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GAO Highlights:

Highlights of GAO-07-874, a report to Subcommittees on Homeland 
Security, House and Senate Committees on Appropriations. 

Why GAO Did This Study:

The U.S. Coast Guard’s Deepwater program was designed to replace aging 
vessels and aircraft and information capabilities with new and upgraded 
assets and equipment. GAO’s prior work raised concerns about the Coast
Guard’s efforts to upgrade or acquire assets on schedule and manage the 
Deepwater prime contractor. 

This report responds to congressional direction contained in a 
conference report accompanying the Department of Homeland Security DHS) 
fiscal year 2007 appropriations bill. GAO addressed two objectives: (1) 
What is the status of key Deepwater assets and how is the Coast Guard 
addressing any asset-related challenges that have been encountered? (2) 
What is the status of the Coast Guard’s overall management of the 
Deepwater contract? 

GAO’s work is based on reports, memorandums, and data on the plans and 
management of the Deepwater program and interviews with key officials. 
GAO is not making any new recommendations. DHS and the Coast Guard 
reviewed a draft of this report and concurred with our findings. Their 
formal comments appear in appendix IV.

What GAO Found:

Five years into the Deepwater contract, some assets have been delivered 
and are undergoing planned improvements or initial testing, but several 
other assets have encountered significant problems. For example, engine 
upgrades to the HH-65 helicopters are well under way; and the first two 
Maritime Patrol Aircraft and the first eight Short Range Prosecutor 
cutterbased small patrol boats have been delivered according to 
schedule. In contrast, other Deepwater assets have experienced 
problems, which have created a number of challenges for the Coast Guard 
in terms of delivery delays and loss of operational capabilities. For 
example, the Vertical Takeoff and Landing Unmanned Aerial Vehicle has 
experienced delays as the Coast Guard assesses alternatives; the Fast 
Response Cutter, which was to replace the Coast Guard’s legacy patrol 
boat fleet, experienced design problems and the Coast Guard suspended 
all work, and the first two hulls of the National Security Cutter have 
structural design issues that, if not corrected, will reduce the 
fatigue lives of these vessels. To address these and other challenges, 
the Coast Guard is taking a variety of actions, such as relying more 
heavily on legacy assets to help address patrol hour shortages, making 
plans to purchase off-the-shelf assets to expedite delivery, and 
planning corrective structural modifications.

Over the past several years, GAO has expressed concerns about the Coast 
Guard’s ability to manage and oversee the Deepwater program. 
Specifically, the program has faced challenges in terms of management, 
contractor accountability, and cost control. While the Coast Guard has 
taken actions since 2004 in response to these concerns, challenges 
remain. As a result, the Coast Guard recently decided to become more 
directly involved in program management and has chosen to (1) take over 
the leadership of the integrated product teams—a key program management 
tool; (2) acquire certain Deepwater assets outside of the existing 
Deepwater contract; (3) use independent, third-party reviews for asset 
development; and (4) reorganize the Deepwater acquisition functions 
within the Coast Guard organization. Given the Coast Guard’s increased 
role, having sufficient staff with the requisite skills and abilities 
to execute new and expanding responsibilities will be important to 
getting what is needed, on time, and at a fair price. 

Figure: Deepwater Vessel and Aircraft Classes: 

Pictures of the following ten vessels and aircraft:

National Security Cutter (NSC):
Offshore Patrol Cutter (OPC): 
Fast Response Cutter (FRC):
Short-Range Prosecutor (SRP):
Long-Range Interceptor (LRI):
HH-65 Multi-Mission Cutter Helicopter (MCH):
HH-60 Medium-Range Recovery Helicopter (MRR): 
Maritime Patrol Aircraft (MPA): 
Vertical Takeoff and Landing Unmanned Aerial Vehicle (VUAV): 
Long-Range Surveillance Aircraft (LRS): 

Source: Photos used by permission of the U.S. Coast Guard.

[See PDF for image]

[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-874].

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Stephen L. Caldwell at 
(202) 512-9610 or caldwells@gao.gov; or John P. Hutton at (202) 512-
7773 or huttonj@gao.gov.

[End of section]

United States Government Accountability Office: 
GAO: 

Report to the Subcommittees on Homeland Security, House and Senate
Committees on Appropriations: 

Coast Guard: 
Challenges Affecting Deepwater Asset Deployment and Management and 
Efforts to Address Them:

Contents: 

Letter: 

Summary: 

Concluding Observations: 

Agency Comments: 

Appendix I: Briefing Slides: 

Appendix II: Status of Deepwater Vessel and Aircraft Assets: 

Appendix III: Status of Prior GAO Recommendations: 

Appendix IV: Comments from the Department of Homeland Security: 

Appendix V: GAO Contacts and Acknowledgments; 

Related GAO Products: 

Abbreviations:

DHS: Department of Homeland Security: 
FRC: Fast Response Cutter: 
GAO: Government Accountability Office: 
ICGS: Integrated Coast Guard Systems: 
IPT: Integrated product team: 
LRI: Long-Range Interceptor: 
LRS: Long-Range Surveillance Aircraft: 
MCH: Multi-Mission Cutter Helicopter: 
MPA: Maritime Patrol Aircraft: 
MRR: Medium-Range Recovery Helicopter: 
NSC: National Security Cutter: 
OPC: Offshore Patrol Cutter: 
SRP: Short-Range Prosecutor: 
TOC: Total ownership cost: 
VUAV: Vertical Takeoff and Landing Unmanned Aerial Vehicle:

[End of section]

United States Government Accountability Office: 
Washington, DC 20548: 

June 18, 2007: 

The Honorable David E. Price: 
Chair: 
Subcommittee on Homeland Security: 
House Committee on Appropriations:

The Honorable Harold Rogers: 
Ranking Member:
Subcommittee on Homeland Security: 
House Committee on Appropriations: 

The Honorable Robert C. Byrd: 
Chair: 
Subcommittee on Homeland Security: 
Senate Committee on Appropriations: 

The Honorable Thad Cochran: 
Ranking Member: 
Subcommittee on Homeland Security: 
Senate Committee on Appropriations: 

The Coast Guard is in the midst of the largest acquisition program in 
its history—one that has experienced serious performance and management
problems. The Deepwater program is a 25-year, $24 billion plan to 
replace or modernize the Coast Guard’s fleet of vessels and aircraft 
(assets), and information management capabilities. The Coast Guard 
chose a lead system integrator to manage a “system-of-systems” approach 
intended to integrate the delivery of assets, sensors, and 
communications links to accomplish missions more effectively. Now in 
the final year of its first 5-year Deepwater contract period, the Coast 
Guard is currently negotiating contract modifications for the next 
performance period with the system integrator, Integrated Coast Guard 
Systems (ICGS). These negotiations are to be completed by June 25, 
2007. Our work reflects the status of the program before such 
negotiations were finalized. 

Since the Deepwater program’s inception, we have expressed concerns 
that the system-of-systems acquisition strategy was risky for a project 
of this magnitude within the Coast Guard. In particular, our work 
raised concerns about the Coast Guard’s efforts to upgrade or acquire 
Deepwater assets on schedule, and manage and effectively monitor the 
lead system integrator, and we made several recommendations to the 
Coast Guard to address these concerns. More recently, the Coast Guard 
announced a number of changes that are aimed at addressing these 
recommendations and other related program concerns. In addition, the 
Coast Guard has begun to take actions to hold the system integrator 
accountable for problems that have arisen with the design and 
construction of certain Deepwater assets that will affect the lead 
system integrator’s roles and responsibilities in executing the program 
moving forward. 

On May 15 and May 17, 2007, in response to congressional direction 
contained in a conference report accompanying the Department of 
Homeland Security’s Fiscal Year 2007 Appropriations bill,[Footnote 1] 
we briefed your committees on two key objectives:

(1) What is the status of key Deepwater assets and how is the Coast 
Guard addressing any asset-related challenges that have been 
encountered?
(2) What is the status of the Coast Guard’s overall management of the
Deepwater contract?

The content of our briefing, which provided examples of selected 
Deepwater vessels and aircraft that illustrate progress made with 
certain assets, as well as particular operational or management 
challenges, is contained in appendix I. Details on the status of all 10 
Deepwater asset classes are contained in appendix II. Information on 
the status of prior GAO recommendations related to this work is in 
appendix III. In addition, a list of related GAO products is provided 
at the end of the report. 

In conducting our work, we analyzed reports, memorandums, and data on 
the Coast Guard’s plans and management of the Deepwater program; 
obtained information from multiple sources, including the Department of 
Homeland Security (DHS); U.S. Coast Guard; Coast Guard Deepwater System 
Integration Program Office; the Deepwater system integrator and its 
subcontractors; and private engineering firms. We also interviewed 
officials responsible for management of the Deepwater program during 
site visits to Coast Guard headquarters, Coast Guard Deepwater Program 
Office, Deepwater System Integration Program Office, Coast Guard 
Aircraft and Supply Center, and Coast Guard Atlantic and Pacific Area 
Commands and their associated Maintenance and Logistics Commands. 

To assess the reliability of the data obtained from the Coast Guard and 
from ICGS—including but not limited to cost, schedule, and staffing 
data—we analyzed the data for errors in accuracy and completeness and 
interviewed agency officials knowledgeable about these data. We 
determined that the data were sufficiently reliable for the purposes of 
this report. Our work was conducted between July 2006 and May 2007 in 
accordance with generally accepted government auditing standards.

Summary: 

Five years into the Deepwater contract, some assets have been delivered 
[Footnote 2] and are undergoing planned improvements or initial 
testing, but several other assets have encountered significant 
problems. For example, engine upgrades to the HH-65 helicopters are 
well underway, the first two Maritime Patrol Aircraft have been 
delivered, and eight Short-Range Prosecutor cutter-based small patrol 
boats have been delivered according to schedule. In contrast, other 
Deepwater assets have experienced problems, which have created a number 
of challenges for the Coast Guard in terms of delivery delays and loss 
of operational capabilities. The Vertical Takeoff and Landing Unmanned 
Aerial Vehicle (VUAV) has experienced delays as the Coast Guard 
assesses alternatives; the 123-foot patrol boats experienced structural 
problems and were eventually removed from service; and the Fast 
Response Cutter (FRC), which was to replace the Coast Guard’s legacy 
patrol boat fleet, experienced design problems and the Coast Guard 
suspended all work. Further, the National Security Cutter (NSC) has 
structural problems with the first two hulls that, if not corrected, 
will reduce the fatigue lives of these vessels. To address these and 
other challenges, the Coast Guard is taking a variety of actions, such 
as relying more heavily on legacy assets to help address patrol hour 
shortages, making plans to purchase off-the-shelf assets to expedite 
delivery, and planning corrective structural modifications. 

Over the past several years, we have expressed concerns and made
recommendations regarding the Coast Guard’s ability to manage and
oversee the Deepwater program. Our concerns have centered on three
main areas:

* Program management: The Coast Guard had not effectively
implemented key components (e.g., integrated product teams)[Footnote 3] 
needed to manage the program and oversee the system integrator. 
* Contractor accountability: The Coast Guard had not effectively 
measured contractor performance against Deepwater program goals. 
* Cost control: Control of future costs through competition remained a 
risk because of weak oversight of subcontractor decisions related to 
competition. 

