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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

June 2008: 

Coast Guard: 

Change in Course Improves Deepwater Management and Oversight, but 
Outcome Still Uncertain: 

GAO-08-745: 

GAO Highlights: 

Highlights of GAO-08-745, a report to congressional committees. 

Why GAO Did This Study: 

The Coast Guardís Deepwater Program, under the Department of Homeland 
Security (DHS), has experienced serious performance and management 
problems. Deepwater is intended to replace or modernize Coast Guard 
vessels, aircraft, and the communications and electronic systems that 
link them together. As of fiscal year 2008, over $4 billion has been 
appropriated for Deepwater. The Coast Guard awarded a contract in June 
2002 to a lead system integrator, Integrated Coast Guard Systems 
(ICGS), to execute the program using a system-of-systems approach. 

In response to a Senate report accompanying a Department of Homeland 
Security appropriations bill, 2008, this GAO report assesses whether 
the changes the Coast Guard is making to its management and acquisition 
approach to Deepwater will put it in a position to realize better 
outcomes. GAO reviewed key program documents and interviewed Coast 
Guard and contractor personnel. 

What GAO Found: 

Coast Guard leadership is making positive changes to its management and 
acquisition approach to the Deepwater Program that should put it in a 
position to realize better outcomes, although challenges to its efforts 
remain. 

* The Coast Guard has increased accountability by bringing Deepwater 
under a restructured acquisition function and investing its government 
project managers with management and oversight responsibilities 
formerly held by ICGS. Coast Guard project managers and technical 
expertsóas opposed to contractor representativesónow hold the greater 
balance of management responsibility and accountability for program 
outcomes. However, like other federal agencies, the Coast Guard has 
faced obstacles in building an adequate government workforce. It has 
various initiatives under way to develop and retain a workforce capable 
of managing this complex acquisition program, but faced with an almost 
20 percent vacancy rate, it is relying on support contractors, such as 
cost estimators, in key positions. 

* The Coast Guardís decision to manage Deepwater under an asset-based 
approach, rather than as an overall system-of-systems, has resulted in 
increased government control and visibility over acquisitions. Agency 
officials have begun to hold competitions for Deepwater assets outside 
of the ICGS contract. While the asset-based approach is beneficial, 
certain cross-cutting aspects of Deepwater, such as the programís 
communications and intelligence components and the numbers of each 
asset needed, still require a systems-level approach. The Coast Guard 
recognizes this but is not yet fully positioned to manage these 
aspects. 

* The Coast Guard has begun to follow the disciplined, project 
management framework of its Major Systems Acquisition Manual (MSAM), 
which requires documentation and high-level executive approval of 
decisions at key points in a programís life cycle. But the consequences 
of not following this approach in the past are now evident, as 
Deepwater assets have been delivered without a determination of whether 
their planned capabilities would meet mission needs. The MSAM process 
currently allows limited initial production to proceed before the 
majority of design activities have been completed. In addition, a 
disconnect between MSAM requirements and current practice exists 
because DHS had earlier delegated to the Coast Guard all Deepwater 
acquisition decisions, resulting in little departmental oversight. 

* Coast Guard project managers and decision makers are now receiving 
information intended to help manage project outcomes, but some key 
information is unreliable. The earned value management data reported by 
ICGS lacks sufficient transparency to be useful to Coast Guard program 
managers, and subcontractor Northrop Grummanís system for producing the 
data may need to be re-certified to ensure its reliability. Officials 
state that they are addressing these issues through joint efforts with 
the Navy and the Defense Contract Management Agency. 

What GAO Recommends: 

GAO is making three recommendations: that DHS improve oversight of 
Deepwater acquisitions and that the Coast Guard revise the major 
systems acquisition process for limited initial production and increase 
visibility into Northrop Grummanís earned value management system. DHS 
is taking the first recommendation under advisement; the Coast Guard 
generally agreed with the others. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-745]. For more 
information, contact John Hutton at (202) 512-4841 or huttonj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Coast Guard Has Established a More Accountable Acquisition Organization 
but Faces Challenges in Building Acquisition Workforce: 

Transition to Asset-by-Asset Approach Results in Greater Visibility and 
Control, but the Coast Guard Has Not Determined How to Manage System- 
Level Aspects: 

Disciplined Project Management Approach Is Beneficial Going Forward, 
but Key Decision Point Is Missing and Consequences of Prior Decisions 
May Be Costly: 

Coast Guard Is Working to Improve the Use and Quality of Program 
Information, but Key Information Is Unreliable: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Information on Selected Deepwater Surface and Air Assets: 

Appendix III: Comments from the Department of Homeland Security: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Products Related to the Deepwater Program: 

Figures: 

Figure 1: Reorganization of Deepwater Within the Coast Guard 
Acquisition Function: 

Figure 2: Program Management Responsibilities for Deepwater: 

Figure 3: MSAM Process and Deepwater Surface and Air Assets: 

Figure 4: Arrow of Traceability from Mission Needs to Performance 
Specifications: 

Figure 5: Factors Considered in Probability of Project Success Tool: 

Figure 6: National Security Cutter: 

Figure 7: Fast Response Cutter: 

Figure 8: Offshore Patrol Cutter: 

Figure 9: Long-Range Interceptor: 

Figure 10: Short Range Prosecutor: 

Figure 11: HC-144A Maritime Patrol Aircraft: 

Figure 12: HC-130J Long-Range Surveillance Aircraft: 

Figure 13: HH-65 Multimission Cutter Helicopter: 

Figure 14: HH-60 Medium Range Recovery Helicopter: 

Figure 15: Unmanned Aerial Systems: 

Abbreviations: 

ABS: American Bureau of Shipping: 

APB: Acquisition Program Baseline: 

CG-9: Coast Guard's acquisition directorate (designation for this 
entity): 

C4ISR: command, control, communications, computers, intelligence, 
surveillance, and reconnaissance: 

DCMA: Defense Contract Management Agency: 

DHS: Department of Homeland Security: 

DOD: Department of Defense: 

DTO: delivery task order: 

FRC: Fast Response Cutter: 

ICGS: Integrated Coast Guard Systems: 

INSURV: (Navy) Board of Inspection and Survey: 

IPT: integrated product team: 

LRI: Long-Range Interceptor: 

MSAM: Major Systems Acquisitions Manual: 

MPA: Maritime Patrol Aircraft: 

NSC: National Security Cutter: 

OPC: Offshore Patrol Cutter: 

TBD: to be determined: 

UCA: undefinitized contract action: 

UAS: Unmanned Aerial System: 

VUAV: Vertical Unmanned Aerial Vehicle: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

June 24, 2008: 

The Honorable Robert C. Byrd: 
Chair: 
The Honorable Thad Cochran: 
Ranking Member: 
Subcommittee on Homeland Security: 
Committee on Appropriations: 
United States Senate: 

The Honorable David E. Price: 
Chair: 
The Honorable Harold Rogers: 
Ranking Member: 
Subcommittee on Homeland Security: 
Committee on Appropriations: 
House of Representatives: 

Deepwater is the largest acquisition program in the Coast Guard's 
history--one that has experienced serious performance and management 
problems such as cost breaches, schedule slips, and assets designed and 
delivered with significant defects. Appropriations for the Deepwater 
Program totaled over $4 billion as of fiscal year 2008, and the Coast 
Guard has requested about $990.4 million for fiscal year 2009. The 
Deepwater Program, ongoing since the late 1990s, is intended to replace 
or modernize 15 major classes of Coast Guard assets--five each of 
vessels and aircraft, and five other projects, including command, 
control, communications, computers, intelligence, surveillance, and 
reconnaissance (C4ISR) systems. To carry out this acquisition, the 
Coast Guard awarded a contract in June 2002 to Integrated Coast Guard 
Systems (ICGS), a joint venture formed by Lockheed Martin Corporation 
and Northrop Grumman Ship Systems (Northrop Grumman), as a lead system 
integrator to execute the program using a system-of-systems approach. 
The decision to use a system integrator was driven in part because of 
the Coast Guard's lack of expertise in managing and executing an 
acquisition of this magnitude. Under this approach, the Coast Guard 
provided the contractor with broad, overall performance specifications-
-such as the ability to interdict illegal immigrants--and ICGS 
determined the specifications for the Deepwater assets. According to 
Coast Guard officials, the ICGS proposal was submitted and priced as a 
"package," that is, the Coast Guard bought the entire solution and 
could not reject any individual component. 

Since 2001, we have reviewed the Deepwater Program and have informed 
the Congress, the Department of Homeland Security (DHS), and the Coast 
Guard of the risks and uncertainties inherent with a system-of-systems 
approach. In March 2004, we made a number of recommendations intended 
to improve the Coast Guard's management and oversight. In March 2008, 
we reported on efforts the Coast Guard has taken to address these 
recommendations and provided information on the status of various 
Deepwater assets.[Footnote 1] 

In April 2007, the Commandant of the Coast Guard, citing the fact that 
the Coast Guard had relied too heavily on contractors to do the work of 
the government and that industry and government had failed to 
accurately predict and control costs, announced improvements to program 
management and oversight that would "change the course of Deepwater." 
The major change was that the Coast Guard was taking over the lead role 
in systems integration from ICGS, with future work on individual assets 
being potentially bid competitively outside of the existing contract. 
The Coast Guard also planned to use the expertise of third-party 
organizations, such as the American Bureau of Shipping, to increase 
assurances that Deepwater assets were being designed and constructed in 
accordance with established standards. As part of this shift to a 
government-managed and controlled acquisition, the Commandant noted his 
plan to build a government workforce to manage this large acquisition, 
citing the dearth of federal contracting expertise and a loss of focus 
on critical government roles and responsibilities for managing and 
overseeing acquisitions such as Deepwater. 

In response to a Senate report accompanying a Department of Homeland 
Security Appropriations bill, fiscal year 2008, we assessed whether the 
changes the Coast Guard is making to its management and acquisition 
approach to the Deepwater Program will put it in a position to realize 
better outcomes. Specifically we assessed the Coast Guard's: 

* efforts to increase accountability and program management through a 
re-organized acquisition function, including building a government 
workforce to manage Deepwater; 

* transition to an asset-based paradigm for Deepwater, including how 
system-level aspects, such as C4ISR, are being managed; 

* implementation of a disciplined, project management process for 
Deepwater acquisitions; and: 

* efforts to provide project managers and decision makers with 
information they need to manage project outcomes. 

To conduct our work on Deepwater initiatives, we reviewed a variety of 
key Coast Guard documentation, including its July 2007 Blueprint for 
Acquisition Reform, Major Systems Acquisition Manual, acquisition 
program baselines, and the Coast Guard's human capital plan. We 
interviewed Coast Guard acquisition officials, including program and 
project managers, contracting officials, and other key staff. In 
addition, we interviewed officials from ICGS and its first tier 
subcontractors, Northrop Grumman and Lockheed Martin. We also relied on 
our past work regarding the Deepwater Program. Appendix I contains more 
information on our scope and methodology. Appendix II contains 
information on selected Deepwater surface and air assets. We conducted 
this performance audit from October 2007 to June 2008 in accordance 
with generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. 

