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Testimony: 

Before the Subcommittee on Oceans, Atmosphere, Fisheries, and Coast 
Guard, Committee on Commerce, Science and Transportation, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 2:30 p.m. EST: 

Wednesday, February 14, 2007: 

Coast Guard: 

Coast Guard Efforts to Improve Management and Address Operational 
Challenges in the Deepwater Program: 

Statement of Stephen L. Caldwell, Acting Director: 
Homeland Security and Justice Issues: 

GAO-07-460T: 

GAO Highlights: 

Highlights of GAO-07-460T, a testimony before the Subcommittee on 
Oceans, Atmosphere, Fisheries, and Coast Guard, Committee on Commerce, 
Science & Transportation, U.S. Senate 

Why GAO Did This Study: 

The Coast Guard’s Deepwater program is a 25-year, $24 billion plan to 
replace or modernize its fleet of vessels and aircraft. While there is 
widespread acknowledgment that many of the Coast Guard’s aging assets 
need replacement or renovation, concerns exist about the acquisition 
approach the Coast Guard adopted in launching the Deepwater program. 
From the outset, GAO has expressed concern about the risks involved 
with the Coast Guard’s acquisition strategy, and continues to review 
Deepwater program management. 

This statement discusses (1) the Coast Guard’s acquisition approach for 
the Deepwater program; (2) previous GAO recommendations to the Coast 
Guard on Deepwater, highlighting the importance of Integrated Product 
Teams; and (3) operational challenges the Coast Guard is facing because 
of performance and design problems with Deepwater patrol boats. 

What GAO Found: 

In 2001, we described the Deepwater project as “risky” due to the 
unique, untried acquisition strategy for a project of this magnitude 
within the Coast Guard. The Coast Guard used a system-of-systems 
approach to replace deteriorating assets with a single, integrated 
package of aircraft, vessels, and unmanned aerial vehicles. The Coast 
Guard also used a system integrator—which can give the contractor 
extensive involvement in requirements development, design, and source 
selection of major system and subsystem subcontractors. The Deepwater 
program is also a performance-based acquisition, meaning that it is 
structured around the results to be achieved rather than the manner in 
which the work is performed. If performance-based acquisitions are not 
appropriately planned and structured, there is an increased risk that 
the government may receive products or services that are over cost 
estimates, delivered late, and of unacceptable quality. 

GAO’s reported concerns and related recommendations in 2004 and in 
subsequent assessments in 2005 and 2006 have centered on three main 
areas: program management, contractor accountability, and cost control 
through competition. In the area of program management, GAO’s prior 
work has found that Integrated Product Teams—the Coast Guard’s primary 
tool for managing the program and overseeing the contractor— have 
struggled to carry out their missions effectively. We have ongoing work 
reviewing Deepwater implementation and contract oversight and will 
continue to monitor the Coast Guard’s implementation of our 
recommendations. 

In addition to these management issues, the Coast Guard is facing 
operational challenges because of performance and design problems with 
Deepwater patrol boats. Specifically, problems with the conversion of 
110-foot patrol boats to 123-foot patrol boats ultimately led the Coast 
Guard to suspend all normal operations of its converted 123-foot patrol 
boats on November 30, 2006; the Coast Guard is now exploring options to 
address the resulting operational gaps. In February 2006, the Coast 
Guard suspended design work on the Fast Response Cutter (FRC)—which was 
intended to replace the patrol boats—due to design risks. In moving 
forward with the FRC acquisition, the Coast Guard will end up with two 
separate classes of FRCs—an outcome that has resulted in a slippage of 
the anticipated FRC delivery date. 

What GAO Recommends: 

GAO made 11 recommendations in 2004 in the areas of management and 
oversight, contractor accountability, and cost control through 
competition. In April 2006, we reported that the Coast Guard had 
implemented five of the recommendations, had begun to address five 
other recommendations, and declined to implement one recommendation. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-460T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Stephen Caldwall at (202) 
512-9610 or caldwells@gao.gov. 