These concerns were exacerbated by staffing shortfalls and poor 
communication and collaboration between Deepwater and contractor 
personnel. Since 2004, the Coast Guard has taken some actions in 
response to these concerns and recommendations. However, challenges, 
such as inadequate staffing levels and undefined roles between the 
Coast Guard and contractor regarding maintenance and logistics support, 
remain. The Coast Guard recently decided to become more involved in 
program management. It plans to assume the lead role as system 
integrator while continuing to use the prime contractor to perform 
certain functions. Furthermore, it has decided to take other steps, 
including (1) changing the leadership and decision-making authority of 
integrated product teams, (2) using third parties to independently 
review asset development and major modifications, (3) reaffirming the 
role of the Coast Guard’s chief engineer as the technical authority for 
all acquisition projects, and (4) reorganizing Deepwater program 
acquisition functions within the Coast Guard organization to ensure 
sufficient staff with the requisite acquisition skills and abilities 
are in place. While there has been progress with the design, 
acquisition, and delivery of some Deepwater assets, problems with other 
assets raise questions about the Coast Guard’s ability to maintain an 
approach that fully integrates and synchronizes the retirement of 
legacy assets with the introduction of new assets. As problems are 
encountered and asset delivery schedules slip, the overall operational 
capabilities of new Deepwater assets and the system as a whole could be 
reduced, particularly in the shortterm. 

Concluding Observations: 

The proactive program management actions the Coast Guard recently 
announced could help get the Deepwater program on track. However, how 
the planned actions are implemented is important. Further, while the 
Coast Guard plans to assume more direct responsibility for Deepwater 
management, until it has sufficient staff with the requisite skills and 
abilities to execute new and expanding responsibilities, the Deepwater 
program will remain at risk in terms of getting what is needed, on 
time, and at a fair price.

Agency Comments: 

We requested comments on a draft of this report from the Department of 
Homeland Security and the U.S. Coast Guard. The department referred the 
draft to the U.S. Coast Guard, which concurred with our findings. The 
agency’s formal comments appear in appendix IV. 

If you or your staff have any questions concerning this report, please 
contact Stephen L. Caldwell at (202) 512-9610 or by e-mail at 
caldwells@gao.gov; or John P. Hutton at (202) 512-7773 or by e-mail at 
huttonj@gao.gov. Key contributors to this report were Penny Augustine, 
Amy Bernstein, Virginia Chanley, Christopher Conrad, Adam Couvillion, 
Kathryn Edelman, Geoffrey Hamilton, Melissa Jaynes, Crystal Jones, 
Raffaele Roffo, Sylvia Schatz, and Jonathan R. Tumin. 

Signed by: 

Stephen L. Caldwell, Director: 
Homeland Security and Justice: 

Signed by: 

John P. Hutton, Director: 
Acquisition and Sourcing Management: 

[End of section]

Appendix I: Briefing Slides: 

Coast Guard: Challenges Affecting Deepwater Asset Deployment and 
Management and Efforts to Address Them GAO briefing provided to the 
Subcommittees on Homeland Security of the House and Senate Committees 
in Appropriation. 

May 2007: 

Briefing Overview: 

* Introduction; 
* Objectives, Scope, and Methodology; 
* Results in Brief; 
* Status of Deepwater Assets; 
* Deepwater Management Structure and Organization;
- Program Management;
- Contractor Accountability;
- Cost Control;
* Concluding Observations; 
* Enclosure I: Quick Look Information on Key Deepwater Assets[a]; 
* Enclosure II: Status of GAO Recommendations to Coast Guard; 

[a] Note: Enclosure I is appendix II in this product. Enclosure II is 
appendix III in this product. This note was not in the mid-May 2007 
briefing provided to congressional requesters. 

Introduction: Deepwater Program Overview: 

* The Coast Guard Deepwater Program is a 25-year, $24 billion plan to 
replace or modernize its fleet of vessels, aircraft, and information 
management capabilities. 

* Rather than use a traditional acquisition approach to replace classes 
of vessels or aircraft, the Coast Guard chose a lead system integrator 
to manage the acquisition process, including identifying assets and 
selecting subcontractors to design, build, and integrate the assets and 
information management capabilities. The Coast Guard adopted this 
approach at that time because it did not believe it had the technical 
expertise or resources to be a systems integrator. 

* This “system-of-systems” approach was intended to create a system  
that integrates common sensors and communication links on vessels and 
aircraft to accomplish missions more effectively. 

* After the terrorist attacks of September 11, 2001, the Coast Guard 
began taking on additional homeland security missions, and so it 
revised the Deepwater implementation plan to provide a mix of assets 
that could better meet these new responsibilities. 

* Deepwater is to include acquisition of 10 new or upgraded classes of 
assets—5 major classes each of vessels and aircraft (see tables 1 and 
2). 

* The Deepwater program also consists of 5 other projects, including 
new or upgraded Command, Control, Communications, Computers, 
Intelligence, Surveillance and Reconnaissance systems.[Footnote 4] 

Introduction: Deepwater Vessels to be Acquired: 
Table 1: 

National Security Cutter (NSC)(photo included): 
Current number of assets planned: 8; 
Asset being replaced: 378-foot high-endurance cutters; 
Missions: Maritime safety; Maritime security; Protection of natural 
resources; National defense. 

Offshore Patrol Cutter (OPC)(photo included): 
Current number of assets planned: 25; 
Asset being replaced: 210-foot and 270-foot medium-endurance cutters; 
Missions: Maritime safety; Maritime security; Protection of natural 
resources; National defense. 

Fast Response Cutter (FRC)(photo included): 
Current number of assets planned: 58; 
Asset being replaced: 110-foot and 123-foot patrol boats; 
Missions: Maritime safety; Maritime security; Protection of natural 
resources; National defense. 

Short-Range Prosecutor (SRP)(photo included):
Current number of assets planned: 91; 
Asset being replaced: Cutter-based patrol boats; 
Missions: Maritime safety; Maritime security; Protection of natural 
resources; National defense. 

Long-Range Interceptor (LRI)(photo included): 
Current number of assets planned: 33; 
Asset being replaced: Cutter-based patrol boats; 
Missions: Maritime safety; Maritime security; Protection of natural 
resources; National defense. 

Source: Photos used by permission of the U.S. Coast Guard.

Deepwater Aircraft to be Upgraded or Acquired: 
Table 2: 

HH-65 Multi-Mission Cutter Helicopter (MCH)(photo included): 
Current number of assets planned: 102; 
Asset being replaced: Upgraded asset (HH-65); 
Missions: Maritime safety; Maritime security; Protection of natural 
resources; National defense. 

HH-60 Medium-Range Recovery Helicopter (MRR)(photo included): 
Current number of assets planned: 42; 
Asset being replaced: Upgraded asset (HH-60); 
Missions: Maritime safety; Maritime security; Protection of natural 
resources; National defense. 

Maritime Patrol Aircraft (MPA)(photo included): 
Current number of assets planned: 36; 
Asset being replaced: HU-25 Falcon; 
Missions: Maritime safety; Maritime security; Protection of natural 
resources. 

Vertical Takeoff and Landing Unmanned Aerial Vehicle (VUAV)(photo 
included): 
Current number of assets planned: 45; 
Asset being replaced: New asset; 
Missions: Maritime safety; Maritime security; Protection of natural 
resources; National defense. 

Long-Range Surveillance Aircraft (LRS)(photo included): 
Current number of assets planned: 22; 
Asset being replaced: Upgraded asset (HC-130); 
Missions: Maritime safety; Maritime security; Protection of natural 
resources; National defense. 

Source: Photos used by permission of the U.S. Coast Guard. 

GAO’s Prior and Current Deepwater Work: 

* GAO’s prior work raised concerns about Coast Guard’s efforts to
upgrade or acquire Deepwater assets on schedule, and manage
and effectively monitor the system integrator.[Footnote 5]

* This briefing responds to congressional direction contained in a
conference report accompanying the Department of Homeland
Security’s Fiscal Year 2007 Appropriations bill.[Footnote 6] 

Status of the Deepwater Program: 

* While the Deepwater program is a 25-year plan, it is in the final
year of the original 5-year contract period. The Coast Guard is
currently negotiating contract modifications for the next
performance period with the prime contractor, Integrated Coast
Guard Systems (ICGS). These negotiations are to be completed by
June 25, 2007. 

* The Deepwater program has experienced performance and
management problems, and the Coast Guard recently announced a
number of changes to address these problems. 

Objectives, Scope, And Methodology: 
Objectives: 

This briefing addresses two key objectives: 

* (1) What is the status of key Deepwater assets and how is
the Coast Guard addressing any asset-related challenges
that have been encountered? 

* (2) What is the status of the Coast Guard’s overall 
management of the Deepwater contract? 

Scope and Methodology:

* To address our objectives we: 
- analyzed reports, memorandums, and data on the plans, planning and 
management of the Deepwater program; 
- obtained information from multiple sources, including the Department 
of Homeland Security (DHS); U.S. Coast Guard; Coast Guard Deepwater 
System Integration Program Office; Deepwater system integrator and its 
subcontractors; and private engineering firms; 
- interviewed officials responsible for the management of the Deepwater 
program during site visits to: Coast Guard headquarters, Coast Guard 
Deepwater Program Office, Deepwater System Integration Program Office, 
Coast Guard Aircraft and Supply Center, and Coast Guard Atlantic and 
Pacific Area Commands and their associated Maintenance and Logistics 
Commands. 

* This briefing provides examples of selected Deepwater vessels and 
aircraft that illustrate progress made with certain assets as well as 
particular operational or management challenges. 

* Details on the status of all 10 Deepwater asset classes—including 
those not cited as examples—are contained in enclosure I. 

* Information on the status of prior GAO recommendations related to 
this work is in enclosure II. 

* We conducted our work between July 2006 and May 2007 in accordance 
with generally accepted government auditing standards. 

Results In Brief: 

Status of Deepwater Assets—Examples of Progress and Setbacks: 

Five years into the Deepwater contract, some assets have been 
delivered,[Footnote 7] and others are undergoing planned improvements 
or initial testing, but several other assets have encountered 
significant problems. 

* Engine upgrades to the HH-65 helicopters are well under way; the 
first two Maritime Patrol Aircraft have been delivered; and 8 of 91 
Short Range Prosecutors (SRP) have been delivered according to 
schedule. 

* In contrast, other Deepwater assets, have experienced delays, which 
have created a number of challenges for the Coast Guard in terms of 
delivery delays and loss of operational capabilities. For example, 
- The Vertical Takeoff and Landing Unmanned Aerial Vehicle (VUAV) has
experienced delays as the Coast Guard assesses alternatives. 

* The 123-foot patrol boats experienced structural problems and were 
eventually removed from service. The Fast Response Cutter (FRC), which 
was to replace the Coast Guard’s legacy patrol boat fleet, experienced 
design problems and the Coast Guard suspended all work. 

* The delivery date for the first FRC was advanced from 2018 to 2007, 
but has now slipped to 2010 at the earliest. 

* The National Security Cutter (NSC) has structural problems with the 
first two hulls that, if not corrected, will reduce the fatigue lives 
of these vessels. 

Status of Deepwater Assets—Coast Guard Challenges and Actions: 

* To address these and other challenges, the Coast Guard is taking a 
variety of actions, such as relying more heavily on legacy assets to 
help address patrol hour shortages, purchasing off-the-shelf assets to 
expedite delivery, and planning corrective structural modifications. 

* These challenges are compounded, in part, due to uncertainties with 
delivery dates that stem from the long-term nature of the program, on-
going technological advances, funding level changes, and changes to the 
Coast Guard’s management of the Deepwater program. These present 
additional challenges to the Department of Homeland Security (DHS) and 
Congress as they oversee the program and consider appropriate funding 
levels. 