Results in Brief: 

Coast Guard leadership has increased accountability by bringing 
Deepwater under a restructured acquisition function and vesting its 
government project managers with management and oversight 
responsibilities formerly held by ICGS. However, like other federal 
agencies, it has faced challenges in building an adequate government 
workforce. A July 2007 reorganization of the acquisition function 
placed Deepwater, which had been insulated from other Coast Guard 
acquisitions, within a consolidated acquisition directorate, allowing 
the agency to operate in a more strategic fashion. The Coast Guard has 
also shifted the roles and responsibilities of key positions within 
this new acquisition structure. Formerly, ICGS had significant program 
management responsibilities, such as contractual responsibility for 
drafting task orders, including statements of work, and managing the 
system integration of Deepwater as a whole. Coast Guard project 
managers and technical experts now hold the greater balance of 
management responsibility and accountability for program outcomes. The 
Coast Guard, like other federal agencies, faces challenges in building 
a capable government workforce to manage this large acquisition. While 
it attempts to reduce vacancy rates, it is relying on support 
contractors in key positions such as cost estimation and analysis. The 
issue of support contractors in acquisition is not unique to the Coast 
Guard; we recently reported that the Department of Defense also relies 
heavily on contractors to perform roles in program management, cost 
estimation, and engineering and technical functions. [Footnote 2] 

The Coast Guard's decision to manage Deepwater under an asset-based 
approach, rather than an overall system-of-systems, has resulted in 
increased government control and visibility over its acquisitions. 
Coast Guard officials are re-evaluating their long-term relationship 
with ICGS and have begun to hold competitions for Deepwater assets 
outside of that contract. Further, cost and schedule information is now 
captured at the individual asset level, which has resulted in improved 
visibility, such as the ability to track and report cost breaches for 
assets. Under the prior structure, a cost breach was to be tracked at 
the overall Deepwater program level, and the threshold was so high that 
a breach would have been triggered only by a catastrophic event. While 
the asset-based approach is beneficial, certain cross-cutting aspects 
of Deepwater--such as C4ISR and the overall numbers of each asset 
needed to meet requirements--still require a system-level approach. The 
Coast Guard is not fully positioned to manage these aspects; for 
example, it has not developed an acquisition strategy for C4ISR and 
lacks, at present, the ability to model the capabilities of planned and 
existing assets in a manner that informs decisions on the numbers of 
Deepwater assets needed. The Coast Guard maintains, however, that it 
must proceed with its acquisitions in the absence of this information. 

Under the asset-based acquisition approach, the Coast Guard has begun 
to follow the disciplined project management framework of its Major 
Systems Acquisition Manual (MSAM), which requires documentation and 
approval of decisions at key points in a program's life cycle by 
designated officials at high levels. While the MSAM process is a 
significant improvement over the past approach, it has some 
shortcomings. For example, the process currently allows limited, or low-
rate, initial production to proceed before the majority of design 
activities have been completed. As evidenced by our work on acquisition 
best practices, this situation could result in increased costs stemming 
from concurrent design and production. In addition, the approval 
process established by the MSAM is not being followed because DHS 
delegated review and approval of asset decisions to the Coast Guard. 
Further, the Coast Guard previously authorized a deviation from the 
requirement to follow the MSAM process for Deepwater as it was not 
thought to be compatible with the program's broad system-of-systems 
approach. Consequently, decisions to proceed with individual Deepwater 
projects were not based on specific criteria under a disciplined 
process, such as a determination as to whether the proposed asset would 
fulfill Coast Guard requirements. The consequences of not following a 
disciplined acquisition approach are clear now that Deepwater assets, 
such as the National Security Cutter (NSC), have been paid for and 
delivered without the Coast Guard's having determined whether the 
assets' planned capabilities would meet mission needs. The Coast Guard 
is now in the process of developing the documents and test plans it 
needs to do so. 

The Coast Guard has developed new reporting systems designed to help 
project managers and decision makers affect project outcomes, but some 
key information is not reliable. Quarterly project reports compile cost 
and schedule information to summarize the status of each asset, and the 
"probability of project success" tool is intended to discern future 
outcomes through analysis of a multitude of different elements. 
However, Coast Guard officials currently lack enough detail into the 
earned value management data reported by the contractor. These data are 
used to assess progress on cost and schedule goals. In addition, the 
processes used by Northrop Grumman, one of the first-tier 
subcontractors, to generate earned value data may need to be re- 
certified to ensure the data's reliability. The resulting lack of 
confidence in the earned value data the Coast Guard currently receives 
will have an impact on decision making for future assets, as officials 
need to be informed of a contractor's past cost and schedule 
performance when evaluating proposed prices--such as prices for long- 
lead materials for and production of the fourth NSC. Officials state 
that they are addressing these issues through joint efforts with the 
Navy and the Defense Contract Management Agency (DCMA). 

As the Coast Guard assumes greater control over the Deepwater Program, 
we are making recommendations to further strengthen its management and 
oversight. Specifically, we are recommending that the Secretary of 
Homeland Security improve DHS's oversight of the Deepwater Program by 
rescinding the delegation of Deepwater acquisition authority. We are 
also recommending that the Commandant of the Coast Guard revise MSAM 
procedures to insert a formal design review before low-rate initial 
production can begin and that the Commandant develop an approach to 
increase visibility into Northrop Grumman's earned value management 
data before the Coast Guard enters into any additional contractual 
relationships with that contractor. 

In written comments on a draft of this report, DHS concurred with our 
findings. The department stated that it would take our recommendation 
on rescinding the delegation of Deepwater acquisition authority under 
advisement. The Coast Guard concurred with our recommendation to 
require a formal design review of Coast Guard assets before proceeding 
to low-rate initial production. In addition, the Coast Guard partially 
concurred with our recommendation to develop an approach to increase 
visibility into earned value management data for certain assets. The 
Coast Guard stated that it agrees with the recommendation and is taking 
steps to implement it. However, the Coast Guard stated that earned 
value data would provide limited utility for the fixed-price long lead 
materials contract for the fourth NSC and that requiring these data 
would pose a significant cost and schedule impact for that acquisition. 
Instead, the Coast Guard plans to obtain and review Northrop's 
certified cost and pricing data. Starting with the production contract 
for the fourth NSC, the Coast Guard does plan to obtain more visibility 
into Northrop's earned value data. It appears to us that the Coast 
Guard has developed an approach for increasing visibility into the 
earned value management data for future contracts with Northrop 
Grumman. 

Background: 

The Coast Guard is a multimission, maritime military service within 
DHS. The Coast Guard's responsibilities fall into two general 
categories--those related to homeland security missions, such as port 
security, vessel escorts, security inspections, and defense readiness; 
and those related to non-homeland security missions, such as search and 
rescue, environmental protection, marine safety, and polar ice 
operations. To carry out these responsibilities, the Coast Guard 
operates a number of vessels and aircraft and, through its Deepwater 
Program, is currently modernizing or replacing those assets. At the 
start of the Deepwater Program, the Coast Guard chose to use a system- 
of-systems acquisition strategy that would replace its assets with a 
single, integrated package of aircraft, vessels, and communications 
systems through ICGS, a lead system integrator that was responsible for 
designing, constructing, deploying, supporting and integrating the 
assets to meet Coast Guard requirements.[Footnote 3] Under this 
approach, the Coast Guard provided the contractor with broad, overall 
performance specifications--such as the ability to interdict illegal 
immigrants--and ICGS determined the specifications for the Deepwater 
assets. The decision to use a lead system integrator was driven in part 
because of the Coast Guard's lack of expertise in managing and 
executing an acquisition of this magnitude. 

In past reports on Deepwater, as well as the Army's Future Combat 
Systems that is pursuing a similar acquisition approach for similar 
reasons, we have raised a number of concerns about this approach to 
acquiring complex systems.[Footnote 4] The role of a system integrator 
differs from that of a traditional prime contractor in that it includes 
increased responsibilities for ensuring that the design, development, 
and implementation of the system-of-systems it is under contract to 
produce meet established budget and schedule. The close working 
relationship with the government that this arrangement engenders has 
advantages and disadvantages. An advantage is that such a relationship 
allows flexibility in responding to shifting priorities. Disadvantages 
are the government's weakened ability to provide oversight over the 
long term and the potential for increased costs. 

In a series of reports since 2001, we have noted the risks inherent in 
the lead system integrator approach to the Deepwater Program and have 
made a number of recommendations intended to improve the Coast Guard's 
management and oversight. In particular, we raised concerns about the 
agency's ability to keep costs under control in future program years by 
ensuring adequate competition for Deepwater assets and pointed to the 
need for better oversight and management of the system integrator. We, 
as well as the DHS Inspector General and others, have also noted 
problems in specific acquisition efforts, notably the NSC and the 110- 
Foot Patrol Boat Modernization, which the Commandant of the Coast Guard 
permanently halted in November 2006 because of operational and safety 
concerns. 

Coast Guard Has Established a More Accountable Acquisition Organization 
but Faces Challenges in Building Acquisition Workforce: 

Acknowledging that the initial approach to Deepwater gave too much 
control to the contractor, the Coast Guard has reoriented its 
acquisition organization to position itself to execute systems 
integration and program management responsibilities formerly carried 
out by industry. Project managers, whose role in the past was largely 
one of monitoring ICGS without the authority to make decisions, have 
now been vested with accountability for program outcomes. In addition, 
integrated product teams (IPT)--a key program management tool--are now 
led by Coast Guard officials, not contractor representatives. The Coast 
Guard has also increased its leverage of its own technical authorities 
and third party expertise. In the midst of these positive changes, the 
Coast Guard, like other federal agencies, faces challenges in building 
a capable government workforce to manage this large acquisition. While 
it attempts to reduce vacancy rates, it is relying on support 
contractors in key positions. 

Reorganization of the Acquisition Directorate Has Potential Benefits 
for Deepwater: 

Since July 2007, the Coast Guard has consolidated acquisition 
responsibilities into a single acquisition directorate, known as CG-9, 
and is making efforts to standardize operations within this 
directorate. Previously, Deepwater assets were managed independently of 
other Coast Guard acquisitions by the Deepwater Program Executive 
Office in an insulated structure. The Coast Guard's goal for the 
reorganization is to provide greater consistency in its oversight and 
acquisition approach by concentrating acquisition activities under a 
single official and allowing greater leveraging of knowledge and 
resources across programs. The Coast Guard's consolidation of the 
acquisition function into a single directorate is consistent with best 
practices as it allows the agency to operate strategically to meet its 
overall missions and needs. Figure 1 depicts the changes to the Coast 
Guard's acquisition structure. 

Figure 1: Reorganization of Deepwater Within the Coast Guard 
Acquisition Function: 

[See PDF for image] 

This figure is a display of organizational charts prior to and after 
the reorganization of Deepwater within the Coast Guard Acquisition 
Function, as follows: 

Deepwater Program under previous Coast Guard acquisition structure: 

Chief of Staff of the Coast Guard: 
* Deepwater Program Executive Office; 
- Project management: 
Aviation; 
Surface; 
C4ISR. 
* Acquisition Directorate G-A; 
- Deepwater contract support. 

Deepwater Program under Coast Guardís restructured acquisition 
directorate: 

Chief of Staff of the Coast Guard: 
* Chief Acquisition Officer Acquisition Directorate CG-9; 
- Contracting and procurement; 
- Acquisition services; 
- Acquisition programs: 
Deepwater surface projects; 
Aviation projects[A]; 
Deepwater C4ISR projects. 

Source: GAO analysis of Coast Guard data. 

[A] This office includes aviation assets for Deepwater. 