[End of section] 

Madame Chair and Members of the Subcommittee: 

Thank you for inviting me here today to discuss our reviews of the U.S. 
Coast Guard's $24 billion Deepwater program. While there is widespread 
acknowledgment that many of the Coast Guard's aging assets need 
replacement or renovation, concerns also exist about the acquisition 
approach the Coast Guard adopted in launching the Deepwater program. 
From the outset, we have expressed concern about the risks involved 
with the Coast Guard's acquisition strategy.[Footnote 1] The subsequent 
changes in the Deepwater asset mix and delivery schedules only 
increased these concerns. In 2004, we reported that well into the 
contract's second year, key components needed to manage the program and 
oversee the system integrator's performance had not been effectively 
implemented.[Footnote 2] Accordingly, we made 11 recommendations to 
address three broad areas of concern: improving program management, 
strengthening contractor accountability, and promoting cost control 
through greater competition among potential subcontractors. 

My statement today will discuss our prior work on the Coast Guard's 
Deepwater program. Specifically, I will discuss: 

* the Coast Guard's acquisition approach for the Deepwater program; 

* previous GAO recommendations to the Coast Guard on Deepwater, 
highlighting the importance of Integrated Product Teams; and: 

* operational challenges the Coast Guard is facing because of 
performance and design problems with Deepwater patrol boats. 

This testimony is based on our prior work on the Deepwater program. 
That work was conducted in accordance with generally accepted 
government auditing standards. We have ongoing work across all of the 
issues discussed in this statement. 

Summary: 

In 2001, we described the Deepwater program as "risky" due to the 
unique, untried acquisition strategy for a project of this magnitude 
within the Coast Guard. The Coast Guard used a system-of-systems 
approach to replace deteriorating assets with a single, integrated 
package of aircraft, vessels, and unmanned aerial vehicles, to be 
linked through systems that provide command, control, communications, 
computer, intelligence, surveillance, and reconnaissance (C4ISR), and 
supporting logistics. In a system-of-systems, the delivery of Deepwater 
assets are interdependent, thus schedule slippages and uncertainties 
associated with potential changes in the design and capabilities of any 
one asset could increase the overall risks that the Coast Guard might 
not meet its expanded homeland security performance requirements within 
given budget parameters and milestone dates. The Coast Guard also used 
a system integrator--which can give the contractor extensive 
involvement in requirements development, design, and source selection 
of major system and subsystem subcontractors. The Deepwater program is 
also a performance-based acquisition, meaning that it is structured 
around the results to be achieved rather than the manner in which the 
work is performed. If performance-based acquisitions are not 
appropriately planned and structured, there is an increased risk that 
the government may receive products or services that are over cost 
estimates, delivered late, and of unacceptable quality. 

Our reported concerns and related recommendations in 2004 and in 
subsequent assessments in 2005 and 2006 have centered on three main 
areas: program management, contractor accountability, and cost control 
through competition. In the area of program management, among other 
things, our prior work has found that Integrated Product Teams (IPTs)-
-the Coast Guard's primary tool for managing the program and overseeing 
the contractor--have struggled to effectively carry out their missions. 
We recommended that, among other things, Coast Guard improve the IPTs 
by initiating actions to establish timely charters and training. In 
terms of contractor accountability, in 2004 we found that the Coast 
Guard had not developed quantifiable metrics to hold the system 
integrator accountable for its ongoing performance, the process by 
which the Coast Guard assessed performance after the first year of the 
contract lacked rigor, and the Coast Guard had not begun to measure the 
system integrator's performance on the three overarching goals of the 
Deepwater program--maximizing operational effectiveness, minimizing 
total ownership costs, and satisfying the customer. Thus, one 
recommendation we made for improving contractor accountability was to 
devise a time frame for measuring the contractor's progress toward 
improving operational effectiveness. We also reported in 2004 that, 
although competition among subcontractors was a key vehicle for 
controlling costs, the Coast Guard had neither measured the extent of 
competition among the suppliers of Deepwater assets nor held the system 
integrator accountable for taking steps to achieve competition. 
Consequently, we recommended that Coast Guard develop a plan to hold 
the contractor accountable for ensuring adequate competition among 
suppliers. While we recognize that the Coast Guard has taken steps to 
address our findings and recommendations, aspects of the Deepwater 
program will require continued attention. 