Coast Guard Management of Deepwater Program is Evolving: 

* The Deepwater program has faced challenges in terms of program 
management, contractor accountability, and cost control. In some cases, 
these challenges have affected the acquisition and delivery of 
Deepwater assets. To mitigate these challenges, the Coast Guard has 
become more directly involved in program management. For example, the 
Coast Guard has decided to acquire certain Deepwater assets outside of 
the existing Deepwater contract. The Coast Guard also has taken over 
the leadership of the integrated product teams (IPT)[Footnote 8]—a key 
program management tool—and has incorporated new award fee criteria to 
provide an incentive for better contractor performance. Further, the 
Coast Guard plans to use independent, third-party reviews for asset 
development and major modifications. 

Objective 1: Status Of Deepwater Assets: 

Examples of Assets Making Progress: 

* There has been progress in terms of design, acquisition, and delivery 
for some Deepwater assets, including, for example: 
- HH-65 helicopter; 
- Maritime Patrol Aircraft (MPA); 
- Short-Range Prosecutor (SRP) cutter-based small patrol boats; 

Status Of Deepwater Assets: 
HH-65 Upgrades Proceeding as Planned:

* The current HH-65 fleet will ultimately be upgraded to a fleet of 
Multi-Mission Cutter Helicopters (MCHs) in three separate phases. 

- Phase 1 involves installation of new engines and engine control 
systems, intended to provide a 40 percent power increase; 
- According to the Coast Guard, as of April 3, 2007, 75 of the 95 HH-65s
have been re-engined; an additional 9 are to be completed by June 2007,
and the remainder are to be completed by October 2007[a]. 
- The first-in-class Multi-Mission Cutter Helicopter is currently 
scheduled for delivery in 2012. 
- Phase 2, a service-life extension program, runs from fiscal years 
2007 through 2014. 
- Phase 3, which is to include communications upgrades, runs from 
fiscal years 2008 through 2014. 

[a]Note: In its June 2007 response to the draft of this product, the 
Coast Guard stated that it had met these deadlines and that 84 of the 
HH-65s had been re-engined. This note was not in the version of the 
slides briefed in mid-May to congressional requesters. 

Status Of Deepwater Assets: 
Delivery of MPAs and SRPs Has Begun: 

MPA:
* The first two MPAs were delivered to the Coast Guard in December 2006 
and February 2007, with a third scheduled to be delivered by the end of 
August 2007. Five more MPAs are on contract. 

* Pilots and air crew have participated in training, and the first 
aircraft delivered to the Coast Guard is undergoing integration of the 
Missions System pallet at the Coast Guard’s Aircraft Repair and Supply 
Center in Elizabeth City, N.C. 

SRP: 
* The Coast Guard has procured 8 of 91 planned SRPs to date and is
pursuing more cost-effective means of acquiring the remaining SRPs. 

Status Of Deepwater Assets: 
Other Aircraft and Vessels Face Problems: 

* Some Deepwater asset classes have experienced design or
technology problems that have limited their performance or
delayed production, including, for example:
- VUAV; 
- 123-foot patrol boats; 
* FRC; 
* NSC.
 
Status Of Deepwater Assets: 
VUAV—Acquisition Has Been Delayed:

* Acquisition of the first-in-class VUAV, originally scheduled for 
delivery in 2006, has been delayed, in part, because of technological 
issues and the Coast Guard is reconsidering the capabilities by which 
to meet its aerial surveillance requirements. 
- The Eagle Eye was the original VUAV option, but there are
technological challenges:
- Some elements of the VUAV technology are unproven and the
Coast Guard considers it a “developmental program.” 
- The Coast Guard does not plan to request funding for the VUAV
before fiscal year 2013. The Coast Guard has stated that
technological advances between now and then could affect
decisions about what kind of surveillance system to acquire. Thus,
the revised delivery date of 2013 for the first-in-class asset will
likely be revisited. 

Status Of Deepwater Assets: 
VUAV—Delays Could Affect Operational Capabilities: 

* Delayed development of the VUAVs could affect operational 
capabilities of the NSC: 
- The first VUAV was to be delivered concurrent with the first NSC,
enabling the VUAV to launch from the NSC to provide surveillance
capabilities beyond the range of the NSC alone.
- Delays to the VUAV acquisition means this asset no longer aligns with
the NSC’s planned deployment, thus diminishing planned operational
capabilities.

*Any further delays could also affect the operational capabilities of 
future planned Deepwater assets, including the Offshore Patrol Cutter, 
from which the VUAV is also planned to launch, unless the maritime
surveillance capability is provided by alternate means. 

Status Of Deepwater Assets: 
VUAV—Coast Guard Actions: 

* The Coast Guard is considering alternative ways to address the
operational impact of delays in VUAV acquisition, to include:
- Increasing the use of other Deepwater assets—such as the
HH-65, SRP, and the Long-Range Interceptor—to expand the
surveillance capabilities of its large vessels. 
- Developing a list of other potential unmanned aerial systems to
launch from its large vessels. 
- The Coast Guard has directed an independent third party to
compare the capabilities of Fire Scout—an alternative
solution under development by the Department of
Defense—with the original VUAV. 

Status Of Deepwater Assets: 
123-foot Patrol Boats Removed From Service:

* The Coast Guard originally intended to convert all 49 of its 110-foot 
patrol boats to 123-foot patrol boats to provide additional 
capabilities. 

* However, hull buckling and other structural problems among the 8 
converted patrol boats led the Coast Guard to impose operating 
restrictions on the converted patrol boats in April 2005. 

* In June 2005, all further conversions were halted by the Coast Guard. 

* A number of the converted 123-foot patrol boats continued to 
experience hull and deck buckling, shaft alignment problems, and other 
issues affecting operational capabilities. 

* Effective November 2006, all 8 of the Coast Guard’s 123-foot patrol 
boats were removed from service due to operational and safety concerns. 

* In April 2007, the Coast Guard announced that this removal from 
service would be permanent. 

* The Coast Guard Commandant announced that he has established a group 
of legal, contracting, and engineering experts to examine problems 
encountered in this program and that he will pursue all available 
options for recouping any funds that may be owed to the government as a 
result of the loss of these boats. 

Status Of Deepwater Assets: 
123-foot Patrol Boats—Coast Guard Actions: 

* To help mitigate the operational impacts resulting from removal of 
the 123-foot patrol boats from service, the Coast Guard has stated that 
it: 
- Implemented multi-crewing on 8 Florida-based 110-foot patrol boats 
with crews from the 123-foot patrol boats that had been removed from 
service to increase patrol hours. 
- This decreased annual personnel tempo for 110-foot crews by 18 
percent, but increased the annual tempo for the 8 patrol boats by 64 
percent (3,600 hours per boat per year versus 2,200 hours previously). 
- Because increasing the operational tempo of these aging 110-foot 
patrol boats raises some concerns about increased maintenance needs, 
the Coast Guard deployed additional logistics and support personnel and 
spare parts to Key West in an effort to reduce repair time. 
- Deployed Coast Guard vessels from other locations to assist in 
missions formerly performed by the123-foot patrol boats; 
- Secured permission from the U.S. Navy to continue using three 179-
foot Navy cutters on loan for an additional 5 years; 
- Is examining the purchase of four additional 87-foot patrol boats; 
and; 
- Is examining whether to compress the schedule of maintenance and 
upgrades of the 110-foot patrol boats. 

Status Of Deepwater Assets: 
FRC—Delayed Due to Suspension of Design Work:

* The delivery of the FRCs was accelerated to offset the failed 
strategy of converting 110-foot patrol boats into more capable 123-foot 
patrol boats. 

* In February 2006, design work on a composite-hulled FRC was suspended
due to design risks, including excessive weight and horsepower
requirements compared with standard patrol boats. 

* Also in February 2006, an independent design review confirmed the 
design risks previously raised by Coast Guard technical experts. 

* As a result of the suspension of work, delivery of the first-in-class 
FRC has been delayed from 2007 until 2010, at the earliest. 

* Additional delays in FRC deployment could further exacerbate the 
patrol hour shortage brought about by the removal of the 123-foot 
patrol boats from service. 

Status Of Deepwater Assets: 
FRC—Coast Guard Actions: 

* To address FRC delays, the Coast Guard is moving ahead with a
dual-path approach: 
- First, acquire a commercial “off-the-shelf” patrol boat design (FRC-B)
that it can modify to meet most of the Coast Guard’s requirements. 
- The Coast Guard issued a Request for Proposals for the FRC-B
design to the system integrator in November 2006. 
- On March 14, 2007, the Coast Guard terminated the FRC-B
acquisition through the system integrator and reassigned it to the
Coast Guard Acquisition Directorate, which will issue a Request
for Proposals to acquire a high-performing patrol boat at less cost
and in less time, and to ensure full and open competition. 
- The Coast Guard projects delivery of the first of 12 FRC-Bs by
spring 2010.

- Second, acquire a redesigned FRC (FRC-A) that will meet all of the 
Coast Guard’s requirements. 
- According to the Coast Guard, design and procurement decisions for 
the FRC-A depend upon its eventual assessment of results from: 
- a completed third-party business case analysis of steel versus
composite hulls; 
- completion of a composite patrol boat technology readiness
assessment; and; 
- planned future technical testing in fiscal years 2010-2011 of
composite hull technology involving building and testing a 150-foot
prototype vessel by DHS’s Science and Technology Directorate
(funding has not yet been provided, however).
- If funded, DHS estimates that results from these tests may be 
available in December 2010.

Status Of Deepwater Assets: 
NSC—First Hulls Have Design Deficiencies: 

* The first two NSC hulls are known to have structural design
deficiencies requiring retrofitting, which the Coast Guard intends to
address as part of dry dock maintenance after the NSCs are delivered. 
- According to the DHS Inspector General: 
- The current NSC design will not meet its expected 30-year service 
life. 
- NSC design deficiencies will likely lead to increased maintenance 
costs and reduced service life. 
- NSC’s design and performance deficiencies are the result of Coast 
Guard’s failure to exercise its technical and management oversight 
authority over design and construction. 

Status Of Deepwater Assets: 
NSC—Coast Guard Actions: 

* The Coast Guard plans to address these challenges by: 
- Correcting the structural deficiencies of the first two NSC
hulls at scheduled dry docks in order to avoid the schedule and costs 
risks associated with stopping the production line; and; 
- Incorporating structural enhancements into the design for
NSC hulls 3 through 8 and incorporating the enhancements during 
production. 

Status Of Deepwater Assets: 
Delivery Schedule, Summary by Key Assets: 

Comparing the asset delivery dates between the 2005 and 2006 Coast
Guard Asset Introduction Schedules, figure 1 shows that:

1) Five Deepwater assets—NSC, SRP, LRI, MPA, and LRS—are on
schedule (bars are same height for 2005 and 2006); 
2) Four assets—OPC, FRC, MRR, and VUAV—are behind schedule (2006 bar is 
higher than for 2005); and; 
3) One asset—the MCH—is ahead of schedule (2006 bar is lower than for 
2005). 

Note: DHS is reviewing the 2006 data, so the dates shown are subject to 
change. 

