001). 

[6] DHS OIG-07-23. 

[7] GAO, Coast Guard: Status of Deepwater Fast Response Cutter Design 
Efforts, GAO-06-764 (Washington, D.C.: June 23, 2006). 

[8] Coast Guard refers to this vessel as the FRC-B. 

[9] Coast Guard refers to this as the FRC-A. 

[10] GAO, Coast Guard: Progress Being Made on Addressing Legacy Asset 
Condition Issues and Program Management, but Acquisition Challenges 
Remain, GAO-05-757 (Washington, D.C.: July 22, 2005). 

[11] The program management reports were produced on a monthly basis in 
the past; now they are produced on a quarterly basis. 

[12] IPTs are focused on the development and fielding of a particular 
product (e.g., the NSC) and are organized by domain. Examples of 
domains are air, surface, C4ISR, and legacy assets. 

[13] Defense Acquisition University, Quick Look Study: United States 
Coast Guard Deepwater Program, (Fort Belvoir, VA.) Feb. 5, 2007 

[14] Award-term incentives can best be described as a variant of an 
award-fee incentive, where the contractor is rewarded for excellent 
performance with an extension of the contract period instead of 
additional fee. 

[15] The award term determination rated total ownership cost as "good." 

[16] According to DHS officials, a baseline breach occurs when a cost 
or schedule threshold is exceeded or when a performance threshold 
cannot be met. 

[17] According to DHS officials, a baseline breach occurs when a cost 
or schedule threshold is exceeded or when a performance threshold 
cannot be met. 

[18] See GAO-04-380. 

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