[End of figure] 

Deepwater Management Improved with Better Use of Project Managers and 
Government Control over Integrated Product Teams: 

In conjunction with the restructuring of its acquisition directorate, 
Coast Guard officials have begun to increase the responsibilities and 
accountability of the project managers who oversee the acquisition of 
Deepwater assets. Previously, ICGS was charged with a number of key 
program management responsibilities--ranging from designing and 
constructing assets to developing concepts for deployment and 
operations--while Coast Guard program and project managers tracked and 
monitored the contractor's activities. The Coast Guard's new approach 
increases government control over these key elements of program 
management while vesting project managers with authority and 
accountability they lacked in the past. For example, a previous 
Deepwater management plan emphasized "partnership" between the Coast 
Guard and ICGS in managing Deepwater and "joint [Coast Guard] and ICGS 
responsibility for overall management and execution of the program, 
including authorization of necessary resources and resolving 
performance, cost, schedule, and risk tradeoff issues." Under this 
scenario, according to Coast Guard officials, project managers could 
not provide as much direction as they wanted because of the terms of 
the contract, where ICGS bore ultimate responsibility for outcomes. In 
contrast, Coast Guard project managers are now responsible for 
defining, planning, and executing the acquisition projects within 
established cost, schedule, and performance constraints. 

Another significant shift has been to assert government control over 
Deepwater integrated product teams. These teams, a key program 
management tool, consist of groups of project officials and technical 
experts responsible for discussing options for problem solving relating 
to cost, schedule, and performance objectives. In the past, the teams 
were led and managed by the contractor, while government team members 
acted as "customer" representatives. Now, the teams are led by Coast 
Guard personnel. 

Figure 2 shows examples of how responsibility for program outcomes has 
shifted from ICGS to the Coast Guard. 

Figure 2: Program Management Responsibilities for Deepwater: 

[See PDF for image] 

This figure is a table comparing program management responsibilities 
for Deepwater, as follows: 

System integration responsibility: 
Program management under ICGS: ICGS had total system integration 
responsibility. As system integrator, ICGS was responsible for 
designing and constructing the system, developing associated concepts 
of operations and logistics support plans, and delivering a system that 
met system performance requirements; 
Program management under Coast Guard: Systems integration and program 
management responsibilities formerly carried out by industry were 
transferred to the Coast Guard. 

Managing the scope of the acquisition: 
Program management under ICGS: A distinguishing characteristic of the 
contract was joint government and ICGS scoping of indefinite delivery 
and indefinite quantity delivery task orders (DTO). ICGS bore 
contractual responsibility for developing the DTOs, which included a 
DTO Statement of Work, i.e., a detailed description of all tasks to be 
performed; 
Program management under Coast Guard: Project managers are responsible 
for managing and controlling the scope of the acquisition by developing 
a project work plan (statement of work, work breakdown structure, 
time/cost estimates, and schedules). 

Management approach: 
Program management under ICGS: The Coast Guard had partnered with ICGS 
to design, construct, deploy, operate, and support an operationally 
effective and affordable system. The most prominent element of this
partnership was joint membership in the IPT organization. The ICGS 
systems integration management team was the foundation of the entire 
program, providing key management, systems-of-systems engineering and 
integration, and air, surface, C4ISR and logistics domain and product 
team leadership and coordination. The program management team assumed 
joint Coast Guard and ICGS responsibility for overall management and 
execution of the program, including authorization of necessary 
resources and resolving performance, cost, schedule, and risk tradeoff 
issues; 
Program management under Coast Guard: Project managers are responsible 
for defining, planning, and executing the acquisition project within 
the established cost, schedule, and performance constraints. 

Integrated product teams (IPTs): 
Program management under ICGS: At the product level, joint IPTs were 
led by ICGS. Authority and responsibility for IPT performance rested 
with the team leader; 
Program management under Coast Guard: All IPT leaders are Coast Guard 
members, and all IPT charters are approved by respective program 
managers. 

Program planning: 
Program management under ICGS: ICGS was responsible for being the 
primary author of detailed planning documents related to: 
* Program management (including risk management and earned value 
management); 
* Systems engineering; 
* Test and evaluation; 
Program management under Coast Guard: Project managers are responsible 
for developing documents and executing core processes and activities 
related to: 
* Project management (including risk management and earned value 
management); 
* Systems engineering; 
* Test and evaluation. 

Source: Deepwater 2004 and 2007 Program Management Plans. 

[End of figure] 

Shift Away from System Integrator Involves Increased Use of Coast Guard 
Technical Experts and Third Parties: 

The Coast Guard is also establishing technical authorities within the 
agency who review, approve, and monitor technical standards and ensure 
that assets meet those standards. The Coast Guard has established a 
technical authority for engineering to oversee issues related to 
Deepwater, and officials state that a similar authority for C4ISR is 
pending. Previously, the Coast Guard held only an advisory role in 
making technical decisions, and in some cases this arrangement led to 
poor outcomes. For example, Coast Guard officials told us their 
engineering experts had raised concerns during the NSC's design phase 
about its ability to meet service life requirements and recommended 
design changes, but were ignored. If the recommendations had been 
heeded, changes to the ship's design could have been made earlier and 
some additional costs may have been avoided.[Footnote 5] 

To supplement and enhance the use of its internal expertise, the Coast 
Guard has increased its use of third-party, independent sources of 
technical expertise and advice. For example, the Coast Guard is 
increasing its use of the American Bureau of Shipping (ABS), an 
independent organization that establishes and applies standards for the 
design and construction of ship and other marine equipment, to assist 
the Coast Guard in certifying that Deepwater vessels meet certain 
safety and performance standards. As a case in point there are 987 
standards pertaining to hull, mechanical, and electrical systems on the 
first NSC which must be certified. Currently, ICGS is responsible for 
submitting documentation to the Coast Guard for 892 of the standards, 
while ABS and other third parties have a minimal role. In contrast, the 
Coast Guard plans for ABS to be responsible for reviewing approximately 
200 certifications starting with the third NSC and to have an even 
broader role in certifying the design and production of future assets 
such as the Offshore Patrol Cutter (OPC) and Fast Response Cutter 
(FRC). In addition, the Coast Guard is using the U.S. Navy's Space and 
Naval Warfare Systems Command to verify the security of certain 
communications systems and has established partnerships with Naval Sea 
Systems Command, the Navy Board of Inspection and Survey (INSURV), 
Naval Air Systems Command, and Naval Surface Warfare Center to leverage 
their expertise. INSURV, for example, conducted acceptance trials of 
the NSC in April 2008. 

Coast Guard Faces Challenges in Building Acquisition Workforce: 

Effective management of acquisition programs depends on appropriately 
trained individuals properly placed within the acquisition workforce. 
In the initial development of the Deepwater contract, the Coast Guard 
sought a system integrator because it recognized that it lacked the 
experience and depth in workforce to manage the acquisition internally. 
The Coast Guard's 2008 acquisition human capital strategic plan sets 
forth a number of acquisition workforce challenges that pose the 
greatest threats to acquisition success. Key challenges and Coast Guard 
actions to address them are cited below. 

Shortage of Civilian Acquisition Staff: 

Like many federal agencies that acquire major systems, the Coast Guard 
faces challenges in recruiting and retaining a sufficient number of 
government employees in acquisition positions such as contract 
specialists, cost estimators, system engineers, and program management 
support. The Coast Guard has taken a number of steps to hire 
acquisition professionals, including the increased use of recruitment 
incentives and relocation bonuses, utilizing direct hire authority, and 
rehiring government annuitants. While some vacancies are to be expected 
in any organization and especially in an acquisition organization given 
current trends across the government, the Coast Guard is experiencing 
vacancy rates of almost 20 percent. 

Lack of an Acquisition Career Path for Coast Guard Military Personnel: 

The Coast Guard also recognizes the impact of military personnel 
rotation on its ability to maintain people in key positions. The Coast 
Guard's policy of regular three-year rotations of military personnel 
among units, including to and from the acquisition directorate, limits 
continuity in key project roles filled by military officers and can 
have a serious impact on the acquisition expertise gained and 
maintained by those officers. The presence of Coast Guard officers in 
the acquisition directorate is important, as they provide specialized 
expertise in Coast Guard operations and fill key positions as program 
and project managers and technology leads. While the Coast Guard 
concedes that it does not have the personnel required to form a 
dedicated acquisition career field for military personnel, such as that 
found in the Navy, it is seeking to improve the base of acquisition 
knowledge throughout the Coast Guard by exposing more officers to 
acquisitions as they follow their regular rotations. To build this 
base, the Coast Guard is creating acquisition policy courses at the 
Coast Guard Academy and other institutions and is working with the 
academy to create an internship program where interested officer 
candidates can work within the acquisition directorate. 

Reliance on Contractors for Technical and Programmatic Expertise: 

Some of the positions that rely on technical and other expertise, such 
as project technology leads and contracting officials, remain vacant. 
In the absence of new personnel to fill these positions, the Coast 
Guard is forced to turn elsewhere. Officials stated that for some 
specialties, such as cost estimation, the Coast Guard can leverage 
existing relationships, such as with the Navy. However, because of a 
shortage of acquisition personnel across government, support 
contractors are often used to supplement government staff. For example, 
all the cost and earned value analysts currently employed by the 
aviation program are support contractors. Program managers stated that 
they would prefer these positions be filled by government employees. 
The head of contracting activity for the Coast Guard cited similar 
concerns, specifically for using contractors as contract specialists. 
The issue of support contractors in acquisition is not unique to the 
Coast Guard. In our recent report on the acquisition of major weapons 
systems in the Department of Defense (DOD), we found that it too relies 
heavily on contractors to perform roles in program management, cost 
estimation, and engineering and technical functions.[Footnote 6] For 
example, of the 52 programs we reviewed, support contractors 
represented 34 percent of program office staff for engineering and 
technical positions and 22 percent for program management functions. 

While support contractors can provide a variety of essential services, 
their use must be carefully overseen to ensure that they do not perform 
inherently governmental roles. As we recently reported in our work on 
Army contracting practices, for example, using contractors as contract 
specialists can create the risk of decreased government control over 
and accountability for policy and program decisions when contractors 
provide services that closely support inherently governmental 
functions.[Footnote 7] Conflicts of interest, improper use of personal 
services contracts, and increased costs are also potential risks of 
reliance on contractors. According to officials, the Coast Guard is 
currently analyzing its workforce to better determine which roles are 
appropriate for contractors and to what extent support contractors can 
be used. In addition, it is investigating practices and policies to 
improve oversight of contractors and ensure their work remains in a 
supporting role. 

Identifying Long-Term Needs Is Important for Sustained Progress: 

In order to provide a clearer picture of its future needs for 
acquisition personnel, the Coast Guard evaluated two potential 
workforce forecasting tools: one developed internal to the Coast Guard 
and another developed by the Air Force and tested as part of a broader 
effort by DHS. The Coast Guard tool is intended to forecast the 
potential workload of a project office and its acquisition staff 
requirements by determining the number of hours spent on specific 
acquisition-oriented work functions, such as contract management, 
business management, and systems engineering. Coast Guard officials 
stated that this tool has the potential, if managed correctly, to 
forecast workforce needs beyond the current fiscal year to enable long- 
term planning and workforce development. A potential weakness of the 
tool, according to the Coast Guard, is the significant time investment 
required of project managers to establish and maintain it. The other 
forecasting tool relies on historical DOD and Air Force data on program 
management, supplemented with annual interviews with appropriate 
project managers, to create estimates of workforce and workload needs. 
According to the Coast Guard, testing of both tools has been completed 
and a decision has been made to implement the Air Force staffing model. 

Transition to Asset-by-Asset Approach Results in Greater Visibility and 
Control, but the Coast Guard Has Not Determined How to Manage System- 
Level Aspects: 

The Coast Guard's move away from the ICGS contract and the system-of- 
systems model to a more traditional, asset-level acquisition strategy 
has resulted in greater government visibility and control. For example, 
cost and schedule information are now captured at the individual asset 
level rather than at the overall, system-of-systems program level, 
which was difficult to manage. At the same time, however, key aspects 
of Deepwater still require a system-of-systems approach. These aspects 
include the C4ISR system and the numbers of each Deepwater asset the 
Coast Guard requires to achieve its missions. The Coast Guard has not 
yet determined how to manage these aspects under its new paradigm, yet 
it is proceeding with Deepwater acquisitions. 