In addition to the Deepwater program management issues discussed above, 
the Coast Guard is facing operational challenges because of performance 
and design problems with Deepwater patrol boats. Specifically, the 
conversion of legacy 110-foot patrol boats to upgraded 123-foot patrol 
boats was stopped at eight hulls (rather than the entire fleet of 49) 
due to deck cracking, hull buckling, and shaft alignment problems. 
These patrol boat conversion problems ultimately led the Coast Guard to 
suspend all normal operations of the eight converted 123-foot patrol 
boats on November 30, 2006. The Coast Guard is now exploring options to 
address the resulting short-term operational gaps. There have also been 
design problems with the new Fast Response Cutter (FRC), intended to 
replace all 110-foot and 123-foot patrol boats. In February 2006, the 
Coast Guard suspended design work on the FRC due to design risks such 
as excessive weight and horsepower requirements.[Footnote 3] In moving 
forward with the FRC acquisition as planned, the Coast Guard will end 
up having to operate two classes of FRCs--which has resulted in a 
slippage of the anticipated FRC delivery date. One class will be based 
on an adapted design from a patrol boat already on the market and 
another class that would be redesigned to address the problems in the 
original FRC design plans. Thus, the Coast Guard is also facing longer- 
term operational gaps related to its patrol boats. As with the 123-foot 
patrol boats, the Coast Guard is looking at options to address these 
long-term operational gaps. 

Background: 

For about a decade, the Coast Guard has been developing an Integrated 
Deepwater System (or Deepwater) acquisition program, a long-term plan 
to replace or modernize is fleet of vessels and aircraft. Many of these 
legacy assets are at or approaching the end of their estimated service 
lives. Deepwater is the largest and most complex acquisition project in 
the Coast Guard's history. The acquisition is scheduled to include the 
modernization and replacement of an aging fleet of over 90 cutters and 
200 aircraft used for missions that generally occur beyond 50 miles 
from the shore. As originally conceived, Deepwater was designed around 
producing aircraft and vessels that would function in the Coast Guard's 
traditional at-sea roles, such as interdicting illicit drug shipments 
or rescuing mariners from difficulty at sea. 

After the terrorist attacks on September 11, 2001, however, these 
aircraft and vessels began taking on additional missions related to 
protection of ports, waterways, and coastal areas. As a result, the 
Coast Guard began revising the Deepwater implementation plan to provide 
replacement assets that could better address these added 
responsibilities. In August 2005, the Coast Guard issued the revised 
Deepwater implementation plan detailing the assets it planned to modify 
or acquire, along with the proposed cost sand schedules for doing so. 
Then, in February 2006, the Coast Guard again updated its Deepwater 
plan to align with its fiscal year 2007 budget submissions. The revised 
plan increased overall program costs from the original estimate of $17 
billion to $24 billion. Overall, the acquisition schedule was 
lengthened by 5 years, with the final assets now scheduled for delivery 
in 2027.[Footnote 4] 

Coast Guard's Acquisition Approach to Deepwater Program: 

In 2001, we described the Deepwater program as "risky" due to the 
unique, untried acquisition strategy for a project of this magnitude 
within the Coast Guard. The approach included the development of a 
system-of-systems, a single system integrator, and a performance-based 
contract. 

System of Systems: 

Rather than using the traditional approach of replacing classes of 
ships or aircraft through a series of individual acquisitions, the 
Coast Guard chose to use a system-of-systems acquisition strategy that 
would replace its deteriorating assets with a single, integrated 
package of aircraft, vessels, and unmanned aerial vehicles, to be 
linked through systems that provide C4ISR,[Footnote 5] and supporting 
logistics. Through this approach, the Coast Guard hoped to avoid 
"stovepiping" the acquisition of vessels and aircraft, which might lead 
to a situation where they could not operate optimally together. 