Figure 1: Comparison of 2005 and 2006 Estimated Delivery Dates for the 
First-in-Class Deepwater Assets: 

This figure is a bar graph with Year Deliverer, first in class as the 
vertical axis, and Assets as the horizontal axis:

Asset: NSC; 
Planned first-in-class delivery dates as of 2005: 2007;
Planned first-in-class delivery dates as of 2006: 2007;

Asset: OPC; 
Planned first-in-class delivery dates as of 2005: 2010;
Planned first-in-class delivery dates as of 2006: 2015;

Asset: FRC[a]; 
Planned first-in-class delivery dates as of 2005: 2007;
Planned first-in-class delivery dates as of 2006: 2012;

Asset: SRP; 
Planned first-in-class delivery dates as of 2005: 2003;
Planned first-in-class delivery dates as of 2006: 2003;

Asset: LRI; 
Planned first-in-class delivery dates as of 2005: 2007;
Planned first-in-class delivery dates as of 2006: 2007;

Asset: MCH; 
Planned first-in-class delivery dates as of 2005: 2012;
Planned first-in-class delivery dates as of 2006: 2008;

Asset: MRR; 
Planned first-in-class delivery dates as of 2005: 2012;
Planned first-in-class delivery dates as of 2006: 2013;

Asset: MPA; 
Planned first-in-class delivery dates as of 2005: 2007;
Planned first-in-class delivery dates as of 2006: 2007;

Asset: VUAV; 
Planned first-in-class delivery dates as of 2005: 2007;
Planned first-in-class delivery dates as of 2006: 2008;

Asset: LRS; 
Planned first-in-class delivery dates as of 2005: 2008;
Planned first-in-class delivery dates as of 2006: 2008;

[a] The dates shown for the FRC refer to the FRC-A, which will meet 
Coast Guard requirements. The Coast Guard is also pursuing procurement 
of a commercially available patrol boat design (FRC-B), which is 
anticipated sooner but will not meet all requirements.

Source: 2005 and 2006 Coast Guard asset introduction schedule data. 

[End of figure]

Status Of Deepwater Assets: 
Uncertainties Over Asset Delivery Dates Add to Oversight Challenges: 

* In addition to the problems with assets already cited, several 
factors add to the uncertainty about the delivery schedule of Deepwater 
assets. 
- First, the Coast Guard is still in the early phases of the 25-year 
Deepwater acquisition program and the potential for changes in the 
program over such a lengthy period of time make it difficult to 
forecast the ability of the Coast Guard to acquire future Deepwater 
assets according to its published schedule. 
- Second, advances in technology for some assets are still being 
evaluated. 
- Third, changes to funding levels can affect the future delivery of 
Deepwater assets. 
- Finally, the Coast Guard has recently made a number of program 
management changes that could affect the delivery schedules (positively 
or negatively) for its Deepwater assets. Examples include the Coast 
Guard’s decision to bring all acquisition efforts under one 
organization, its intent to serve as the lead Deepwater integrator, and 
its use of third-party reviews. 

- These uncertainties in asset delivery dates present additional 
challenges to DHS and Congress as they oversee the Deepwater program 
and consider appropriate funding levels. 

Objective 2: Deepwater Management Structure And Organization: 
Prior GAO Findings:

* The complexity of the Deepwater contract requires effective government
management and oversight to ensure that the intended results are 
achieved and that taxpayer dollars are not wasted. 

* GAO has previously reviewed the Deepwater program and made
recommendations (see enclosure II) on issues specifically related to:
- Program management: The Coast Guard had not effectively implemented 
key components needed to manage the program and oversee the system 
integrator including IPTs, adequate staffing, and defined maintenance 
and logistics roles and responsibilities. 
- Contractor accountability: The Coast Guard had not effectively
measured contractor performance against Deepwater program goals. 
- Cost control: Control of future costs through competition remained a
risk because of weak oversight of subcontractor decisions related to
competition. 

Deepwater Management Structure And Organization: 
Program Management—IPT Responsibilities: 

Integrated Product Teams:

* IPTs were designated as the Coast Guard’s primary tool for managing 
the Deepwater program and overseeing the contractor in the program
management plan[Footnote 9].
- IPT responsibilities included such things as guiding development;
allocating resources and budgets, measuring performance, performing
product level design/performance cost trade-offs, and delivering and
fielding tangible products and processes in accordance with the overall
Deepwater program. 

Deepwater Management Structure And Organization: 
Program Management—IPT Ineffectiveness: 

* GAO previously reported that IPTs had not been effective due to 
changing membership, understaffing, insufficient training, lack of 
authority for decision making, and inadequate communication. Also, IPT 
decision making was to a large extent stovepiped, and some teams lacked
adequate authority to make decisions within their area of 
responsibility. 

* Our work revealed that IPTs continue to be ineffective at guiding the
development and delivery of products in accordance with the overall
Deepwater program. For example: 
- IPTs failed to help resolve problems with the FRC, VUAV, and NSC. 
- The Coast Guard established working groups outside the IPT structure
to identify and deliver solutions to problems not resolved by the IPTs 
to help ensure the delivery of quality products.

* Some IPT’s have failed to help resolve design and delivery problems 
on a timely basis. For example: 
- Problems identified with FRC design issues were not resolved by the 
IPT and subsequently the Coast Guard deactivated the IPT. 
- Poor task order scoping related to asset requirements resulted in the 
temporary suspension of the VUAV IPT. 
- The NSC faced program management challenges for at least 11 months, 
from February to December 2006. The NSC IPT staffing was inadequate to 
address IPT workload, including contract administration and technical 
issues, finalizing the engineering change proposals, and awarding the 
delivery task order for the third NSC on time. 

* In addition, according to the DHS Inspector General: 
- The NSC IPT did not detect design deficiencies in the first two NSC 
hulls. 
- Coast Guard officials stated that IPTs failed to resolve NSC 
structural design concerns due, in part, to breakdowns in 
collaboration. 

* The Coast Guard judged that the IPTs’ performance was “non-
problematic” at the same time assets were experiencing cost and 
schedule problems—see figures 1 and 2. 

Deepwater Management Structure And Organization: 
Program Management—IPT Performance Versus Program Outcomes: 

Figures 1 and 2 below demonstrate the misalignment between Coast 
Guard’s assessment of IPT performance and associated program outcomes 
at the asset (vessel) and, to a lesser extent, Deepwater program level. 

Figure 1: Vessel Classes Cost, Schedule, and IPT Performance Evaluation:

This figure is a bar graph with the following statements on the 
vertical axis: behind schedule or problematic; requires attention; on 
schedule or non-problematic; exceeds requirements.

The horizontal axis depicts the months of October 2005 through 
September, 2006.

The vertical bars for each month represent the following: cost 
performance; schedule performance; IPT performance.

October, 2005:
Cost performance: behind schedule or problematic; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

November, 2005:
Cost performance: behind schedule or problematic; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

December, 2005:
Cost performance: behind schedule or problematic; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

January, 2006:
Cost performance: behind schedule or problematic; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

February, 2006:
Cost performance: behind schedule or problematic; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

March, 2006:
Cost performance: behind schedule or problematic; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

April, 2006:
Cost performance: behind schedule or problematic; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

May, 2006:
Cost performance: behind schedule or problematic; 
Schedule performance: behind schedule or problematic; 
IPT performance: on schedule or non-problematic; 

June, 2006:
Cost performance: behind schedule or problematic; 
Schedule performance: behind schedule or problematic; 
IPT performance: on schedule or non-problematic; 

July, 2006:
Cost performance: behind schedule or problematic; 
Schedule performance: behind schedule or problematic; 
IPT performance: on schedule or non-problematic; 

August, 2006:
Cost performance: behind schedule or problematic; 
Schedule performance: behind schedule or problematic; 
IPT performance: on schedule or non-problematic; 

September, 2006:
Cost performance: on schedule or non-problematic; 
Schedule performance: on schedule or non-problematic; 
IPT performance: on schedule or non-problematic; 

Source: GAO analysis of Coast Guard data. 

Note: The cost and schedule performance improvements in September 2006 
for vessel classes were the result of rebaselining these measurements. 

[End of figure]

Figure 2: Deepwater Program Cost, Schedule, and IPT Performance 
Evaluation: 

This figure is a bar graph with the following statements on the 
vertical axis: behind schedule or problematic; requires attention; on 
schedule or non-problematic; exceeds requirements.

The horizontal axis depicts the months of October 2005 through 
September, 2006.

The vertical bars for each month represent the following: cost 
performance; schedule performance; IPT performance.

October, 2005:
Cost performance: requires attention; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

November, 2005:
Cost performance: requires attention; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

December, 2005:
Cost performance: requires attention; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

January, 2006:
Cost performance: requires attention; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

February, 2006:
Cost performance: requires attention; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

March, 2006:
Cost performance: requires attention; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

April, 2006:
Cost performance: requires attention; 
Schedule performance: requires attention; 
IPT performance: on schedule or non-problematic; 

May, 2006:
Cost performance: requires attention; 
Schedule performance: behind schedule or problematic; 
IPT performance: on schedule or non-problematic; 

June, 2006:
Cost performance: requires attention; 
Schedule performance: behind schedule or problematic; 
IPT performance: on schedule or non-problematic; 

July, 2006:
Cost performance: requires attention; 
Schedule performance: behind schedule or problematic; 
IPT performance: on schedule or non-problematic; 

August, 2006:
Cost performance: requires attention; 
Schedule performance: behind schedule or problematic; 
IPT performance: on schedule or non-problematic; 

September, 2006:
Cost performance: requires attention; 
Schedule performance: on schedule or non-problematic; 
IPT performance: on schedule or non-problematic; 

Source: GAO analysis of Coast Guard data. 

Note: The cost and schedule performance improvements in September 2006 
for vessel classes were the result of rebaselining these measurements. 

[End of figure]

Deepwater Management Structure And Organization: 
Program Management—Coast Guard Actions: 

The Coast Guard is restructuring IPTs and redefining roles and 
responsibilities: 

* The Coast Guard has taken over the leadership of the IPTs and plans 
to update the IPT charters and the program management plan to reflect 
new roles. For example: 
- IPTs will no longer serve as the primary decision-making or problem 
resolution tool for asset design and development. 
- IPTs will be involved in decisions that will not affect the overall 
cost or schedule for the asset. 

* The Coast Guard has reaffirmed the role of the Coast Guard’s Chief 
Engineer as the technical authority for all acquisition projects. 
Therefore, the Coast Guard will be responsible for deciding how to 
resolve design issues and technical problems. 

* The Coast Guard plans to obtain technical assistance from outside 
experts. 
- The Coast Guard also plans to direct independent, third-party design 
reviews for new assets as the assets are designed and as major 
modifications to assets are contemplated. 

Deepwater Management Structure And Organization: 
Program Management—Human Capital Shortages: 

Human Capital: 

* In 2004, we noted a gap between the staffing needs in the Deepwater 
Human Capital plan and positions filled. 
- The Coast Guard had identified a need of 264 staff for 2004, but only 
224 positions were funded, and only 209 positions were assigned to
the Deepwater program. 
- This staffing level fell short of the Coast Guard’s goal, identified 
in the Human Capital Plan, of a 95 percent “fill-rate.” 

* For FY 2005-2007, the Deepwater program staffing information 
indicates a 20 percent staffing vacancy rate compared to actual 
billets. 
* Based on independent analysis by Booz Allen Hamilton, under contract 
to the Coast Guard, there is a need for 371 Deepwater program 
management staff in fiscal 2007. 

Figure 3: Reported Coast Guard Deepwater Government Staff Levels, 
Fiscal Year 2005–2007, as of February 2007:

This figure is a bar graph with Number of staff on the vertical axis 
and years on the horizontal axis. The vertical bars for each year 
represent filled billets and allocated billets.