Asset-Based Acquisition Approach Facilitates Improved Management: 

The Coast Guard's transition away from the ICGS system-of-systems 
contract to an asset-by-asset acquisition strategy is enabling 
increased government visibility and control over its acquisitions. Cost 
and schedule information are now captured at the individual asset level 
rather than at the system-of-systems program level, which did not yield 
useful information for decision making. For example, while cost and 
schedule breaches in the past were to be reported to DHS at the 
Deepwater system-of-systems level only--an unlikely occurrence as only 
a catastrophic event would ever trigger a threshold breach under that 
approach--the Coast Guard is now reporting breaches by asset[Footnote 
8]. In 2007, for example, the Coast Guard reported breaches for the NSC 
and for the C-130J. Because of a number of factors including changes to 
the ship's design and requirements, the total acquisition cost of the 
NSC class increased by $520 million, or 15 percent, and the schedule 
for lead ship delivery was delayed by approximately 2 years. The cost 
increase for the C-130J is projected to be between 10 and 20 percent of 
the original contract price and stems from issues such as changes in 
requirements and concurrent design and installation activities. 

The Coast Guard recently demonstrated this new approach of increased 
control over acquiring Deepwater assets by holding its own competition 
for the Fast Response Cutter-B (FRC-B), in lieu of obtaining the asset 
through the ICGS contract after determining that it could better 
control costs by doing so.[Footnote 9] According to the Coast Guard's 
head of contracting activity, the contract award is expected in July 
2008. The Coast Guard plans to hold other competitions outside of the 
ICGS contract for additional assets in the future. However, Coast Guard 
officials told us that, in the near term, they may continue to issue 
task orders under the ICGS contract for specific efforts, such as 
logistics, or for assets that are already well under way. 

Coast Guard Is Not Fully Positioned to Manage Crucial System-Level 
Aspects of Deepwater: 

Although the shift to individual acquisitions is intended to provide 
the Coast Guard with more visibility and control, key aspects still 
require a system-level approach. These aspects include an integrated 
C4ISR system, which is needed to provide critical information to field 
commanders and facilitate interoperability with DHS and DOD, and the 
numbers of each Deepwater asset the Coast Guard requires to achieve its 
missions. The Coast Guard is not fully positioned to manage these 
aspects under its new paradigm. It has not approved an acquisition 
strategy for C4ISR and lacks at present the ability to model the 
capabilities of existing and planned assets in a way that could inform 
the numbers of Deepwater assets it requires. The Coast Guard maintains, 
however, that it must proceed with its acquisitions in the absence of 
this information. 

C4ISR Acquisition Strategy Not Finalized: 

C4ISR is a key aspect of the Coast Guard's ability to meet its homeland 
security, as well as its traditional, missions. How the Coast Guard 
structures C4ISR--referred to as the "architecture"--is fundamental to 
the success of the Deepwater Program. C4ISR encompasses the connections 
between surface, aircraft, and shore-based assets, the means by which 
information is communicated through them and the way information is 
displayed across that architecture--referred to as a common operating 
picture.[Footnote 10] C4ISR is intended to provide operationally 
relevant information to Coast Guard field commanders to allow for the 
efficient and effective execution of their missions across the full 
range of Coast Guard operations. The Coast Guard plans to integrate the 
Deepwater C4ISR architecture with legacy cutters and shore facilities 
as well in order to establish common components across all the assets 
and further enhance this effort. The Coast Guard recently had an 
unscheduled demonstration of new capabilities made possible through 
C4ISR improvements. In February 2008, a Maritime Patrol Aircraft (MPA) 
diverted from a training flight to participate in the rescue of two 
downed fighter pilots. With the C4ISR capabilities on board, the 
aircraft coordinated search and rescue efforts with a number of 
civilian and military assets it identified in the area. 

According to Coast Guard officials, a C4ISR acquisition strategy is 
still in development. The Coast Guard recognizes the need to develop an 
architecture with common components for use on all assets. However, no 
agreement has been reached on whether to acquire C4ISR on an asset 
basis or at a system level. An asset-based approach for C4ISR would 
entail some risk, as interoperability among all Coast Guard units and 
DHS components, as well the Navy and others, must be assured. 

Officials stated that the Coast Guard is revisiting the C4ISR 
incremental acquisition approach proposed by ICGS and analyzing that 
approach's requirements and architecture. In the meantime, the Coast 
Guard is continuing to contract with ICGS for C4ISR. The first 
increment, now drawing to a close, is providing core capabilities for 
Deepwater assets, including common software. Program officials state 
that the second increment is planned to reduce the reliance on 
proprietary software and begin the migration toward government owned 
software where it is practical to do so. The third increment is 
anticipated to be a new C4ISR solution for the Coast Guard. As the 
Coast Guard continues to analyze its strategy for procurement of these 
and other C4ISR increments, a key concern will be to negotiate the data 
rights it needs to maintain and upgrade the necessary software. 

Coast Guard Developing Modeling Capability to Assist in Determining 
Number of Each Asset to Procure: 

An additional risk in transitioning from a system-of-systems based 
acquisition strategy to an asset-based strategy is that the Coast Guard 
may lose the strategic vision needed to know how many of each Deepwater 
asset to procure to meet Coast Guard needs. When deciding how many of a 
specific vessel or aircraft to procure, it is important to consider not 
only the capabilities of that asset, but how it can complement or 
duplicate the capabilities of the other assets with which it operates. 
The Coast Guard has stated that it will continue to use a systems 
approach in determining the overall capabilities it needs but has not 
yet developed the tools necessary to make this assessment. For example, 
the Coast Guard recently contracted for a Deepwater alternatives 
analysis that revisited the acquisition approach for many of the 
individual assets and made a number of recommendations on options for 
future procurements. The analysis, in general, did not make 
recommendations about the number of each asset to be procured. It did, 
however, suggest revisiting the number of NSCs if the capabilities of 
the OPC allowed it to fill the same missions and eliminating the 
vertical unmanned aerial vehicle for technical and manufacturing 
reasons. Coast Guard officials stated that the study was abbreviated in 
scope because of the limited time available. 

Senior Coast Guard officials, while stating that the mix of Deepwater 
assets identified in the alternatives analysis--such as small, medium, 
and large cutters--is generally reasonable, acknowledge the need to 
revisit the numbers of each of these assets to be procured in light of 
Deepwater capabilities as a whole and the move away from the ICGS 
solution. Officials state, however, that increased capabilities in 
modeling and simulations are necessary to fully inform this effort. 
According to officials, the Coast Guard is working to upgrade a model 
that plots the planned capabilities of Deepwater assets, as well as the 
capabilities and operations of existing assets, against the 
requirements for Coast Guard missions. The Coast Guard intends to use 
this model as a means of testing each planned asset to ensure its 
capabilities fill stated deficiencies in the Coast Guard's force 
structure and to inform how many of a particular asset are needed given 
the capabilities of the rest of the force. Officials stated that they 
intend to use this analysis to inform their development of the 
Deepwater acquisition strategy. In the meantime, the Coast Guard 
continues to plan for asset acquisitions in numbers very similar to 
those determined by ICGS, such as procurement of 8 NSCs and 25 OPCs. 

Disciplined Project Management Approach Is Beneficial Going Forward, 
but Key Decision Point Is Missing and Consequences of Prior Decisions 
May Be Costly: 

As the Coast Guard moves the Deepwater Program from a system-of-systems 
acquisition to a more traditional asset-based approach, it is 
introducing the use of a more disciplined and formalized process under 
its Major Systems Acquisition Manual (MSAM). While the introduction of 
this process is a significant improvement over the prior acquisition 
process, the absence of a key milestone decision point before low-rate 
initial production begins and the lack of formal approvals of 
acquisition decisions by DHS could be problematic. The consequences of 
not following a more disciplined acquisition approach, especially for 
the establishment and demonstration of mission requirements, are now 
apparent for assets already in production and are likely to pose 
continued problems--such as increased costs--for the Coast Guard. 

Use of Major Systems Acquisition Manual Process Improves Oversight: 

The Coast Guard is now following the process set forth in its MSAM for 
all Deepwater assets. This process requires documentation and approval 
of program activities at key points in a program's life-cycle. The MSAM 
represents a disciplined management approach that begins with an 
identification of deficiencies in overall Coast Guard capabilities and 
then proceeds through a series of structured phases and decision points 
to identify requirements for performance, develop and select candidate 
systems that match these requirements, demonstrate the feasibility of 
selected systems, and produce a functional capability. At each decision 
point, referred to as a "milestone," entities across the Coast Guard, 
such as those responsible for oversight of the budget process or 
command and control, are to be consulted. Designated officials at high 
levels--including the Vice Commandant of the Coast Guard--then formally 
approve the program to proceed to the next phase. Each milestone 
requires documentation that captures key information needed for 
decision making. For example, when the Coast Guard makes its milestone 
decision, under the MSAM process, to proceed with the OPC from the 
initiation phase into development, the project office presented 
documentation that described the capabilities the ship is expected to 
provide, a draft concept for operations, and an initial assessment of 
cost and schedule. Figure 3 presents the key phases and milestones of 
the MSAM process and the current status of Deepwater assets within the 
process. 

Figure 3: MSAM Process and Deepwater Surface and Air Assets: 

[See PDF for image] 

This figure is an illustration of the MSAM Process and Deepwater 
Surface and Air Assets, as follows: 

Project identification: Gaps in capability are defined: 
* Short Range Prosecutor; 
* Long Range Interceptor; 
* Unmanned Aerial Systems. 

Milestone 0. 

Project initiation: Capabilities required to fill gaps are described; 
* Medium Range Recovery Helicopter Upgrade Phase III. 

Milestone 1: begin acquisition. 

Concept and technology development: Requirements are established and 
alternatives explored; 
* Multi-Mission Cutter Helicopter Upgrade Phase III; 
* Offshore Patrol Cutter; 
* Medium Range Recovery Helicopter Upgrade Phase II. 

Milestone 2: Approve low-rate initial production. 

Capability development and demonstration: Develop and test prototypes;
design and produce first asset; 
* Medium Range Recovery Helicopter Upgrade Phase I; 
* National Security Cutter; 
* Maritime Patrol Aircraft; 
* Multi-Mission Cutter Helicopter Upgrade Phase II; 
* Fast Response Cutter. 

Milestone 3: Approve full-rate production. 

Production and deployment: Produce assets for operational use; 
* Long Range Surveillance Aircraft. 

Operations and support: Use and support assets; 
* Multi-Mission Cutter Helicopter Upgrade Phase I. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

Figure 5: Note: Black diamonds denote milestones. 

The MSAM process provides a number of benefits that have the potential 
to improve acquisition outcomes. Primarily, it requires event-driven 
decision-making by high ranking acquisition executives at a number of 
key points in an asset's lifecycle. The process also requires 
documentation to provide the information and criteria necessary for 
these decisions. In addition, as the assets proceed through each phase 
of the process and the requirements and capabilities of the assets 
become more defined, these assets' ability to fill deficiencies 
identified by the Coast Guard must be established. 

Previously, the Coast Guard authorized the Deepwater Program to deviate 
from its major systems acquisition process, stating that the process 
was focused on acquiring discrete assets and contains requirements and 
documentation that may be inappropriate for the Deepwater system-of-
systems approach. Instead, Deepwater Program reviews were required on a 
schedule-driven basis--planned quarterly or annually--to report the 
status and performance of the contractor's efforts. Key decision points 
were focused primarily at the Deepwater Program as a whole and held 
only occasionally. Coast Guard officials told us that little, if any, 
formal documentation of key decisions was maintained. 