Our past work on Deepwater noted that decisions on air assets were made 
by one subcontractor, while decisions regarding surface assets were 
made by another subcontractor. This approach can lessen the likelihood 
that a system-of-systems outcome will be achieved if decisions 
affecting the entire program are made without the full consultation of 
all parties involved. Our more recent work on the Fast Response Cutter 
(FRC)--which is discussed in more detail later--indicated that changes 
in the design and delivery date for the FRC could affect the operations 
of the overall system-of-systems approach. Because the delivery of 
Deepwater assets are interdependent within the system-of-systems 
acquisition approach, schedule slippages and uncertainties associated 
with potential changes in the design and capabilities of the new assets 
have increased the risks that the Coast Guard may not meet its expanded 
homeland security performance requirements within given budget 
parameters and milestone dates. 

System Integrator: 

In June 2002, the Coast Guard awarded the Deepwater contract to 
Integrated Coast Guard Systems (ICGS). ICGS--a business entity jointly 
owned by Northrop Grumman and Lockheed Martin--is a system integrator, 
responsible for designing, constructing, deploying, supporting, and 
integrating the Deepwater assets to meet Coast Guard requirements. This 
type of business arrangement can give the contractor extensive 
involvement in requirements development, design, and source selection 
of major system and subsystem subcontractors. This management approach 
of using a system integrator has been used on other government programs 
that require system-of-systems integration, such as the Army's Future 
Combat System, a networked family of weapons and other systems. 

Government agencies have turned to the system integrator approach when 
they believe they do not have the in-house capability to design, 
develop, and manage complex acquisitions. Giving contractors more 
control and influence over the government's acquisitions in a system 
integrator role creates a potential risk that program decisions and 
products could be influenced by the financial interest of the 
contractor--which is accountable to its shareholders--which may not 
match the primary interest of the government, maximizing its return on 
taxpayer dollars. The system integrator arrangement creates an inherent 
risk, as the contractor is given more discretion to make certain 
program decisions. Along with this greater discretion comes the need 
for more government oversight and an even greater need to develop well- 
defined outcomes at the outset. 

Performance-based Acquisition: 

The Deepwater program has been designated as a performance-based 
acquisition. When buying services, federal agencies are currently 
required to employ--to the maximum extent feasible--this concept, 
wherein acquisitions are structured around the results to be achieved 
as opposed to the manner in which the work is to be performed. That is, 
the government specifies the outcome it requires while leaving the 
contractor to propose decisions about how it will achieve that outcome. 
Performance-based contracts for services are required to include a 
performance work statement; measurable performance standards (i.e., in 
terms of quality, timeliness, quantity, etc.) as well as the method of 
assessing contractor performance against these standards; and 
performance incentives, where appropriate. If performance-based 
acquisitions are not appropriately planned and structured, there is an 
increased risk that the government may receive products or services 
that are over cost estimates, delivered late, and of unacceptable 
quality. 

Deepwater Indicative of Broader, Systemic Acquisition Challenges: 

Some of the problems the Coast Guard is experiencing with the Deepwater 
program (as discussed later in this statement), in principle, are 
indicative of broader and systemic challenges we have identified for 
complex, developmental systems. These challenges, based mostly on our 
reviews of Department of Defense programs, include: 

* Program requirements that are set at unrealistic levels, then changed 
frequently as recognition sets in that they cannot be achieved. As a 
result, too much time passes; threats may change; and/or members of the 
user and acquisition communities may simply change their minds. The 
resulting program instability causes cost escalation, schedule delays, 
fewer quantities, and reduced contractor accountability. 

* Program decisions to move into design and production are made without 
adequate standards or knowledge. 

* Contracts, especially service contracts, often do not have measures 
in place at the outset in order to control costs and facilitate 
accountability. 

* Contracts typically do not accurately reflect the complexity of 
projects or appropriately allocate risk between the contractors and the 
taxpayers. 

* The acquisition workforce faces serious challenges (e.g., size, 
skills, knowledge, and succession planning). 

* Incentive and award fees are often paid based on contractor attitudes 
and efforts versus positive results, such as cost, quality, and 
schedule. 

* Inadequate government oversight results in little to no 
accountability for recurring and systemic problems. 