Year: 2005; 
Number of staff, filled billets: 204; 
Number of staff, allocated billets: 238; 

Year: 2006; 
Number of staff, filled billets: 229; 
Number of staff, allocated billets: 281; 

Year: 2007; 
Number of staff, filled billets: 260; 
Number of staff, allocated billets: 327; 

Source: GAO analysis of Coast Guard data.

[End of figure]

Deepwater Management Structure And Organization: 
Program Management—Human Capital Plan Revisions: 

* The Coast Guard has acknowledged that Deepwater program personnel
lack adequate systems acquisition experience. 
- Two independent studies directed and accepted by the Coast 
Guard—including one by the Defense Acquisition University—also
identified inadequate acquisition experience within the program. 

* The Coast Guard revised its Deepwater human capital plan in February
2005 to emphasize workforce planning in terms of training, leadership,
knowledge management, recruiting, and retention. 
- The revised plan included annual reporting updates of key human
capital management actions. 
- The majority of the objectives identified in the 2005 revised
Deepwater human capital plan have not been achieved or updated
annually as required. 

Deepwater Management Structure And Organization: 
Program Management—Coast Guard Actions: 

* The Coast Guard is restructuring and realigning Deepwater Human 
Capital. For example it has: 
- Requested 43 additional Deepwater program staff for fiscal year 2007.
Subsequent to this request, the Coast Guard has decided to have 
increased involvement in Deepwater program management. 
- The Coast Guard announced plans for a “Blueprint for Acquisition 
Reform,” which more broadly addresses human capital issues in the 
context of acquisition reform. The Blueprint includes four sub-
component plans scheduled to occur through fiscal year 2009: 
- Organizational Alignment and Leadership: Realigning acquisition 
functions and leadership within the Coast Guard organization; 
- Human Capital: Ensuring that the Coast Guard has the appropriate 
staff to accomplish the mission effectively; 
- Policies and Processes: Focusing on policies and processes to improve 
acquisition outcomes; and; 
- Knowledge and Information Management: Identifying opportunities to 
reduce cost, improve service, measure compliance, and improve 
management of service providers. 

Deepwater Management Structure And Organization: 
Program Management—Maintenance and Logistics Responsibilities:

Maintenance and Logistics–Roles and Responsibilities:

* According to the Deepwater Program Management Plan, ICGS is
responsible for developing maintenance and logistics support plans. 

* In previous reports, GAO found that the Coast Guard had not adequately
communicated maintenance and logistics responsibilities within the Coast
Guard. 

* During our current work, Coast Guard officials acknowledged the lack 
of clarity in defining roles and responsibilities between the Coast 
Guard and ICGS for maintenance and logistics support plans. 

* Although ICGS is contractually responsible for developing key 
documents related to maintenance and logistics, the support plans for 
the first-in-class NSC and MPA that ICGS submitted lacked the 
specificity anticipated by the Coast Guard. 

Deepwater Management Structure And Organization: 
Program Management—Coast Guard Actions: 

* The Coast Guard is redefining logistics and maintenance roles: 
- The Coast Guard is developing NSC and MPA interim maintenance and 
logistics support plans in place of the plans submitted by ICGS. 
- The Coast Guard has declared that it will have one logistics system 
and that the government (Coast Guard) is now the default provider of 
maintenance and logistics, supplemented by contractors, when necessary. 

Deepwater Management Structure And Organization: 
Contractor Accountability—Performance Standards and Incentives: 

* According to Office of Federal Procurement Policy guidance and Federal
Acquisition Regulation 37.602 (b), a performance-based contract such as
Deepwater should have measurable performance standards and incentives
to motivate contractor performance. 

* Coast Guard used award fee and award term incentives with the goal of
encouraging and rewarding contractor performance, including achieving
the goals of maximizing operational effectiveness and minimizing total
ownership cost. 

* In 2004, we reported concerns and made recommendations about how the
Coast Guard held the system integrator accountable for its performance
including:
(1) the award fee rating factors lacked objective measures, and
(2) not establishing a solid baseline, critical to holding the system 
integrator accountable, to measure progress in lowering total ownership 
cost. 

Deepwater Management Structure And Organization: 
Contractor Accountability—Award Fee: 

Award Fee (a fee to motivate a contractor for excellent performance):

* To date, the award fee determination has not been related to asset 
performance. 
- Despite concerns expressed in award letters regarding cost controls 
and schedule performance, ICGS has received award fees ranging from 82 
to 92 percent of the total it could have received. 
- Contractor earned about $18 million (88 percent of about $20 million 
available award fees) related to system integrator role. 
- Over the six performance periods, the award fee results correspond to 
a “very good” rating overall. 

* The contractor earned an additional $3.5 million for its Command, 
Control, Communications, Computers, Intelligence, Surveillance, and 
Reconnaissance efforts and for leasing 8 helicopters. 

* The current award fee criteria do not include measures of IPT 
effectiveness or competition. 

Deepwater Management Structure And Organization: 
Contractor Accountability—Coast Guard Actions to Address Award Fee 
Criteria: 

The Coast Guard revised the award fee criteria to:
* Provide an incentive for better performance; 
* Ensure the contractor is responsive to criteria; 
* Incorporate 24 specific milestones in the criteria for the next
evaluation period to measure the contractor’s ability to maintain
schedule. 

* Coast Guard is considering alternative incentive structures—such
as fixed fees—for the future. 

Deepwater Management Structure And Organization: 
Contractor Accountability—Award Term Evaluation: 

Award Term (contract performance period extension earned by a 
contractor for performance): 

* The first award term evaluation resulted in an award to the
contractor of an additional 43 of a possible 60 months. 
- The Coast Guard and ICGS are negotiating the contract
modification for the first award term planned for June 25, 2007. 

* The award term evaluation was subjective and based on criteria for
overall program goals: 
- operational effectiveness; 
- total ownership cost, and; 
- customer satisfaction (e.g., satisfaction of the personnel in the
Coast Guard who are to use the Deepwater assets). 

Deepwater Management Structure And Organization: 
Contractor Accountability—Operational Effectiveness and Total Ownership 
Cost: 

* Operational effectiveness was measured using modeling. 
- The models measured planned asset capabilities and presence, not
actual asset performance because most assets were not available at
the time of the evaluation. 

* Total ownership cost (TOC) increased to $304 billion from the original
$78 billion. 
- The Coast Guard attributed this increase to the addition of post 9/11
mission requirements and adjustments for inflation. 
- In evaluating TOC performance, the Coast Guard made allowances for
factors beyond contractor control, such as additional mission
requirements. 
- Also, the Coast Guard evaluation of TOC indicated that ICGS cost
control measures did not appear to be in place. 
- While the Coast Guard had difficulty in measuring the contractor’s
impact on TOC, the contractor received a “good” rating. 

Deepwater Management Structure And Organization: 
Contractor Accountability—Coast Guard Actions to Address Award Term 
Evaluation: 

The Coast Guard has revised the award term plan for evaluating 
contractor performance during the next award term. For example: 

* More objective criteria have been added—including asset-specific Key
Performance Parameters, however, they cannot be evaluated until
assets are delivered. 

* The emphasis has shifted from total ownership cost to cost control. 

* Operational effectiveness will continue to be measured with the same
models. 

* The effectiveness of the revised criteria cannot be evaluated until 
at least mid-2010. 

Deepwater Management Structure And Organization: 
Cost Control—Competition Is Key for Controlling Costs: 

* Competition is a key component for controlling costs in the
Deepwater program. 

* In 2004, we reported that although competition among subcontracts was 
a key mechanism for controlling costs, the Coast Guard had neither 
measured the extent of competition among the suppliers of Deepwater 
assets nor held ICGS accountable for taking steps to achieve 
competition. 
- The two first-tier subcontractors, Lockheed Martin and Northrop 
Grumman, had sole responsibility for determining whether to compete 
assets or to provide the assets themselves. 

Deepwater Management Structure And Organization: 
Cost Control—Information on Competition Obtained: 

* The Coast Guard requested additional information from ICGS on
competition, but in December 2006, the Coast Guard reported
that ICGS data on Deepwater competition did not provide the
minimum information needed to determine whether an
appropriate level of competition had been achieved. 

* Based on ICGS information, first-tier subcontractors have
performed about half of all work in-house (see table 3). 

Deepwater Management Structure And Organization: 
Cost Control—ICGS Affiliates Awarded Large Portion of Deepwater 
Contracts: 

During September 2003-December 2006, about half of the $1.6 billion 
funds obligated to Lockheed Martin and Northrop Grumman (LM and NGSS) 
have either remained with those companies or been awarded to their 
affiliates. While the Coast Guard has not established a goal for in-
house work, the first-tier subcontractors retained higher percentages 
of in-house work than we reported in 2004 (50 percent compared to 45 
percent). 

Table 3: Breakdown of the Percentage of ICGS Obligations to First-Tier 
Subcontractors (Includes Planned Subcontracts):

First-tier subcontractors: Lockheed Martin; 
In-house work (including affiliates) for September 2003-December 2006: 
42%; 
Previously reported percentage of in-house work, as of September 30, 
2003[a]: 42%; 

First-tier subcontractors: Northrop Grumman Ship Systems; 
In-house work (including affiliates) for September 2003-December 2006: 
64%; 
Previously reported percentage of in-house work, as of September 30, 
2003[a]: 51%; 

First-tier subcontractors: Lockheed Martin and Northrop Grumman Ship
Systems; 
In-house work (including affiliates) for September 2003-December 2006: 
50%; 
Previously reported percentage of in-house work, as of September 30, 
2003[a]: 45%; 

Source: GAO analysis of ICGS data. 

[a] 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). 

[End of table]

Deepwater Management Structure And Organization: 
Cost Control—Coast Guard Actions: 

* To ensure the best value to the government, the Coast Guard is 
seeking competition and is acquiring some assets directly rather than 
through ICGS. 
- A July 2006 Coast Guard-directed business case analysis of the SRP 
showed a cost savings of between $78,000 and $108,000 per SRP if the 
Coast Guard were to procure the remaining 82 SRPs directly—a total 
program savings of about $6.4 million to $8.9 million. 
- On March 14, 2007, the Coast Guard terminated the FRC-B acquisition 
through ICGS and will issue a request for proposals to: 
- acquire a high-performing patrol boat at less cost and in less time 
than an ICGS-led acquisition, and; 
- ensure full and open competition. 

* The Coast Guard recently articulated a new strategy to conduct 
similar business case analyses in the future. 

* The Coast Guard has included competition among the integrator’s 
subcontractors as one of the criteria under the next award term plan. 

Concluding Observations:
Status of Deepwater Assets:

* While the Coast Guard has made progress with the design, acquisition, 
and delivery of some Deepwater assets, ongoing problems with other 
assets raise questions about the execution of the Coast Guard’s 
original approach. As a result, the ability to maintain a system-of-
systems approach that is fully integrated and synchronized with the 
retirement of legacy assets and the introduction of new assets is at 
risk. As problems are encountered and schedules slip on 
individual aircraft or vessels, the overall operational capabilities of 
assets and the system as a whole could be reduced, particularly in the 
shortterm. 

Concluding Observations: 
Deepwater Management Structure and Organization: 

* The Deepwater program is at a crossroads. Because of problems with 
program management, contractor accountability, and cost controls, the 
Coast Guard has decided to take on more direct responsibility for the
acquisition management and support of key Deepwater assets. However, 
until the Coast Guard has sufficient staff with the requisite skills 
and abilities and the contract management tools to carry out these new 
and expanding responsibilities, the Deepwater program will remain at 
risk in terms of getting what is needed, on time, and at a fair price.