Lack of Key Milestone in MSAM Process Poses Risks: 

GAO's work on best practices for major acquisitions has demonstrated 
that a knowledge-based approach to decision making, where specific 
knowledge is gathered and measured against standards at key points in 
the acquisition process to inform decisions about the path forward, can 
significantly improve program outcomes. While the MSAM process contains 
many characteristics of a knowledge-based approach, there are key 
differences that could affect acquisition outcomes. For example, the 
Milestone 2 decision to approve low-rate initial production precedes 
the majority of the design activities in the capability development and 
demonstration phase. By following such a process, the Coast Guard may 
decide to enter production before a design is proven, a decision that 
could result in increased costs as design and production activities are 
conducted concurrently. In a previous report, we reviewed DHS' 
acquisition process, with which the Coast Guard's MSAM process is 
aligned and intended to complement, and found a similar weakness. 
[Footnote 11] Recognition and correction of this weakness in the MSAM 
approach is particularly important as key assets within Deepwater, most 
noticeably the FRC, approach a low-rate production decision. 

Improved Oversight by DHS Necessary: 

The MSAM requires the Coast Guard to obtain approval from DHS on all 
major program decisions beginning with the start of an acquisition 
program. This requirement would apply to Deepwater, as it has been 
designated a DHS major investment program. However, DHS approval of 
Deepwater acquisition decisions as part of its investment review 
process is not technically necessary because the department deferred 
decisions on specific assets to the Coast Guard in 2003. The department 
did require notification of changes to the Deepwater Program that could 
result in significant changes to cost, schedule, and performance, but 
this requirement was at the overall systems level. In practice, the 
Coast Guard has increased communication and coordination with DHS 
through good will and informal procedures such as personal working 
relationships.[Footnote 12] While increased communication between the 
Coast Guard and DHS is to be applauded, without a formal process in 
place, DHS could lose the ability to make strategic decisions--such as 
how and whether to fund certain projects--across its components if 
informal procedures and relationships should change. Coast Guard and 
DHS officials told us that the processes and procedures for 
coordinating acquisitions with DHS' Investment Review Board, which is 
tasked with reviewing major acquisition programs, are currently 
undergoing revision, and changes to the process are expected near the 
end of fiscal 2008. 

Consequences of Not Following MSAM Process Are Apparent for Assets in 
Production: 

The Coast Guard is facing the consequences of its decision not to 
follow the MSAM process as it attempts to better define requirements 
for individual assets already being procured, such as the NSC, Long- 
Range Interceptor (LRI), and the MPA, and to ensure that desired 
capabilities are met within cost and schedule constraints. Under the 
MSAM, the requirements generation process takes broad mission needs and 
translates them to operational capability requirements and then to 
asset performance specifications. Figure 4 depicts this traceability 
from mission needs to performance specifications. 

Figure 4: Arrow of Traceability from Mission Needs to Performance 
Specifications: 

[See PDF for image] 

This figure is an illustration of the Arrow of Traceability from 
mission needs to performance specifications, as follows: 

Coast Guard's Mission: 

Traceability start: 

Assess ability to carry out mission with current assets and 
capabilities; 

Identify capability gaps; 

Determine operational capability requirements; 
* The Operational Requirements Document links mission needs to 
performance specifications; 

* Define asset performance specifications; 

Traceability end. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

For example, under the MSAM process, before the design of an asset is 
selected, representatives of the operational forces within the Coast 
Guard are required to generate the Operational Requirements Document 
that determines the capabilities or characteristics considered 
essential to achieve their mission. Operational requirements described 
in this document--such as operating environment, functions to be 
performed, and the need for interoperability with other assets-- 
ultimately drive the performance and capability of an asset and should 
be traceable throughout development, design, and testing. They should 
also include basic asset requirements such as speed, maneuvering, and 
range to serve as threshold and objective values for future trade-off 
analyses.[Footnote 13] 

Under the ICGS-led system-of-systems acquisition approach, the Coast 
Guard developed high-level system requirements for capabilities, such 
as the ability to interdict illegal migrants. ICGS then developed an 
integrated force mix of specific aircraft, vessels, and communications 
systems to meet those needs. But because the disciplined MSAM approach 
was not followed, the Coast Guard could not trace the ICGS-proposed 
asset performance to actual mission needs. Program and project managers 
are "backfilling" the necessary requirements documentation in programs 
that are already well underway, with the intent of providing the 
traceability that was previously lacking. For example, in 2006, the 
Coast Guard acknowledged that the lack of a traditional requirements 
document for the NSC, which was then under construction, would inhibit 
the Coast Guard's ability to evaluate the vessel's suitability and 
effectiveness for Coast Guard missions. To resolve this problem, the 
Coast Guard developed a document that lists all the operational 
requirements for the NSC, as derived from identified mission needs, to 
guide operational testing. According to Coast Guard officials, 
operational testing based on these requirements will commence when the 
third NSC is complete. Under the MSAM, operational requirements would 
have been established prior to design and production to serve as the 
basis to link the asset's performance to its ability to fill a mission 
need. 

Failure to follow a disciplined approach in requirements generation is 
also apparent with problems related to the LRI, a small boat intended 
to be launched from larger cutters such as the NSC. The Coast Guard 
accepted the ICGS-proposed performance specifications for the LRI as 
part of the overall Deepwater specification, but the specifications 
were not tied to Coast Guard mission requirements. Thus, the Coast 
Guard had no assurance that the boat it was buying was what it needed 
to accomplish its missions. As a result of Coast Guard- identified 
technical deficiencies in the performance specifications, design 
changes were required after the LRI task order was issued. For example, 
a number of C4ISR specifications had to be added; the initial 
specification for the fuel tank size was deleted, as its capacity would 
not enable the boat's 400 nautical mile range to be met; and a more 
powerful electrical system was needed. These and other changes, which 
were required for the boat to accomplish what ICGS had proposed, drove 
the price for design and production from $744,621 to almost $3 million. 
[Footnote 14] The Coast Guard is beginning to define needed 
capabilities for the LRI under the MSAM process, with an eye towards 
developing the service's own requirements for the asset. For example, 
Coast Guard officials told us that ICGS' proposed top speed of 45 knots 
is unrealistic and would under no circumstances be needed to accomplish 
Coast Guard missions. The LRI has been equipped with a C4ISR suite that 
officials believe to be much more extensive than they need. They are 
also concerned that the boat is too heavy, at 22,000 pounds. 

The ramifications of accepting asset performance specifications not 
tied to Coast Guard mission requirements also became apparent during 
recent testing of the system that launches and recovers small boats, 
such as the LRI, from the NSC's stern. Design changes to the launch 
system had to be made because it was found to be inadequate to handle 
the heavy weight of the LRI. The Coast Guard will pay for this change 
because the NSC is a cost-plus incentive fee contract. In addition, 
Coast Guard officials told us that the LRI's inboard spray rail, which 
had initially been installed to enable the boat to reach 45 knots, had 
to be removed to allow the boat to effectively launch from the NSC, a 
cost ICGS will bear under that fixed-price contract. Coast Guard 
officials stated that the current LRI acquisition will be terminated 
with delivery of the first boat (now being considered a prototype with 
the potential to be used to test launch and recovery mechanisms on 
future NSCs). 

The Coast Guard's procurement of MPAs is another example of the 
consequences of not following a disciplined acquisition approach, as 
key program documents that establish the Coast Guard's requirements for 
this asset and a plan for operational testing to those requirements 
have not been finalized. The testing is expected to occur between June 
2008 and December 2008. The Coast Guard has contracted with ICGS for 
eight MPAs and accepted delivery of three aircraft between December 
2006 and June 2007. In March 2008, it also accepted delivery of three 
mission system pallets, which provide the aircraft with C4ISR 
capabilities. The Coast Guard anticipates putting another 4 MPAs on 
contract with ICGS in fiscal year 2008 and has requested funding for 
the 13th and 14th aircraft. 

Coast Guard Is Working to Improve the Use and Quality of Program 
Information, but Key Information Is Unreliable: 

The proper functioning of an acquisition organization and the viability 
of the decisions made through its acquisition process are only as good 
as the information it receives. The Coast Guard is developing two new 
means of communicating information related to the Deepwater Program. 
Quarterly project reports will consolidate and standardize how it 
communicates information to decision makers, and the probability of 
project success tool is intended to help officials discern and correct 
problems before they have cost and schedule impacts. However, Coast 
Guard officials have concerns about the reliability of the data they 
receive from the contractor as they lack the visibility required to 
determine the causes of cost and schedule variances. In addition, Coast 
Guard officials have stated that Northrop Grumman's earned value 
system, which provides the necessary cost and schedule information, may 
need to be re-certified for compliance with government standards. While 
the Coast Guard is taking steps to improve its visibility into and 
confidence in data received from the contractor, it plans to proceed 
with issuance of a task order for long lead materials for the fourth 
NSC. 

New Project Tools Designed to Better Convey Key Information to Decision 
Makers: 

The Coast Guard recently developed quarterly project reports, a 
compilation of cost and schedule information created by the project 
managers that summarizes the status of each acquisition for reporting 
through the Coast Guard as well as to DHS and the Congress. The Coast 
Guard developed these reports to standardize and consolidate asset 
reporting across all acquisitions, including those outside of 
Deepwater. Currently, the quarterly performance reports are being 
developed for 14 separate assets. The reports present general 
information about the project such as contract value and type, as well 
as more specific, timely information such as project accomplishments 
and risks. Project risks are rank-ordered by probability of occurrence 
and severity of impact, and include such things as technical challenges 
and production issues. 

The Coast Guard has also begun to analyze program information using the 
"probability of project success" tool. This tool was developed by the 
Army and the Air Force to evaluate projects on factors other than basic 
cost, schedule, and performance data and is being considered by DHS for 
application across its acquisitions. Currently, the tool is being 
applied to the same 14 projects covered under the quarterly performance 
reports. Coast Guard acquisition officials told us they will use this 
tool to grade each asset on 19 different elements in 5 categories, 
including project resources and project execution, to assess the risk 
of assets failing to meet their goals. Figure 5 lists these categories 
and elements. 

Figure 5: Factors Considered in Probability of Project Success Tool: 

[See PDF for image] 

This figure is a chart depicting the factors considered in Probability 
of Project Success tool, as follows: 

Probability of Project Success: 
* Project foundation: 
- Acquisition strategy; 
- Project requirements; 
* Project resources: 
- Budgeting/funding; 
- Staffing; 
- Contractor health; 
* Project execution: 
- Earned value; 
- Performance assessment; 
- Logistics assessment; 
- Testing and evaluation; 
- Risk assessment; 
- Contract; 
- Technical maturity; 
* Project fit in capability vision: 
- DHS vision; 
- Coast Guard vision; 
* Project advocacy: 
- Coast Guard; 
- DHS leadership; 
- Congress; 
- Industry; 
- International. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

The probability of project success tool is developed by acquisition 
support staff separate from the program and project offices. Of the 19 
different elements, only one, health of the contractor, is graded by 
the project manager. The results of this tool are not seen as an 
assessment of the project manager, but of the support that the 
acquisition directorate has given them. Officials stated that the tool 
allows acquisition executives to identify projects that require 
assistance before they experience cost breaches or other problems and 
also allows for a comparison of risks and challenges across all Coast 
Guard acquisition projects to identify trends. 