Previous GAO Recommendations Have Focused on Three Areas: 

Our assessment of the Deepwater program in 2004 found that the Coast 
Guard had not effectively managed the program or overseen the system 
integrator.[Footnote 6] We specifically made 11 recommendations to the 
Coast Guard, which can found at Table 1 on page 12. Our reported 
concerns in 2004 and in subsequent assessments in 2005 and 2006 have 
centered on three main areas: program management, contractor 
accountability, and cost control through competition. Each of these 
three areas is discussed in more detail below. 

While we recognize that the Coast Guard has taken steps to address our 
findings and recommendations, aspects of the Deepwater program will 
require continued attention. A project of this magnitude will likely 
continue to experience other problems as more becomes known. We have 
ongoing work to monitor and evaluate the Coast Guard's efforts. 

Program Management and the Importance of Integrated Product Teams: 

Our previous work and recommendations were based on concerns about the 
Coast Guard's program management. For example, we reported in 2004 that 
the Coast Guard had not adequately communicated to its operational 
personnel decisions on how new and old assets would be integrated and 
how maintenance responsibilities would be divided between government 
and contractor personnel. We also found that the Coast Guard had not 
adequately staffed its program management function. Despite some 
actions taken to more fully staff the Deepwater program, we reported 
that in January 2005 shortfalls remained. While 244 positions were 
assigned to the program, only 206 were filled, resulting in a 16 
percent vacancy rate. 

One of the key program management concerns we had, and one that is 
worth highlighting, is the effectiveness of IPTs. IPTs are the Coast 
Guard's primary tool for managing the Deepwater program and overseeing 
the system integrator. Our past work has found that IPTs can improve 
both the speed and quality of the decision-making process.[Footnote 7] 
They can make decisions involving significant trade-offs without 
relying unduly on other organizations for information or approval. In 
our prior work, we studied successful IPTs in commercial firms and 
found that effective teams have (1) expertise to master different 
facets of product development, (2) responsibility for day-to-day 
decisions and product delivery, (3) key members who are either 
physically colocated or connected through virtual means to facilitate 
team cohesion and the ability to share information, and (4) control 
over their membership, with membership changes driven by each team's 
need for different knowledge. 

We identified two elements as essential to determining whether a team 
is in fact an IPT: the knowledge and authority needed to recognize 
problems and make cross-cutting decisions expeditiously. Knowledge is 
sufficient when the team has the right mix of expertise to master the 
different facets of product development. Authority is present when the 
team is responsible for making both day-to-day decisions and delivering 
the product. If the programs are experiencing problems, the teams 
either did not have the authority or the right mix of expertise to be 
considered IPTs. If a team lacks expertise, it will miss opportunities 
to recognize potential problems early; without authority, it can do 
little about them. 

The Deepwater IPTs--comprised of Coast Guard, ICGS, and subcontractor 
employees from Lockheed Martin and Northrop Grumman--are responsible 
for overall program planning and management, asset integration, and 
overseeing the delivery of specific Deepwater assets. We reported in 
2004 that the teams had struggled to effectively carry out their 
missions. We identified four major issues that had impeded the 
effective performance of the IPTs. 

* First, the teams lacked timely charters to vest them with authority 
for decision making. More than merely a paperwork exercise, sound IPT 
charters are critical because they detail each team's purpose, 
membership, performance goals, authority, responsibility, 
accountability, and relationships with other groups, resources, and 
schedules. 

* Second, the system integrator had difficulty training IPT members in 
time to ensure that they could effectively carry out their duties, and 
program officials referred to IPT training as deficient. IPT training 
is to address, among other issues, developing team goals and 
objectives, key processes, use of a Web-based system intended to 
facilitate communication, and team rules of behavior. According to a 
Coast Guard evaluation report from December 2002, IPT training had been 
implemented late, which contributed to a lack of effective 
collaboration among team members. 