[End of section]

Appendix II: Status of Deepwater Vessel and Aircraft Assets: 

National Security Cutter (NSC): 
[See PDF for image]

Quick look:
* Replaces the 378-foot H Endurance Cutter; 
* Total number planned: 8; 
* Length: 418 feet; 
* Maximum speed: 28 knots; 
* Operating range: 12,000 nautical miles; 
* Underway endurance: 60 days; 
* Days operational away from home port: 230; 
* Crew size: 16 officers, 97 enlisted personnel (typical); maximum crew 
size is 148; 
* Can carry and deploy small patrol boats—the over-the-horizon Long-
Range Interceptor, and the Short-Range Prosecutor—as well as the Multi-
Mission Cutter Helicopter and/or the Vertical Takeoff and Landing 
Unmanned Aerial Vehicle.
* Missions:
- Maritime safety; 
- Maritime security; 
- Protection of natural resources; 
- National defense. 

Cost/schedule update (in millions): 

FY 2005 projected per unit cost[a]: $359.4; 
Current projected per unit cost[b]: $431.3; 
Actual funding available[c]: $1,519.7; 
Additional funding needed to complete[d]: $1,930.3.
			
First asset delivery date: 
2005 Asset Introduction	Schedule: 2007; 
2006 Asset Introduction	Schedule: 2017; 
Current[e]: 2007.

Last asset delivery date: 
2005 Asset Introduction	Schedule: 2017; 
2006 Asset Introduction	Schedule: 2015; 
Current[e]: 2015.

Performance Capability Changes in the Revised Deepwater Implementation 
Plans: 

The revised 2005 and 2006 Deepwater implementation plans called for 
providing communications equipment upgrades to make the equipment 
interoperable with other DHS entities, DOD assets, and local first 
responders. In addition, the communications capabilities were to 
include Rescue-21 assets—the Coast Guard's command and control 
communication infrastructure for all Coast Guard missions—including 
search and rescue, marine safety, and law enforcement. Other upgrades 
included installing equipment to detect chemical, biological, and 
radiological dangers; enhancing and increasing the flight deck to 
accommodate DOD and DHS helicopters; upgrading weapons systems; 
improving classified communication capabilities; and enhancing 
underwater detection capabilities.

Current Status: 

The Commandant of the Coast Guard recently stated that internal reviews 
by Coast Guard engineers, as well as by independent analysts, have 
concluded that the NSC, as designed, will need structural reinforcement 
to meet its expected 30-year fatigue life. The Coast Guard is pursuing 
two strategies to address the structural modifications. NSC hulls #1 
and #2 will both receive structural bolstering as part of depot-level 
maintenance (dry dock) after they are delivered. Coast Guard officials 
stated that this will not impact missions since the cutters should be 
able to operate safely for several years until the first scheduled dry 
dock. The Coast Guard is currently working with naval engineers and 
contractors to incorporate the required structural bolstering in the 
production of the remaining NSC hulls as they are being built.

While the Coast Guard had originally planned to rely on the system 
integrator for maintenance and logistics support, the Coast Guard will 
be taking responsibility for the development and implementation of 
maintenance and logistics for the NSC. The NSC will utilize a crew 
rotation concept, in which four crews rotate among three NSCs, once 
deployed, with each crew spending no more than 185 days away from home 
port.

[a] Based on projected budgeted/procurement costs divided by the 
projected number to be acquired in the FY 2005 Deepwater implementation 
plan. 

[b] Based on projected budgeted/procurement costs divided by the 
projected number as of February 7, 2007.

[c] As of January 31, 2007.

[d] Based on the FY 2008 Plan Update submitted to the Congress, in 
conjunction with submission of the February 2007 FY 2008 President's 
budget request, minus the actual funding available as of January 31, 
2007.

[e] "Current" date is as of March 2007 and derives from asset delivery 
dates provided by the Coast Guard to GAO outside of the Asset 
Introduction Schedules. 

[End of section]

Offshore Patrol Cutter (OPC): 
[See PDF for image]

Quick look:
* Replaces the 210-foot and 270-foot Medium-Endurance Cutters; 
* Total number planned: 25; 
* Length: 360 feet; 
* Maximum speed: 28 knots; 
* Operating range: 9,000 nautical miles; 
* Underway endurance: 45 days; 
* Crew size: 91—16 officers, 75 enlisted personnel; 
* Can carry and deploy multiple over-the-horizon boats including the 
Long-Range Interceptor and/or Short-Range Prosecutor as well as two 
Multi-Mission Cutter Helicopters or four Vertical Unmanned Aerial 
Vehicles; 
* Missions: 
- Maritime safety; 
- Maritime security; 
- Protection of natural resources; 
- National defense. 

Cost/schedule update (in millions): 

FY 2005 projected per unit cost[a]: $282.2; 
Current projected per unit cost[b]: $323.9; 
Actual funding available[c]: $126.0; 
Additional funding needed to complete[d]: $7,972.0. 
			
First asset delivery date: 
2005 Asset Introduction	Schedule: 2010; 
2006 Asset Introduction	Schedule: 2015; 
Current[e]: 2014.

Last asset delivery date: 
2005 Asset Introduction	Schedule: 2027; 
2006 Asset Introduction	Schedule: 2027; 
Current[e]: 2027.

Performance Capability Changes in the Revised Deepwater Implementation 
Plans: 
The revised 2005 and 2006 Deepwater implementation plans called for 
providing communications equipment upgrades to make the equipment 
interoperable with other DHS entities, DOD assets, and local first 
responders. In addition, the communications capabilities were to 
include Rescue-21 assets—the Coast Guard's command and control 
communication infrastructure for all Coast Guard missions—including 
search and rescue, marine safety, and law enforcement. Other upgrades 
included installing equipment to detect chemical, biological, and 
radiological dangers; enhancing and increasing the flight deck to 
accommodate DOD and DHS helicopters; upgrading weapons systems; 
improving classified communication capabilities; and increasing the 
cruising speed from 22 to 28 knots. 

Current Status: 
Funding changes have delayed the delivery of the first OPC from 2010 to 
2015. Coast Guard officials have stated that further work on the 
development of the OPC is on hold. Funding was not requested for the 
OPC in fiscal year 2007 or fiscal year 2008. The Coast Guard is 
studying the possible use of the Navy's Littoral Combat Ship as an 
alternative for the OPC. The Coast Guard Engineering Logistics Center 
is conducting this analysis, to be completed in spring 2007.

[a] Based on projected budgeted/procurement costs divided by the 
projected number to be acquired in the FY 2005 Deepwater implementation 
plan. 

[b] Based on projected budgeted/procurement costs divided by the 
projected number as of February 7, 2007.

[c] As of January 31, 2007.

[d] Based on the FY 2008 Plan Update submitted to the Congress, in 
conjunction with submission of the February 2007 FY 2008 President's 
budget request, minus the actual funding available as of January 31, 
2007.

[e] "Current" date is as of March 2007 and derives from asset delivery 
dates provided by the Coast Guard to GAO outside of the Asset 
Introduction Schedules. 

[End of section]

Fast Response Cutter (FRC): 
[See PDF for image]

Quick look: 
* A single version of the FRC was originally intended to replace the 
Coast Guard's aging fleet of 110-foot patrol boats and its now out-of-
service 123-foot patrol boats; 
* There are now two versions: (1) FRC-B, an off-the shelf, commercial 
patrol boat, with a traditional steel hull, is intended to fill the gap 
in patrol boat numbers until an entirely new boat, (2) the FRC-A, is 
developed and produced, possibly with a composite material hull; 
* Total number planned: 58 total: 12 FRC-Bs; 46 FRC-A; 
* Length: 140 feet; 
* Maximum speed: 30 knots; 
* Operating range: 1,200 nautical miles; 
* Underway endurance: 7 days; 
* Crew size: 20—2 officers, 18 enlisted personnel; 
* Carries and deploys Short-Range Prosecutor; 
* Missions: 
- Maritime safety; 
- Maritime security; 
- Protection of natural resources; 
- National defense. 

Cost/schedule update (in millions): 

FY 2005 projected per unit cost[a]: $255.6; 
Current projected per unit cost[b]: $56.8 (FRC-A); $49.4 (FRC-B); 
Actual funding available[c]: $80.8 (A); $1266.7 (B); 
Additional funding needed to complete[d]: $2,532 (A); $466.3 (B). 
			
First asset delivery date: 
2005 Asset Introduction	Schedule: 2007; 
2006 Asset Introduction	Schedule: 2012 (A); 2010 (B); 
Current[e]: 2010 (A); 2009/2010 (B).

Last asset delivery date: 
2005 Asset Introduction	Schedule: 2027; 
2006 Asset Introduction	Schedule: 2025 (A); 2013 (B); 
Current[e]: 2025 (A); 2012 (B). 

Performance Capability Changes in the Revised Deepwater Implementation 
Plans:
The revised 2005 and 2006 Deepwater implementation plans called for 
providing communications equipment upgrades to make the equipment 
interoperable with other DHS entities, DOD assets, and local first 
responders. In addition, the communications capabilities were to 
include Rescue-21 assets—the Coast Guard's command and control 
communication infrastructure for all its missions—including search and 
rescue, marine safety, and law enforcement. Other upgrades included 
installing equipment to detect chemical, biological, and radiological 
dangers; enhancing underwater detection capabilities; and increasing 
transit speed from 28 to 30 knots. The revised 2005 and 2006 Deepwater 
implementation plans introduced the use of a composite, rather than 
steel, hull. 

Current Status: 
The Coast Guard suspended FRC design work in late February 2006 because 
of design risks. Currently, the Coast Guard is pursuing the purchase of 
design plans for 12 commercial off-the-shelf patrol boats, the FRC-B. 
On March 14, 2007, the Coast Guard terminated FRC-B acquisition through 
the system integrator and reassigned it to the Coast Guard Acquisition 
Directorate. Coast Guard officials stated that they expect the FRC-B to 
have a steel hull and plan to release a new request for proposal in May 
2007. The Coast Guard expects delivery of the first FRC-B in 2010.

The FRC-A is intended to be a long-term solution that would meet all 
identified Coast Guard requirements. A Coast Guard decision on the 
design of the FRC-A will be based on further data and analysis, 
including a business case analysis by a private engineering firm 
comparing composite hulls to steel. In addition, the DHS Science and 
Technology Directorate is planning to conduct tests on a 150-foot 
prototype FRC with a composite material hull, but as of May 2007, the 
tests had not been funded. The tests are currently scheduled for 2010, 
with results analyzed by about the end of 2010. The decisions to not 
request funding for the FRC-A in fiscal year 2008, and to wait for the 
results of both studies before moving forward, will likely further 
delay delivery of the FRC-A. The FRC-B is supposed to mitigate this 
delay; however, it will not meet all USCG requirements. 

[a] Based on projected budgeted/procurement costs divided by the 
projected number to be acquired in the FY 2005 Deepwater implementation 
plan. 

[b] Based on projected budgeted/procurement costs divided by the 
projected number as of February 7, 2007.

[c] As of January 31, 2007.

[d] Based on the FY 2008 Plan Update submitted to the Congress, in 
conjunction with submission of the February 2007 FY 2008 President's 
budget request, minus the actual funding available as of January 31, 
2007.

[e] "Current" date is as of March 2007 and derives from asset delivery 
dates provided by the Coast Guard to GAO outside of the Asset 
Introduction Schedules. 