Usefulness of Earned Value Management Information Is Questionable: 

The production and analysis of earned value management data--the cost 
and schedule data reported by the contractor and used to evaluate 
progress toward program goals--are critical to informing both the 
quarterly performance reports and the probability of project success 
tool. However, Coast Guard officials are concerned about the utility of 
the earned value data they receive because, under the terms of the ICGS 
contract, they lack visibility at the levels required to inform 
decision-makers and manage projects. In addition, officials believe 
that Northrop Grumman's earned value system may require re- 
certification to meet government standards to ensure the reliability of 
the data. Receiving useful and reliable earned value data could be 
particularly important for the Deepwater Program, as these data are 
also used to inform decisions on future projects, such as the pending 
orders to Northrop Grumman for the materials and production of the 
fourth NSC. 

Coast Guard officials expressed concerns about the level of detail of 
the earned value data provided by ICGS. A Coast Guard official 
responsible for analyzing the contractor's reported earned value data 
for the NSC stated that the data do not provide sufficient visibility 
for decision making at the asset level. The concerns stem in part from 
the system-of-systems contract structure with ICGS and how the terms 
for reporting earned value data to the government were negotiated. 
Earned value data are reported at different levels of activity, 
descending in order from the general to the specific, as determined in 
advance by the government. The levels of activity required for earned 
value reporting are very important and can determine the usefulness of 
the data received. Under the ICGS contract, the earned value data are 
reported at seven levels, beginning with the Deepwater system-of- 
systems level--"ICGS"--and stopping at the major component level--such 
as propulsion and armaments. Coast Guard officials stated that 
previously data on the NSC was reported to the fifth level, which only 
presents data on the progress of production of the cutter as a whole. A 
Coast Guard official stated that in order to gain adequate visibility 
into reported cost variances, a deeper level of reporting is necessary. 
While the Coast Guard has negotiated a more detailed level of earned 
value reporting on the first three NSCs to receive data at the major 
component level, according to an official, the Coast Guard may seek 
even more detailed levels of cost data in upcoming negotiations for the 
fourth NSC. 

In addition to concerns about visibility into contractor earned value 
data, Coast Guard officials have concerns about the reliability of the 
underlying systems the contractors use to collect this data. An 
important consideration in relying on contractor-provided earned value 
management data is ensuring that the contractor's process for 
generating the data is compliant with government standards. Contractors 
are expected to have earned value management plans that document the 
methodology, products, and tools they have in place to track earned 
value. Independent third parties, such as the Defense Contract 
Management Agency (DCMA) or the Defense Contract Audit Agency, ensure 
the contractor's initial compliance with government standards and 
perform surveillance reviews to ensure that the contractor remains 
compliant. While Lockheed Martin's earned value management system has 
been certified as compliant by DCMA, Coast Guard officials have stated 
that Northrop Grumman--the first tier subcontractor responsible for 
work on the NSC--may require re-certification. Previously, Northrop 
Grumman's earned value management system had been certified by the 
Navy, but this certification is no longer considered acceptable by the 
Coast Guard.[Footnote 15] According to officials, the Coast Guard is 
working with DCMA and the Navy to review and, if necessary, re-certify 
Northrop Grumman's earned value system. In the meantime, the Coast 
Guard intends to improve its insight into how the contractor produces 
and reports earned value data by executing a memorandum of agreement 
with the DCMA for on-site surveillance at the shipyard. Such on-site 
presence is critical to increase the likelihood that the Coast Guard 
receives accurate earned value data. 

These concerns about visibility into, and reliability of, earned value 
data affect not only the information the Coast Guard needs for decision 
making on current projects, but also the information necessary for 
decisions on future projects, such as the production of the fourth NSC. 
As the Coast Guard compiles earned value information on the ships being 
constructed by Northrop Grumman, it can use this information in the 
estimates of future costs used to establish target prices for 
additional work to be performed. Because the Coast Guard lacks 
confidence in how Northrop Grumman is representing its cost and 
schedule performance on current projects, it may be in the position of 
paying the contractor for future projects, such as the long lead 
material and production of the fourth NSC, without the understanding 
necessary to evaluate proposed prices. 

Conclusions: 

In response to significant problems in achieving its intended outcomes 
under Deepwater, Coast Guard leadership has made a major change in 
course in its management and oversight of this program. Even with this 
change, the Coast Guard continues to face numerous risks of varying 
magnitude in moving forward with an acquisition program of this size. 
While the initiatives the Coast Guard has underway have already begun 
to have a positive impact on reducing these risks, the extent and 
durability of their impact depends on positive decisions that continue 
to increase and improve government management and oversight. 

The current reliance on informal procedures to keep DHS informed of 
Deepwater developments is not appropriate for an acquisition of this 
magnitude. The Deepwater Program will continue for some time to come, 
and the full burden of transcending the inevitable challenges should 
not rest solely with the initiatives of the current Coast Guard 
leadership. The Coast Guard's major systems acquisition process 
requires DHS approval of milestone decisions; however, the 2003 DHS 
delegation to the Coast Guard of such approval means that DHS does not 
have formal approval authority, and it could lack the information 
needed to strategically allocate funding by balancing requirements and 
needed capabilities across departmental components. In addition, the 
Coast Guard's acquisition process calls for a decision to authorize 
initial production before knowledge is gathered about the stability of 
an asset's design and production processes, which is contrary to best 
practices and could result in cost increases and schedule delays 
because of redesign. And because the Coast Guard's knowledge of the 
reasonableness of contractors' proposed cost and schedule targets for 
Deepwater assets relies in part on visibility into and confidence in 
the contractors' earned value management data, the Coast Guard may lack 
a solid basis to evaluate future proposals by Northrop Grumman until 
known problems with its data are resolved. 

Recommendations for Executive Action: 

To help ensure that the initiatives to improve Deepwater management and 
oversight continue as intended and to facilitate decision-making across 
the department, we recommend that the Secretary of Homeland Security 
direct the Under Secretary for Management to rescind the delegation of 
Deepwater acquisition decision authority. 

We also recommend that the Commandant of the Coast Guard take the 
following two actions: 

* To improve knowledge-based decision-making for its acquisitions, 
revise the procedures in the Major Systems Acquisition Manual related 
to the authorization of low-rate initial production by requiring a 
formal design review to ensure that the design is stable as well as a 
review before authorizing initial production. 

* To improve program management of surface assets contracted to 
Northrop Grumman Ship Systems, develop an approach to increase 
visibility into that contractor's earned value management data 
reporting before entering into any further contractual relationships, 
such as for long lead material for and production of the fourth NSC. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report, the Department of 
Homeland Security concurred with our findings. The department stated 
that it would take our recommendation on rescinding the delegation of 
Deepwater acquisition decision authority under advisement, but neither 
concurred nor disagreed with the recommendation. The Coast Guard 
concurred with our recommendation on requiring a formal design review 
before low-rate initial production, and plans to incorporate such a 
review in its next revision of the MSAM process. In addition, it 
partially concurred with our recommendation to improve program 
management of surface assets by developing an approach to increase 
visibility into Northrop Grumman's earned value management data. The 
Coast Guard stated that it agrees with the recommendation and is in the 
process of funding DCMA for surveillance of Northrop's earned value 
system and increasing the level of visibility into Northrop's data 
starting with the fourth NSC production contract. However, the Coast 
Guard stated that earned value data would provide limited utility for 
the fixed-price long lead materials contract for this acquisition and 
that obtaining the data would pose a significant cost and schedule 
impact. To determine a fair and reasonable price for the long lead and 
production contracts, the Coast Guard plans to obtain and review 
Northrop's certified cost and pricing data. It appears to us that the 
Coast Guard has developed an approach for increasing visibility into 
the earned value management data for future contracts with Northrop 
Grumman. We believe this approach, if implemented as planned, will 
address our recommendation. 

The comments from the Department of Homeland Security are included in 
their entirety in appendix III. Technical comments were also provided 
and incorporated into the report as appropriate. 

We are sending copies if this report to interested congressional 
committees, the Secretary of Homeland Security, and the Commandant of 
the Coast Guard. We will provide copies to others on request. This 
report will also be available at no charge on GAO's Web site at 
[hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report or need 
additional information, please contact me at (202) 512-4841 or 
huttonj@gao.gov. 

Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. Staff 
acknowledgements are provided in appendix IV. 

Sincerely, 

Signed by: 

John Hutton: 
Director: 
Acquisition and Sourcing Management: 

[End of section] 

Appendix I: Scope and Methodology: 

Overall, in conducting this review, we relied in part on the 
information and analysis in our March 2008 report, Status of Selected 
Aspects of the Coast Guard's Deepwater Program[Footnote 16] and 
testimony, Coast Guard: Deepwater Program Management Initiatives and 
Key Homeland Security Missions.[Footnote 17] We also reviewed the Coast 
Guard's 2007 Deepwater expenditure plan and fiscal year 2009 budget 
request. Additional scope and methodology information on each objective 
of this report follows. 

To assess the Coast Guard's efforts to increase accountability and 
program management through its reorganized acquisition function, we 
reviewed the Coast Guard's July 2007 Blueprint for Acquisition Reform, 
organizational structures before and after the July 2007 
reorganization, 2004 and 2008 Deepwater Program Management Plans, and 
project manager and integrated product team charters. We also 
interviewed senior acquisition directorate officials, program and 
project managers, and Integrated Coast Guard Systems (ICGS) 
representatives to discuss the Coast Guard's increased role in program 
management and oversight and changes in roles and responsibilities of 
key positions. We held discussions with officials from the Coast 
Guard's engineering and C4ISR technical authorities and the American 
Bureau of Shipping, and reviewed lists of certifications for the 
National Security Cutter (NSC). To assess Coast Guard actions to 
improve the acquisition workforce, we reviewed additional documentation 
such as the acquisition human capital strategic plan, documentation of 
workforce initiatives, and organization charts for aviation, surface, 
and C4ISR components showing government, contractor, and vacant 
positions. We supplemented the documentation review with interviews of 
acquisition directorate officials, including contracting and Office of 
Acquisition Workforce Management officials and program and project 
managers. We discussed workforce initiatives, challenges and obstacles 
to building an acquisition workforce, recruiting, difficulty in filling 
key positions, use of support contractors, inherently governmental 
positions, and tools for projecting acquisition workforce needs. We 
spoke with representatives of a support contractor developing one of 
the workforce planning tools. We also relied on our past work 
identifying management and workforce problems within the Deepwater 
Program and the Department of Defense (DOD).[Footnote 18] 

To evaluate the Coast Guard's transition to an asset-based paradigm for 
Deepwater, including how system-level aspects such as C4ISR are being 
managed, we analyzed a 2007 alternatives analysis prepared for the 
Coast Guard. We also discussed the planned C4ISR procurement strategy 
with the acquisition directorate C4ISR program manager and the Coast 
Guard Chief, Office of Cyber Security and Telecommunications. We 
reviewed the overall Deepwater and the NSC acquisition program 
baselines. Other acquisition program baselines were in draft form and 
not made available to us. We reviewed reports on NSC and C-130J 
missionization cost breaches to understand the change in how cost 
breaches are reported to DHS under the new approach. We analyzed the 
Long-Range Interceptor (LRI) task order and associated modifications 
and interviewed senior acquisition directorate officials, the surface 
asset program manager, and the LRI project manager about problems with 
the LRI's design and its ability to interface with the NSC's launch and 
recovery system during testing. We reviewed documentation of the Coast 
Guard's acceptance of the first three Maritime Patrol Aircraft and 
associated mission system pallets and interviewed the aviation program 
manager. 