* Third, very few of the operating IPTs were entirely colocated, (that 
is, all members were not in the same building) even though the Coast 
Guard's Deepwater program management plan identified colocation of IPT 
members as a key program success factor, along with effective 
communications within and among teams. ICGS developed a Web-based 
system for government and contractor employees to regularly access and 
update technical delivery task order [Footnote 8] information, training 
materials, and other program information, in part to mitigate the 
challenges of having team members in multiple locations. However, the 
Deepwater program executive officer reported that, while the system had 
great potential, it was a long way from becoming the virtual enterprise 
and collaborative environment required by the contractor's statement of 
work. 

* Fourth, we reported that most of the Deepwater IPTs had experienced 
membership turnover and staffing difficulties, resulting in a loss of 
team knowledge, overbooked schedules, and crisis management. In a few 
instances, such as the national security cutter and maritime patrol 
aircraft, even the IPT leadership had changed. 

In 2005, we found that the Coast Guard had taken some positive steps in 
that (1) the IPTs had been restructured, (2) 20 IPTs had charters 
setting forth their purpose, authority, and performance goals, and (3) 
entry-level training had been implemented for team members. However, 
some of the problems continued. A Coast Guard assessment of the system 
integrator's performance found that roles and responsibilities in some 
teams continued to be unclear. Decision making was to a large extent 
stove-piped, and some teams lacked adequate authority to make decisions 
within their realm of responsibility. One source of difficulty for some 
team members was that each of the two major subcontractors has used its 
own management systems and processes to manage different segments of 
the program. 

In 2005, we also noted that decisions on air assets were made by 
Lockheed Martin, while decisions regarding surface assets were made by 
Northrop Grumman. We reported that this approach can lessen the 
likelihood that a system-of-systems outcome will be achieved if 
decisions affecting the entire program are made without the full 
consultation of all parties involved. In 2006, we reported that Coast 
Guard officials believed collaboration among the subcontractors to be 
problematic and that ICGS wielded little influence to compel decisions 
among them. For example, when dealing with proposed design changes to 
assets under construction, ICGS submitted the changes as two separate 
proposals from both subcontractors rather than coordinating the 
separate proposals into one coherent plan. According to Coast Guard 
performance monitors, this approach complicates the government review 
of design changes because the two proposals often carried overlapping 
work items, thereby forcing the Coast Guard to act as the system 
integrator in those situations. 

Contractor Accountability: 

In 2004, we also made recommendations related to contractor 
accountability. We found that the Coast Guard had not developed 
quantifiable metrics to hold the system integrator accountable for its 
ongoing performance and that the process by which the Coast Guard 
assessed performance after the first year of the contract lacked rigor. 
For example, the first annual award fee determination was based largely 
on unsupported calculations. Despite documented problems in schedule, 
performance, cost control, and contract administration throughout the 
first year, the program executive officer awarded the contractor an 
overall rating of 87 percent, which fell in the "very good" range. This 
rating resulted in an award fee of $4.0 million of the maximum of $4.6 
million. 

We also reported in 2004 that the Coast Guard had not begun to measure 
the system integrator's performance on the three overarching goals of 
the Deepwater program--maximizing operational effectiveness, minimizing 
total ownership costs, and satisfying the customers. Coast Guard 
officials told us that metrics for measuring these objectives had not 
been finalized; therefore the officials could not accurately assess the 
contractor's performance against the goals. However, at the time, the 
Coast Guard had no time frame in which to accomplish this measurement. 

Cost Control through Competition: 

Further, our 2004 report had recommendations related to cost control. 
We reported that, although competition among subcontractors was a key 
vehicle for controlling costs, the Coast Guard had neither measured the 
extent of competition among the suppliers of Deepwater assets nor held 
the system integrator accountable for taking steps to achieve 
competition.[Footnote 9] As the two major subcontractors to ICGS, 
Lockheed Martin and Northrop Grumman have sole responsibility for 
determining whether to provide the Deepwater assets themselves or to 
hold competitions--decisions commonly referred to as "make or buy." We 
noted that the Coast Guard's hands-off approach to make-or-buy 
decisions and its failure to assess the extent of competition raised 
questions about whether the government would be able to control 
Deepwater program costs. 

Coast Guard Efforts Related to GAO Recommendations: 

We made 11 recommendations in 2004 in the areas of management and 
oversight, contractor accountability, and cost control through 
competition. Table 1 provides details on these recommendations. 