[End of section]

Short-Range Prosecutor (SRP):
[See PDF for image]

Quick look: 
* New asset. The SRP is a rigid-hull inflatable small boat intended to 
be deployed by the larger Deepwater cutters—the FRC, NSC, and the OPC. 
The FRC can deploy one SRP, while the NSC and the OPC will be able to 
carry either two SRPs, or one SRP and one of the larger Long Range 
Interceptor small boats; 
* Total number planned: 91; 
* Length: 25 feet; 
* Maximum speed: 32 knots; 
* Operating range: 200 nautical miles; 
* Underway endurance: 4 hours; 
* Missions: 
- Maritime safety; 
- Maritime security; 
- Protection of natural resources; 
- National defense.

Cost/schedule update (in millions): 

FY 2005 projected per unit cost[a]: $0.5; 
Current projected per unit cost[b]: $0.6; 
Actual funding available[c]: $6.0; 
Additional funding needed to complete[d]: $48.0. 
			
First asset delivery date: 
2005 Asset Introduction	Schedule: 2004[f]; 
2006 Asset Introduction	Schedule: 2004; 
Current[e]: 2004.

Last asset delivery date: 
2005 Asset Introduction	Schedule: 2027; 
2006 Asset Introduction	Schedule: 2027; 
Current[e]: 2024. 

Performance capability changes in the Revised Deepwater implementation 
Plans: 
The revised 2005 and 2006 Deepwater implementation plans railed for 
providing communications equipment upgrades to make the equipment 
interoperable with other DHS entities, DOD assets, and local first 
responders. In addition, the communications capabilities were to 
include Rescue-21 assets—the Coast Guard's command and control 
communication infrastructure for all Coast Guard missions—including 
search and rescue, marine safety, and law enforcement. In addition, the 
number of planned SRPs increased from 82 in the original 2002 Deepwater 
implementation Plan to 91m the revised 2005 and 2006 Deepwater 
implementation plans.

Current status: 

There are no known delays at this time. According to the Coast Guard, 
the system integrator has provided 8 SRPs to date. The Coast Guard 
conducted a business case analysis in July 2006 that showed the Coast 
Guard could achieve a cost savings of between $78,000 and $108,000 per 
asset, or a total cost savings between $6.4 million and $8.9 million 
for the remaining 83 SRPs by procuring them directly, and not using the 
system integrator. The Coast Guard is currently planning to pursue 
construction and delivery of the remaining SRPs via a separate 
contractual arrangement outside of the system integrator framework.

[a] Based on projected budgeted/procurement costs divided by the 
projected number to be acquired in the FY 2005 Deepwater implementation 
plan. 

[b] Based on projected budgeted/procurement costs divided by the 
projected number as of February 7, 2007.

[c] As of January 31, 2007.

[d] Based on the FY 2008 Plan Update submitted to the Congress, in 
conjunction with submission of the February 2007 FY 2008 President's 
budget request, minus the actual funding available as of January 31, 
2007.

[e] "Current" date is as of March 2007 and derives from asset delivery 
dates provided by the Coast Guard to GAO outside of the Asset 
Introduction Schedules. 

[f] The 2006 Asset Introduction Schedule begins at 2007, and the first 
SRPs were delivered in 2004 to match delivery of the 123-foot patrol 
boats, upon which the SRP was to operate. 

[End of section]

Long-Range Interceptor (LRI):
[See PDF for image]

Quick look: 
* New asset. The LRI is a rigid-hull inflatable small boat being 
introduced for deployment from two much larger Deepwater cutters, the 
National Security Cutter and the Offshore Patrol Cutter. 
* Total number planned: 33; 
* Length: 35 feet; 
* Maximum speed: 45 knots; 
* Operating range: 400 nautical miles; 
* Underway endurance: 10 hours; 
* Missions: 
- Maritime safety; 
- Maritime security; 
- Protection of natural resources; 
- National defense. 

Cost/schedule update (in millions): 

FY 2005 projected per unit cost[a]: $1.0; 
Current projected per unit cost[b]: $1.7; 
Actual funding available[c]: $3.2; 
Additional funding needed to complete[d]: $52.8. 
			
First asset delivery date: 
2005 Asset Introduction	Schedule: 2007; 
2006 Asset Introduction	Schedule: 2007; 
Current[e]: 2007.

Last asset delivery date: 
2005 Asset Introduction	Schedule: 2027; 
2006 Asset Introduction	Schedule: 2027; 
Current[e]: 2024. 

Performance Capability Changes in the Revised Deepwater Implementation 
Plans; 
The revised 2005 and 2006 Deepwater implementation plans called for 
providing communications equipment upgrades to make the equipment 
interoperable with other DHS entities, DOD assets, and local first 
responders. In addition, the communications capabilities were to 
include Rescue-21 assets—the Coast Guard's command and control 
communication infrastructure for all Coast Guard missions—including 
search and rescue, marine safety, and law enforcement. Further, the 
number of planned Lolls was reduced from 42 in the original 2002 
Deepwater implementation plan to 33 in the revised 2005 and 2006 
Deepwater implementation plans. 

Current Status: 
The Coast Guard has one LRI under contract for delivery in August 2007, 
to match delivery of the first NSC. The LRI is currently undergoing 
acceptance trials by the contractor to determine performance 
characteristics.

[a] Based on projected budgeted/procurement costs divided by the 
projected number to be acquired in the FY 2005 Deepwater implementation 
plan. 

[b] Based on projected budgeted/procurement costs divided by the 
projected number as of February 7, 2007.

[c] As of January 31, 2007.

[d] Based on the FY 2008 Plan Update submitted to the Congress, in 
conjunction with submission of the February 2007 FY 2008 President's 
budget request, minus the actual funding available as of January 31, 
2007.

[e] "Current" date is as of March 2007 and derives from asset delivery 
dates provided by the Coast Guard to GAO outside of the Asset 
Introduction Schedules. 

[End of section]

Multi-Mission Cutter Helicopter (MCH): 
[See PDF for image]

Quick look: 
* Upgrade of the HH-65 legacy helicopter; 
* Total number planned: 102; 
* Short-range recovery helicopter; 
* Maximum speed: 160 knots; 
* Operating range: 400 nautical miles; 
* Underway endurance: 4 hours; 
* Crew size: 3—2 officers, 1 enlisted person; 
* Asset may be launched from the National Security Cutter or Offshore 
Patrol Cutter; 
* Missions: 
- Maritime safety; 
- Maritime security; 
- Protection of natural resources.

Cost/schedule update (in millions): 

FY 2005 projected per unit cost[a]: $5.7; 
Current projected per unit cost[b]: $7.3; 
Actual funding available[c]: $373.6; 
Additional funding needed to complete[d]: $367.4. 
			
First asset delivery date: 
2005 Asset Introduction	Schedule: 2012; 
2006 Asset Introduction	Schedule: 2009; 
Current[e]: 2012.

Last asset delivery date: 
2005 Asset Introduction	Schedule: 2016; 
2006 Asset Introduction	Schedule: 2014; 
Current[e]: 2016. 

Performance Capability Changes in the Revised Deepwater Implementation 
Plans: 
The revised 2005 and 2006 Deepwater implementation plans called for 
providing communications equipment upgrades to make the equipment 
interoperable with other DHS entities, DOD assets, and local first 
responders. In addition, the communications capabilities were to 
include Rescue-21 assets—the Coast Guard's command and control 
communication infrastructure for all Coast Guard missions—including 
search and rescue, marine safety, and law enforcement. Other upgrades 
included installing equipment to detect chemical, biological, and 
radiological danger; and equipment for enhancing maritime patrol 
surveillance capabilities. In addition, added capabilities included 
airborne use of force and vertical insertion and delivery. Also, the 
number of planned MCHs increased from 93 in the original 2002 Deepwater 
implementation plan to 95 in the revised 2005 and 2006 Deepwater 
implementation Plans. More recently, the Coast Guard increased the 
number of planned MCHs by 7 to 102; these additional 7 will perform 
security missions in the National Capital Region. 

Current Status: 
The MCH is an upgraded legacy HH-65 helicopter. According to Coast 
Guard officials, the MCH assets will not have a single delivery date, 
as the process involves three phases of upgrades. Phase I is the 
purchase, delivery, and installation of new engines and engine control 
systems, intended to provide a 40-percent power growth. Phase II is a 
service-life extension program, and Phase III includes communications 
upgrades. As of April 3, 2007, the Coast Guard stated that phase I was 
nearing completion, with 75 helicopters having been delivered, 
following installation of the new engines, and that another nine were 
scheduled to be delivered ahead of the published delivery date of late 
June 2007. The remainder were to be finished by October 2007. The 
fiscal year 2008 congressional justification states that Phase II began 
in fiscal year 2007 and will end in fiscal year 2014, and that Phase 
III is to begin in fiscal year 2008 and is to end in fiscal year 2014.

[a] Based on projected budgeted/procurement costs divided by the 
projected number to be acquired in the FY 2005 Deepwater implementation 
plan. 

[b] Based on projected budgeted/procurement costs divided by the 
projected number as of February 7, 2007.

[c] As of January 31, 2007.

[d] Based on the FY 2008 Plan Update submitted to the Congress, in 
conjunction with submission of the February 2007 FY 2008 President's 
budget request, minus the actual funding available as of January 31, 
2007.

[e] "Current" date is as of March 2007 and derives from asset delivery 
dates provided by the Coast Guard to GAO outside of the Asset 
Introduction Schedules. 

[End of section]

Medium-Range Recovery Helicopter (MRR): 
[See PDF for image]

Quick look: 
* Total number planned: 42; 
* Medium-range recovery helicopter; 
* Maximum speed: 170 knots; 
* Operating range: 600 nautical miles; 
* Underway endurance: 6 hours; 
* Crew size: 4—2 officers, 2 enlisted personnel; 
* Missions: 
- Maritime safety; 
- Maritime security; 
- Protection of natural resources. 

Cost/schedule update (in millions): 

FY 2005 projected per unit cost[a]: $10.4; 
Current projected per unit cost[b]: $10.7; 
Actual funding available[c]: $100.9; 
Additional funding needed to complete[d]: $350.1. 
			
First asset delivery date: 
2005 Asset Introduction	Schedule: 2012; 
2006 Asset Introduction	Schedule: 2013; 
Current[e]: 2008.

Last asset delivery date: 
2005 Asset Introduction	Schedule: 2016; 
2006 Asset Introduction	Schedule: 2019; 
Current[e]: 2019. 

Performance Capability Changes in the Revised Deepwater Implementation 
Plans: 
The original 2002 Deepwater implementation plan proposed retiring the 
HH-60 and introducing a new fleet of helicopters. However, the revised 
2005 and 2006 Deepwater implementation plans included the MRR and 
called for providing communications equipment upgrades to make the 
equipment interoperable with other DHS entities, DOD assets, and local 
first responders. In addition, the communications capabilities were to 
include Rescue-21 assets—the Coast Guard's command and control 
communication infrastructure for all Coast Guard missions—including 
search and rescue, marine safety, and law enforcement. Other upgrades 
included installing equipment to detect chemical, biological, and 
radiological dangers; and equipment for enhancing maritime patrol 
surveillance capabilities. In addition, added capabilities included 
airborne use of force and vertical insertion and delivery. 

Current Status: 
The MRR is an upgraded legacy HI-60 helicopter. It began receiving a 
series of upgrades in fiscal year 2006 and these will continue into 
fiscal year 2012. The upgrades include the service life extension 
program, radar replacement, engine sustainment, fleet replacement, and 
avionics enhancements. According to the Coast Guard, the MRR is a non-
contract government-incurred (NCGI) project. Thus, the Coast Guard will 
assume primary program management responsibility for NCGI portions of 
the program. The Coast Guard's Aircraft Repair and Supply Center will 
manage the engine sustainment and service life extension projects, 
while the Coast Guard and ICGS will jointly manage other aspects of the 
program, such as the radar replacement.