To assess the Coast Guard's implementation of a disciplined, project 
management process for Deepwater acquisitions, we reviewed the Major 
Systems Acquisition Manual and compared its processes with the 
knowledge-based, best practices processes we have identified through 
our prior work on large acquisitions at DOD. We reviewed the Coast 
Guard's April 2000 memorandum waiving the acquisition manual 
requirements for the Deepwater Program to understand the rationale for 
the waiver, as well as the 2003 DHS memorandum giving the Coast Guard 
acquisition decision authority for Deepwater assets. We interviewed 
acquisition directorate officials and program and project managers to 
discuss efforts to transition the acquisition of Deepwater assets to 
the MSAM process, particularly for assets already under way. We also 
spoke with DHS officials about the DHS major acquisition review process 
and reporting requirements. 

We assessed Coast Guard initiatives to improve the quality of program 
management information by analyzing Deepwater asset quarterly project 
reports for the fourth quarter, fiscal year 2007, and probability of 
project success information. We also analyzed selected earned value 
management cost performance reports for the NSC and reviewed earned 
value management system compliance letters for Northrop Grumman and 
Lockheed Martin, the Coast Guard's standard operating procedure for 
earned value management systems, the Deepwater work breakdown structure 
dictionaries for Northrop Grumman and Lockheed Martin, and ICGS' earned 
value management plan. We discussed the information contained within 
this documentation with acquisition directorate officials, the NSC 
business finance manager, Coast Guard support contractors responsible 
for analyzing the earned value management data, and ICGS and Northrop 
Grumman representatives. 

We conducted this performance audit from October 2007 to June 2008 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

[End of section] 

Appendix II: Information on Selected Deepwater Surface and Air Assets: 

Figure 6: National Security Cutter: 

[See PDF for image] 

Photograph of National Security Cutter. 

Asset information: 
Current phase: Capability development and demonstration; 
Total estimated cost: $3.5 billion; 
Total estimated quantity: 8 ships; 
Estimated cost per ship: $431.3 million; 
First delivery: 2008. 

Asset status: 

The National Security Cutter (NSC) is intended to be the flagship of 
the Coast Guardís fleet, with an extended on-scene presence, long 
transits, and forward deployment. The cutter and its aircraft and boat 
assets are to operate worldwide. 

The NSCís projected costs have increased greatly compared to the 
initial baseline. Requirements changes to address post-9/11 needs are 
one of the main reasons for the cost increases. Hurricane Katrina was 
another contributing factor, but Coast Guard actions also contributed 
to the increases, such as the decision to proceed with production 
before resolving fatigue life concerns. Fatigue is physical weakening 
because of age, stress, or vibration. A U.S. Navy analysis done for the 
Coast Guard determined that the shipís design was unlikely to meet 
fatigue life expectations. The Coast Guard ultimately decided to 
correct the structural deficiencies for the first two National Security 
Cutters at scheduled points after construction is completed to avoid 
stopping the production lines, and to incorporate structural 
enhancements into the design and production for future ships. In August 
2007, the Coast Guard and ICGS agreed to a consolidated contracting 
action to resolve the contractorís request for equitable adjustment of 
$300 million, stemming from ICGSís contention that the Coast Guard had 
deviated from a very detailed contractor implementation plan on which 
pricing was based. This negotiation also converted the second NSC from 
a fixed-price to a cost plus incentive fee contract. 

A Coast Guard official stated that the first NSC is nearing completion 
with more than 98 percent of the ship constructed and machinery, 
builders, and acceptance trials have been completed. Delivery of the 
ship to the Coast Guard occurred on May 8, 2008; however, the 
contractor is still in the process of submitting certifications and 
resolving issues found in testing including these with the propulsion 
system and communications equipment. A Coast Guard official stated that 
the second NSC is 50 percent complete and long lead materials and 
production contracts have been awarded for the third ship. The Coast 
Guard plans to award the production contract for the fourth NSC in 
fiscal year 2009, with a contract for long lead materials for that ship 
planned for the summer of 2008. 

A Coast Guard official stated that some issues with the first NSC will 
remain at delivery, including issues with classified communications 
systems. Officials told us that they are in the process of determining 
how to most cost effectively address these issues. ICGS will continue 
to perform work on the first NSC after it leaves the shipyard, 
including certain repairs that fall under the shipís warranty. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

Figure 7: Fast Response Cutter: 

[See PDF for image] 

Illustration of Fast Response Cutter. 

Asset information: 
Current phase: Capability development and demonstration; 
Total estimated cost: $593 million for 12; 
Total estimated quantity: Up to 34 ships; 
Estimated cost per ship: $49.4 million; 
Estimated first delivery: 2010. 

Asset status: 

The Coast Guardís Fast Response Cutter (FRC) is conceived as a patrol 
boat with high readiness, speed, adaptability, and endurance to perform 
a wide range of Coast Guard missions. 

In February 2006, the Coast Guard suspended work on the FRC design 
proposed by the system integrator to assess and mitigate technical 
risks. This design was known as the FRC-A. The Commandant of the Coast 
Guard officially terminated FRC-A design efforts in February 2008 after
approximately $35 million had been obligated to ICGS. To meet an 
aggressive schedule, the FRC-A was initiated as an undefinitized 
contract action (UCA), meaning that the contractor was authorized to 
begin work and incur costs before a final agreement on contract terms 
and conditions, including price, was reached. Under UCAs, the 
government risks paying increased costs because the contractor has 
little incentive to control costs. The UCA was expected to be 
definitized in January 2006, but this has not yet occurred; Coast Guard 
officials anticipate its happening soon. 

Over the past 2 years, the Coast Guard has pursued acquisition of a 
modified commercially available patrol boat with similar performance 
capabilities to the FRC-A, termed the FRC-B. The Coast Guard issued a 
request for proposals for the FRC-B and is currently reviewing 
contractor responses. Coast Guard officials told us there was 
sufficient competition, and they plan to award the contract in July 
2008. The first FRC-B is scheduled to be delivered in 2010. The 
contract is for the design and production of up to 34 cutters. The 
Coast Guard intends to acquire 12 FRCs by 2012 for an estimated cost of 
$593 million, or $49.4 million per cutter. Coast Guard officials told 
us they are pursuing this 12-boat acquisition strategy to help fill the 
current patrol boat operational gap. They plan to assess the 
capabilities of the FRC-B before exercising options for additional
cutters. The officials told us they have not updated the acquisition 
program baseline for this asset, and they do not plan to update cost 
estimates until the contract is awarded. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

Figure 8: Offshore Patrol Cutter: 

[See PDF for image] 

Illustration of Offshore Patrol Cutter. 

Asset information: 
Current phase: Concept and technology development; 
Total estimated cost: $8.1 billion; 
Total estimated quantity: 25 ships; 
Estimated cost per ship: $323.9 million; 
Estimated first delivery: 2018. 

Asset status: 

The Coast Guardís Offshore Patrol Cutter (OPC) is intended to conduct 
patrols for homeland security functions, law enforcement, and search and
rescue operations. It will be designed for long distance transit, 
extended on-scene presence, operations with multiple aircraft and 
boats, and improved sea-keeping to allow operations in higher sea 
states. 

The OPC program was recently restructured after a decision to hold a 
competition outside of the ICGS contract, resulting in a 5-year delay in
delivery. Currently, the Coast Guard is analyzing requirements as part 
of the concept and technology development phase. The Coast Guardís
engineering and logistics center is developing concepts to assist the 
acquisition directorate in examining cost and capability trade-offs. An 
official said preliminary and contract design efforts are planned to 
begin in fiscal year 2011, with production to begin in fiscal year 
2015. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

Figure 9: Long-Range Interceptor: 

[See PDF for image] 

Illustration of Long-Range Interceptor. 

Asset information: 
Current Phase: Project initiation; 
Total cost: TBD; 
Total quantity: TBD; 
Cost per ship: TBD; 
First delivery: TBD. 

Asset status: 

The Long-Range Interceptor (LRI) is envisioned as a small boat that 
will deploy from the NSC and OPC. The LRI is intended to operate beyond
sight of the cutter for vessel boarding, pursuit and interdiction, and 
search and rescue operations. 

The Coast Guard currently has a $2.9 million contract with ICGS for one 
LRI; that boatís delivery coincided with the delivery of the first NSC 
in April 2008. However, because the LRIís design does not meet Coast 
Guard requirements, the Coast Guard intends to hold a full and open 
competition for additional LRIs to coincide with future NSCs. A Coast 
Guard official told us that future LRIs will comply with the Major 
Systems Acquisitions Manual process. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

Figure 10: Short Range Prosecutor: 

[See PDF for image] 

Illustration of Short Range Prosecutor. 

Asset information: 
Current Phase: Project initiation; 
Total cost: TBD; 
Total quantity: TBD; 
Cost per ship: TBD; 
First delivery: TBD. 

Asset status: 

The Short Range Prosecutor (SRP) is envisioned as a small boat that 
will be deployed from the larger cutters to conduct law enforcement
operations and perform search and rescue operations. 

The Coast Guard plans to procure the SRP outside of the ICGS contract 
to achieve greater cost efficiencies. A Coast Guard official told us 
the SRP will comply with Major Systems Acquisitions Manual milestones 
as it proceeds. The Coast Guard had previously acquired 8 SRPs for use 
on its 123-foot cutters. However, because of problems with the 110-foot 
to 123-foot conversion, those SRPs are not in service. Two SRPs have 
been modified for use on the NSC and have been used in testing. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

Figure 11: HC-144A Maritime Patrol Aircraft: 

[See PDF for image] 

Photograph of HC-144A Maritime Patrol Aircraft. 

Asset information: 
Current Phase: Capability development and demonstration; 
Total cost: $1.7 billion; 
Total quantity: 36; 
Cost per aircraft: $47.4 million; 
First delivery: 2008. 

Asset status: 

The Maritime Patrol Aircraft (MPA) is intended to be a transport and 
surveillance, fixed-wing aircraft used to perform search and rescue 
missions, enforce laws and treaties, and transport cargo and personnel. 

In fiscal year 2007, the Coast Guard accepted three MPAs, and through 
March 2008 it has accepted three associated mission system pallets, 
which provide the aircraft with C4ISR capabilities. The Coast Guard has 
a fixed-price contract with ICGS for five additional MPAs and expects 
delivery of two of these aircraft in fiscal year 2008. The Coast Guard 
expects to contract with ICGS for an additional four aircraft in June 
2008 and requested funds for two more aircraft in the fiscal year 2009 
budget submission. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

Figure 12: HC-130J Long-Range Surveillance Aircraft: 

[See PDF for image] 

Photograph of HC-130J Long-Range Surveillance Aircraft. 

Asset information: 
Current phase: Production and deployment; 
Total cost: $11 million; 
Total quantity: 6; 
Cost per aircraft: $1.8 million; 
First delivery: 2008. 

Asset status: 

ICGS delivered the first HC-130J on February 28, 2008. Production is 
complete on the second and third aircraft. The Coast Guard has a fixed-
price contract with ICGS for the three additional HC-130Js. In November 
2007, the Coast Guard notified DHS of a cost increase of between 10 and 
20 percent due to parallel design and installation activities resulting 
in rework, changes in aircraft power requirements, late delivery of 
government-furnished equipment, and changes in mounting equipment 
necessary to achieve flight certifications. The HC-130J is expected to 
become operational in July 2008. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

Figure 13: HH-65 Multimission Cutter Helicopter: 

[See PDF for image] 

Photograph of HH-65 Multimission Cutter Helicopter. 

Asset information: 
Current phase: Varies; 
Total cost: $741 million; 
Total quantity: 102 helicopters; 
Cost per helicopter: $7.3 million; 
First delivery: 2008. 