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

Areas of concern: Key components of management and oversight are not 
effectively implemented; 
Recommendations to the U.S. Coast Guard: Put in place a human capital 
plan to ensure adequate staffing of the Deepwater program; 
Recommendation status: Implemented. 


Areas of concern: Key components of management and oversight are not 
effectively implemented; 
Recommendations to the U.S. Coast Guard: Improve integrated product 
teams (IPTs) responsible for managing the program by providing better 
training, approving charters for sub-IPTs, and improving systems for 
sharing information between teams; 
Recommendation status: Partially implemented. 


Areas of concern: Key components of management and oversight are not 
effectively implemented; 
Recommendations to the U.S. Coast Guard: Provide field operators and 
maintenance personnel with timely information and training on how the 
transition to Deepwater assets will occur and how maintenance 
responsibilities are to be divided between the system integrator and 
Coast Guard personnel; 
Recommendation status: Partially implemented. 

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


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

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

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

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

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

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

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

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

[End of table] 

In April 2006, we reported that the Coast Guard had implemented five of 
the recommendations. Actions had been taken to: 

* revise the Deepwater human capital plan; 

* develop measurable award fee criteria; 

* implement a more rigorous method of obtaining input from Coast Guard 
monitors on the contractor's performance; 

* include in the contractor's performance measures actions taken to 
improve the integrated product teams' effectiveness; and: 

* require the contractor to notify the Coast Guard of subcontracts over 
$10 million that were awarded to the two major subcontractors.[Footnote 
10] 

The Coast Guard had begun to address five other recommendations by: 

* initiating actions to establish charters and training for integrated 
product teams; 

* improving communications with field personnel regarding the 
transition to Deepwater assets; 

* devising a time frame for measuring the contractor's progress toward 
improving operational effectiveness; 

* establishing criteria to determine when to adjust the project 
baseline; and: 

* developing a plan to hold the contractor accountable for ensuring 
adequate competition among suppliers. 

In our April 2006 report, we determined that, based on our work, these 
recommendations had not been fully implemented. 

The Coast Guard disagreed with and declined to implement one of our 11 
recommendations: to establish a baseline to determine whether the 
system-of-systems acquisition approach is costing the government more 
than the traditional asset replacement approach. 

We will continue to review Deepwater implementation and contract 
oversight. We are currently reviewing aspects of the Deepwater program 
for the House and Senate Appropriations Committees' Subcommittees on 
Homeland Security.[Footnote 11] As part of that effort, we will review 
the status of the Coast Guard's implementation of our 2004 
recommendations on Deepwater contract management for improving 
Deepwater program management, holding the prime contractor accountable 
for meeting key program goals and facilitating cost control through 
competition. We will share our results with those committees in April 
of this year. 

Performance and Design Problems Creating Operational Challenges for 
Coast Guard: 

In addition to overall management issues discussed above, there have 
been problems with the performance and design of Deepwater patrol boats 
that pose significant operational challenges to the Coast Guard. 

Performance Problems with the Converted 123-Foot Patrol Boats: 

The Deepwater program's conversion of the legacy 110-foot patrol boats 
to 123-foot patrol boats has encountered performance problems. The 
Coast Guard had originally intended to convert all 49 of its 110-foot 
patrol boats into 123-foot patrol boats in order to increase the patrol 
boats' annual operational hours. This conversion program was also 
intended to add additional capability to the patrol boats, such as 
enhanced and improved C4ISR capabilities, as well as stern launch and 
recovery capability for a small boat. However, the converted 123-foot 
patrol boats began to display deck cracking and hull buckling and 
developed shaft alignment problems, and the Coast Guard elected to stop 
the conversion process at eight hulls upon determining that the 
converted patrol boats would not meet their expanded post-9/11 
operational requirements. 