Asset status: 

The HH-65 Dolphin is the Coast Guardís short-range recovery helicopter. 
Under Phase I of the HH-65 conversion, which completed in fiscal year
2007, the helicopters received new engines. The HH-65 also received 
upgrades to communications equipment and was modified to allow use of
weapons and other equipment. Beginning in fiscal year 2007, Phases II 
and III of the conversion modernize many of the aging and obsolete
subsystems and components and will upgrade the helicopter avionics. The 
Coast Guard plans to complete Phases II and III of the modernization in
2014 and 2015, respectively. 

Initially, Phases II and III included structural modificationsó 
including the landing gear, tail rotor, sliding door, and fuel cellóas 
well as cockpit upgrades and other capabilities. To address the more 
pressing issues that required immediate attention, the upgrades to be 
performed in Phases II and III were reprioritized. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

Figure 14: HH-60 Medium Range Recovery Helicopter: 

[See PDF for image] 

Photograph of HH-60 Medium Range Recovery Helicopter. 

Asset information: 
Current phase: Varies; 
Total cost: $451 million; 
Total quantity: 42 helicopters; 
Cost per helicopter: $10.7 million; 
First delivery: 2014. 

Asset status: 

The HH-60J is the Coast Guardís medium-range recovery helicopter, 
performing search and rescue missions offshore in all weather 
conditions. 

Currently, the Coast Guard is replacing the HH-60Jís avionics system, 
which it expects will increase the helicopterís operational 
availability and reduce maintenance and supply costs. The Coast Guard 
is also upgrading the HH-60Jís command, control, and surveillance 
system and its ability to perform armed national security missions. 
Cost increases associated with the avionics upgrade caused the Coast 
Guard to realign funding through a number of fiscal years. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

Figure 15: Unmanned Aerial Systems: 

[See PDF for image] 

Illustration of Unmanned Aerial Systems. 

Asset information: 
Current phase: Project identification; 
Total cost: TBD; 
Total quantity: TBD; 
Cost per ship: TBD; 
First delivery: TBD. 

Asset status: 

Initially, the Deepwater Implementation Plan included procurement of 45 
cutter-based Vertical Unmanned Aerial Vehicles (VUAV) and associated
control stations. However, the fiscal year 2008 Presidentís Budget 
requested no funding for VUAVs and instead, the Coast Guard was to 
examine alternative approaches to meet Deepwaterís requirements for 
maritime surveillance. In the fall of 2006, the Coast Guard initiated a 
multi-phase VUAV alternatives analysis. Phase I, completed in February 
2007, recommended against proceeding with the VUAV effort due to 
developmental and cost concerns. Phase II, completed in August 2007, 
concluded that small, tactical, cutter-based Unmanned Aerial Systems 
(UAS) and long-endurance, land-based UASs might fulfill most of the 
maritime surveillance performance gap if a maritime VUAV were not 
available. The Coast Guard has requested $3 million in the fiscal year 
2009 budget submission to continue to study possible approaches going 
forward. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

[End of section] 

Appendix III: Comments from the Department of Homeland Security: 

Department of Homeland Security: 
Washington, DC 20528: 
[hyperlink, http://www.dhs.gov]: 

June 20, 2008: 

Mr. John Hutton: 
Director, Acquisition and Sourcing Management: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mi. Hutton: 

Thank you for the opportunity to review and comment on the Government 
Accountability Office's (GAO's) Draft Report GAO-08-745 entitled Coast 
Guard: Change in Course Improves Deepwater Management and Oversight but 
Outcome Still Uncertain. The Department of Homeland Security (DHS) and 
the United States Coast Guard (USCG) remain grateful for all that the 
GAO has done to bring attention to issues within our Deepwater 
acquisition program and concurs with the findings of this report. We 
appreciate the commitment the GAO has towards making the Deepwater 
program successful and value the opinions of the GAO. We benefit from 
this oversight and will use it to ensure improvement to our acquisition 
program in the future. 

Recommendations: 

The first recommendation was addressed to the Under Secretary for 
remaining two recommendations were made to the USCG. 

GAO Recommendation #1: Rescind the delegation of Deepwater acquisition 
decision authority. 

DHS Response: The Department is taking this recommendation under 
advisement. 

GAO Recommendation #2: To improve knowledge-based decision making for 
its acquisitions, revise the procedures in the Major Systems 
Acquisition Manual related to the authorization of low rate initial 
production by requiring a formal design review to ensure that the 
design is stable as well as a review before authorizing initial 
production. 

USCG Response: Concur - the USCG agrees with Recommendation 2 and has 
already incorporated both a determination/approval of low rate initial 
production (LRIP) quantity as part of Milestone 2 (MS 2) and added a MS 
2A LRIP review/approval as part of the next revision to the Major 
Systems Acquisition Manual (MSAM). 

GAO Recommendation #3: To improve program management of surface assets 
contracted to Northrop Grumman Ship Systems, develop an approach to 
increase visibility into that contractor's earned value management data 
reporting before entering into any further contractual relationships, 
such as for long lead material for and construction of the fourth 
National Security Cutter (NSC). 

USCG Response: Partially Concur - the USCG agrees with Recommendation 3 
with one exception. We are in the process of funding the Defense 
Contract Management Agency (DCMA) for surveillance of the NG Earned 
Value Management (EVM) system. We anticipate award in the fourth 
quarter of FY08. This will provide us the visibility we all agree is 
necessary. Where we disagree is having the visibility prior to 
contracting for long lead material for NSC #4. This task order is 
planned to be fixed price and awarded in the fourth quarter of FY08. 
EVM is not normally required for a fixed priced contract. Given the 
limited value of EV data on a fixed price order and the significant 
cost and schedule impact associated with delaying award of the long 
lead material order, we take exception to the provision of the 
recommendation associated with requiring the surveillance prior to 
award of the long lead material order. We will have the surveillance in 
place prior to the award for production of NSC #4. 

We thank you for considering our comments on these very important 
issues. We look forward to working with the GAO on future homeland 
security issues. 

Sincerely, 

Signed by: 

Penelope G. McCormack: 
Acting Director: 
Departmental GAO/OIG Audit Liaison Office: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

John Hutton, (202) 512-4841 or huttonj@gao.gov: 

Acknowledgments: 

In addition to the individual named above, Michele Mackin, Assistant 
Director; J. Kristopher Keener; Martin G. Campbell; Maura Hardy; Angie 
Nichols-Friedman; Scott Purdy; Kelly Richburg; Raffaele Roffo; Sylvia 
Schatz; and Tatiana Winger made key contributions to this report. 

[End of section] 

GAO Products Related to the Deepwater Program: 

[End of section] 

Status of Selected Aspects of the Coast Guard's Deepwater Program. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-270R] (Washington, 
D.C.: Mar. 11, 2008). 

Coast Guard: Deepwater Program Management Initiatives and Key Homeland 
Security Missions. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-
531T] (Washington, D.C.: Mar. 5, 2008). 

Coast Guard: Challenges Affecting Deepwater Asset Deployment and 
Management and Efforts to Address Them. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-874] (Washington, D.C.: June 
18, 2007). 

Coast Guard: Status of Efforts to Improve Deepwater Program Management 
and Address Operational Challenges. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-07-575T] (Washington, D.C.: Mar. 8, 2007). 

Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?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. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?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. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-757] 
(Washington, D.C.: July 22, 2005). 

Coast Guard: Preliminary Observations on the Condition of Deepwater 
Legacy Assets and Acquisition Management Challenges. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-05-651T] (Washington, D.C.: June 
21, 2005). 

Coast Guard: Deepwater Program Acquisition Schedule Update Needed. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-695] (Washington, 
D.C.: June 14, 2004). 

Contract Management: Coast Guard's Deepwater Program Needs Increased 
Attention to Management and Contractor Oversight. [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-04-380] (Washington, D.C.: Mar. 
9, 2004). 

Coast Guard: Actions Needed to Mitigate Deepwater Project Risks. 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-659T] (Washington, 
D.C.: May 3, 2001). 

[End of section] 

Footnotes: 

[1] GAO, Status of Selected Aspects of the Coast Guard's Deepwater 
Program, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-270R] 
(Washington, D.C.: Mar. 11, 2008). 

[2] GAO, Defense Acquisitions: Assessments of Selected Weapons 
Programs, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-467SP] 
(Washington, D.C.: Mar. 31, 2008). 

[3] Appendix II lists selected surface and air assets currently being 
planned and procured for Deepwater as well as their status. 

[4] GAO, Defense Acquisitions: Role of Lead Systems Integrator on 
Future Combat Systems Program Poses Oversight Challenges, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-07-380] (Washington, D.C.: June 
6, 2007). 

[5] The issue pertained to the ship's expected 30-year service life as 
it related to fatigue. Fatigue is physical weakening because of age, 
stress, or vibration. A U.S. Navy analysis done for the Coast Guard 
determined that the ship's design was unlikely to meet fatigue life 
expectations. The Coast Guard ultimately decided to correct the 
structural deficiencies for the first two NSCs at scheduled points 
after construction is completed to avoid stopping the production lines 
and to incorporate structural enhancements into the design and 
production for future ships. 

[6] GAO, Defense Acquisitions: Assessments of Selected Weapons 
Programs, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-467SP] 
(Washington, D.C.: Mar. 31, 2008). 

[7] GAO, Defense Contracting: Army Case Study Delineates Concerns with 
Use of Contractors as Contract Specialists, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-360] (Washington, D.C.: Mar. 
26, 2008). 

[8] The MSAM defines an Acquisition Program Baseline (APB) cost breach 
as occurring when the total acquisition cost (the most probable cost, 
including procurement, system, and "fly-away" costs) increases by more 
than 8 percent and an APB schedule breach as occurring when the 
schedule performance parameters have slipped by more than 180 days. 

[9] For more information on the FRC see appendix II. Also see GAO, 
Status of Selected Aspects of the Coast Guard's Deepwater Program, 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-270R] (Washington, 
D.C.: Mar. 11, 2008) 

[10] An "architecture" is the structure of components, their 
interrelationships, and the principle guidelines governing their design 
and evolution over time. 

[11] GAO, Homeland Security: Successes and Challenges in DHS's Efforts 
to Create an Effective Acquisition Organization, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-05-179] (Washington, D.C.: Mar. 
29, 2005). 

[12] We are currently conducting work on DHS' investment review process 
and will release our findings later this year. 

[13] A threshold is the minimum value necessary to satisfy a 
requirement. A requirement's objective is a measurable, cost-effective 
value greater than the threshold. In some cases, the threshold and 
objective are the same. 

[14] This increase includes $185,447 paid to ICGS for a revised 
proposal. 

[15] According to Coast Guard officials, DHS is now only recognizing 
validation of an earned value management system from DCMA. Therefore, 
the Navy's certification letter is no longer valid. 

[16] GAO, Status of Selected Aspects of the Coast Guard's Deepwater 
Program, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-270R] 
(Washington, D.C.: Mar. 11, 2008). 

[17] GAO, Coast Guard: Deepwater Program Management Initiatives and Key 
Homeland Security Missions, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-531T] (Washington, D.C.: Mar. 5, 2008). 

[18] The relevant DOD reports are GAO, Defense Contracting: Army Case 
Study Delineates Concerns with Use of Contractors as Contract 
Specialists, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-360] 
(Washington, D.C.: Mar. 26, 2008) and GAO, Defense Acquisitions: 
Assessments of Selected Weapons Programs, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-467SP] (Washington, D.C.: Mar. 
31, 2008). Appendix III lists our reports on Deepwater. 

[End of section] 

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