The performance problems illustrated above have clear operational 
consequences for the Coast Guard. The hull performance problems with 
the 123-foot patrol boats led the Coast Guard to remove all of the 
eight converted normal 123-foot patrol boats from service effective 
November 30, 2006. The Commandant of the Coast Guard has stated that 
having reliable, safe cutters is "paramount" to executing the Coast 
Guard's missions.[Footnote 12] Thus, removing these patrol boats from 
service impacts Coast Guard's operations in its missions, such as 
search and rescue and migrant interdiction. The Coast Guard is 
exploring options to address operational gaps resulting from the 
suspension of the 123-foot patrol boat operations. 

Design Problems with the Fast Response Cutter: 

The FRC--which was intended as a long-term replacement for the legacy 
110-foot patrol boats--has experienced design problems that have 
operational implications. As we recently reported, the Coast Guard 
suspended design work on the FRC due to design risks such as excessive 
weight and horsepower requirements.[Footnote 13] Coast Guard engineers 
raised concerns about the viability of the FRC design (which involved 
building the FRC's hull, decks, and bulkheads out of composite 
materials rather than steel) beginning in January 2005. In February 
2006, the Coast Guard suspended FRC design work after an independent 
design review by third-party consultants demonstrated, among other 
things, that the FRC would be far heavier and less efficient than a 
typical patrol boat of similar length, in part, because it would need 
four engines to meet Coast Guard speed requirements. 

One operational challenge related to the FRC, is that the Coast Guard 
will end up with two classes of FRCs. The first class of FRCs to be 
built would be based on an adapted design from a patrol boat already on 
the market to expedite delivery. The Coast Guard would then pursue 
development of a follow-on class that would be completely redesigned to 
address the problems in the original FRC design plans. Coast Guard 
officials now estimate that the first FRC delivery will slip to fiscal 
year 2009, at the earliest, rather than 2007 as outlined in the 2005 
Revised Deepwater Implementation Plan. Thus, the Coast Guard is also 
facing longer-term operational gaps related to its patrol boats. In 
regard to the suspension of FRC design work, as of our June 2006 
report, Coast Guard officials had not yet determined how changes in the 
design and delivery date for the FRC would affect the operations of the 
overall system-of-systems approach. 

We will continue to review Coast Guard operational challenges related 
to Deepwater patrol boats. Our ongoing work for the House and Senate 
Appropriations Committees' Subcommittees on Homeland Security includes 
a review of the history of the contract, design, fielding, and 
grounding of the converted 123-foot patrol boats and operational 
adjustments the Coast Guard is making to account for the removal from 
service of the 123-foot patrol boats. 

Madame Chair, that concludes my statement. I would be happy to respond 
to any questions you or other Members of the Subcommittee may have at 
this time. 

Contacts and Acknowledgements: 

For information about this testimony, contact Stephen L. Caldwell at 
(202) 512-9610 or John Hutton at (202) 512-4841. Other individuals 
making key contributions to this testimony include Michele Mackin, 
Christopher Conrad, and Adam Couvillion. 

FOOTNOTES 

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

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

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

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

[5] C4ISR refers to command, control, communications, computer, 
intelligence, surveillance, and reconnaissance. 

[6] GAO-04-380 . 

[7] GAO, Best Practices: DOD Teaming Practices Not Achieving Potential 
Results, GAO-01-510 (Washington, D.C.: April 10, 2001). 

[8] In the context of the Deepwater contract, the Coast Guard considers 
delivery task orders as orders for supplies or services placed against 
the contract. 

[9] GAO-04-380. 

[10] Our 2004 recommendation was to use a $5 million threshold because 
Lockheed Martin, one of the major subcontractors, uses that amount as 
the threshold for considering its suppliers major. The Coast Guard 
decided to use the $10 million threshold based on the criteria in the 
make-or-buy program provisions of the Federal Acquisition Regulation. 

[11] This work is based on Conference Committee Report language (H.R. 
Conf. Rep. No. 109-699, at 113 (2006)) incorporating GAO reporting 
provisions contained in a House Appropriations Committee Report (H.R. 
Rep. No. 109-476, at 64 (2006)). 

[12] U.S. Coast Guard, Office of Public Affairs, Coast Guard Suspends 
Converted Patrol Boat Operations, November 30, 2006,. 

[13] GAO-06-764. 

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