[a] Based on projected budgeted/procurement costs divided by the 
projected number to be acquired in the FY 2005 Deepwater implementation 
plan. 

[b] Based on projected budgeted/procurement costs divided by the 
projected number as of February 7, 2007.

[c] As of January 31, 2007.

[d] Based on the FY 2008 Plan Update submitted to the Congress, in 
conjunction with submission of the February 2007 FY 2008 President's 
budget request, minus the actual funding available as of January 31, 
2007.

[e] "Current" date is as of March 2007 and derives from asset delivery 
dates provided by the Coast Guard to GAO outside of the Asset 
Introduction Schedules. 

[End of section]

Maritime Patrol Aircraft (MPA):
[See PDF for image]

Quick look: 
* Replaces the HU-25 Falcon; 
* Total number planned: 36; 
* Fixed-wing aircraft; 
* Maximum speed: 236 knots; 
* Operating range: 2,117 nautical miles; 
* Underway endurance: 8.7 hours; 
* Crew size: 5—2 officers, 3 enlisted personnel; 
* Missions: 
- Maritime safety; 
- Maritime security; 
- Protection of natural resources. 

Cost/schedule update (in millions): 

FY 2005 projected per unit cost[a]: $44.2; 
Current projected per unit cost[b]: $47.4; 
Actual funding available[c]: $399.5; 
Additional funding needed to complete[d]: $1,306.5. 
			
First asset delivery date: 
2005 Asset Introduction	Schedule: 2008; 
2006 Asset Introduction	Schedule: 2008; 
Current[e]: 2006.

Last asset delivery date: 
2005 Asset Introduction	Schedule: 2017; 
2006 Asset Introduction	Schedule: 2022; 
Current[e]: 2022. 

Performance Capability Changes in the Revised Deepwater Implementation 
Plans: 
The revised 2005 and 2006 Deepwater implementation plans called for 
providing communications equipment upgrades to make the equipment 
interoperable with other DHS entities, DOD assets, and local first 
responders. In addition, the communications capabilities were to 
include Rescue-21 assets—the Coast Guard's command and control 
communication infrastructure for all Coast Guard missions—including 
search and rescue, marine safety, and law enforcement. Additional 
upgrades include installing equipment to detect chemical, biological, 
and radiological dangers; and for enhancing maritime patrol 
surveillance capabilities. In addition, the number of planned MPAs 
increased from 35 in the original 2002 Deepwater implementation plan to 
36 in the revised 2005 and 2006 Deepwater implementation plans. 

Current Status: 
The MPA is a commercial aircraft produced in Spain that. is being 
upgraded with equipment intended to permit the Coast Guard to carry out 
its missions. The first MPA was delivered to the Coast Guard in 
December 2006, the second was delivered in February 2007, and a third 
is due in August 2007. Five more are on contract. Pilots and aircrew 
participated in training classes in Spain, and Coast Guard is to take 
responsibility for the development and implementation of maintenance 
and logistics support for the MPA.

[a] Based on projected budgeted/procurement costs divided by the 
projected number to be acquired in the FY 2005 Deepwater implementation 
plan. 

[b] Based on projected budgeted/procurement costs divided by the 
projected number as of February 7, 2007.

[c] As of January 31, 2007.

[d] Based on the FY 2008 Plan Update submitted to the Congress, in 
conjunction with submission of the February 2007 FY 2008 President's 
budget request, minus the actual funding available as of January 31, 
2007.

[e] "Current" date is as of March 2007 and derives from asset delivery 
dates provided by the Coast Guard to GAO outside of the Asset 
Introduction Schedules. 

[End of section]

Vertical Takeoff and Landing Unmanned Aerial Vehicle (VUAV): 
[See PDF for image]

Quick look:
* New asset; 
* Total number planned: 45; 
* Shipboard-deployable vertical takeoff and landing unmanned aircraft; 
* Maximum speed: 211 knots; 
* Operating range: 100 nautical miles; 
* Underway endurance: 6 hours; 
* Used to surveil, detect, classify, and identify targets of interest 
beyond a cutter's visual range or sensors; 
* Planned to be deployed from the National Security Cutter and Offshore 
Patrol Cutter; 
* Missions: 
- Maritime safety; 
- Maritime security; 
- Protection of natural resources; 
- National defense. 

Cost/schedule update (in millions): 

FY 2005 projected per unit cost[a]: $11.2; 
Current projected per unit cost[b]: $11.2; 
Actual funding available[c]: $152.4; 
Additional funding needed to complete[d]: $350.6. 
			
First asset delivery date: 
2005 Asset Introduction	Schedule: 2007; 
2006 Asset Introduction	Schedule: 2008; 
Current[e]: 2015.

Last asset delivery date: 
2005 Asset Introduction	Schedule: 2022; 
2006 Asset Introduction	Schedule: 2025; 
Current[e]: 2025. 

Performance Capability Changes in the Revised Deepwater Implementation 
Plans: 
The revised 2005 and 2006 Deepwater implementation plans' changes for 
the VUAV included installing equipment for detecting chemical, 
biological, and radiological dangers. In addition, the number of 
planned number of VUAVs was reduced from 69 in the original 2002 
Deepwater implementation plan to 45 in the revised 2005 and 2006 
Deepwater implementation plans. 

Current Status: 
Changes in funding levels and evolving technological developments have 
delayed the delivery of the VUAV. Coast Guard officials explained that 
since the time of the original contract award, the DOD has progressed 
in developing a different unmanned aerial vehicle—the Fire Scout—that 
Coast Guard officials say is more closely aligned with Coast Guard 
needs. Coast Guard has directed an independent third party to compare 
the capabilities of its planned VUAV to the Fire Scout. In addition, 
the Coast Guard is currently reviewing potential alternative unmanned 
aerial systems in lieu of the VUAV. The fiscal year 2008 DHS 
congressional budget. justification indicates that the Coast Guard does 
not plan to request funding for the VUAV through fiscal year 2012. The 
Coast Guard originally intended to match the NSC and VUAV delivery 
dates so that the VUAV could launch from the NSC to provide 
surveillance capabilities beyond the cutter's visual range or sensors. 
However, with the delay in the VUAV's development schedule, it no 
longer aligns with the NSC's initial deployment schedule. Coast Guard 
officials state that they now do not expect the VUAV first-in-class to 
be produced earlier than 2015, 8 years later than planned, and that 
they are examining how to address the operational impacts of having the 
NSC operate without the VUAV. The Coast Guard is looking at the 
potential use of other assets, such as the HH-65 helicopter, the MPA, 
the SRP, and the LRI, and possibly unmanned aerial vehicles (UAVs), to 
provide surveillance capabilities for the NSC.

[a] Based on projected budgeted/procurement costs divided by the 
projected number to be acquired in the FY 2005 Deepwater implementation 
plan. 

[b] Based on projected budgeted/procurement costs divided by the 
projected number as of February 7, 2007.

[c] As of January 31, 2007.

[d] Based on the FY 2008 Plan Update submitted to the Congress, in 
conjunction with submission of the February 2007 FY 2008 President's 
budget request, minus the actual funding available as of January 31, 
2007.

[e] "Current" date is as of March 2007 and derives from asset delivery 
dates provided by the Coast Guard to GAO outside of the Asset 
Introduction Schedules. 

[End of section]

Long-Range Search Aircraft (LRS): 
[See PDF for image]

Quick look: 
* Two versions of the LRS are planned: (1) 16 upgraded HC-130Hs, and 
(2) 6HC-130Js. The latter are new aircraft intended to be acquired and 
then missionized to meet Coast Guard requirements. 
* Total number planned: 22—16 HC-130Hs and 6 HC-130Js; 
* Fixed-wing aircraft; 
* Maximum speed: 330 knots; 
• Operating range:
- HC-130Hs: 4,100 nautical miles; 
- HC-130Js: 5,500 nautical miles; 
* Underway endurance: 
- HC-130Hs: 14 hours; 
- HC-130Js: 21 hours; 
* Crew size: 7—2 officers, 5 enlisted personnel; 
* Missions: 
- Maritime safety; 
- Maritime security; 
- Protection of natural resources; 
- National defense; 

Cost/schedule update (in millions): 

FY 2005 projected per unit cost[a]: $23.9[a] (HC-130Hs); $0.0 (HC-
130Js); 
Current projected per unit cost[b]: $38.1 (H); $1.8 (J); 
Actual funding available[c]: $68.8 (H); $4.9 (J); 
Additional funding needed to complete[d]: $541.2 (H); $6.1 (J). 
			
First asset delivery date: 
2005 Asset Introduction	Schedule: 2012 (H); 2008 (J); 
2006 Asset Introduction	Schedule: 2011 (H); 2008 (J);  
Current[e]: 2012 (H); 2006 (J)[f].

Last asset delivery date: 
2005 Asset Introduction	Schedule: 2015 (H); 2008 (J); 
2006 Asset Introduction	Schedule: 2016 (H); 2008 (J);  
Current[e]: 2016 (H); 2008 (J).  

Performance Capability Changes in the Revised Deepwater Implementation 
Plans: 
The revised 2005 and 2006 Deepwater implementation plans include 
converting 16 HC-130Hs already in the Coast Guard's inventory, and 6 HC-
130Js, into the LRS. The latter are intended to supplement the aging 
fleet of HC-130Hs, according to the Coast Guard. The plans also called 
for providing communications equipment upgrades to make the equipment 
interoperable with other DHS entities, DOD assets, and local first 
responders. In addition, the communications capabilities were to 
include Rescue-21 assets—the Coast. Guard's command and control 
communication infrastructure for all Coast Guard missions—including 
search and rescue, marine safety, and law enforcement. Additional 
upgrades included installing equipment to detect chemical, biological, 
and radiological dangers; and equipment for enhancing maritime patrol 
surveillance capabilities. Also, the revised 2005 and 2006 Deepwater 
implementation plans increased the LRS' ability to provide nationwide 
strategic airlift capabilities.  

Current Status: 
The LRS is comprised of two fixed-wing aircraft classes: (1) 16 
upgraded IIC-130Hs and (2) 6 HC-130Js, missionized to meet Coast Guard 
requirements. The first aircraft entered the modification process in 
December 2006, and five additional aircraft are to be modified by July 
2008. In fiscal year 2008, funding has been requested to upgrade the HC-
130H radar and avionics, and for the HC-130J fleet introduction.

[a] Based on projected budgeted/procurement costs divided by the 
projected number to be acquired in the FY 2005 Deepwater implementation 
plan.  

[b] Based on projected budgeted/procurement costs divided by the 
projected number as of February 7, 2007. 

[c] As of January 31, 2007. 

[d] Based on the FY 2008 Plan Update submitted to the Congress, in 
conjunction with submission of the February 2007 FY 2008 President's 
budget request, minus the actual funding available as of January 31, 
2007. 

[e] "Current" date is as of March 2007 and derives from asset delivery 
dates provided by the Coast Guard to GAO outside of the Asset 
Introduction Schedules.  

[End of section] 

Appendix III: Status of Prior GAO Recommendations:  

GAO Recommendation 2004, Program Management: Follow the procedures 
outlined in the human capital plan to ensure that adequate staffing is 
in place and turnover among Deepwater personnel is proactively 
addressed; 
GAO 2006 Status: Implemented;
GAO 2007 Status:  

GAO Recommendation 2004, Program Management: In collaboration with the 
system integrator, take the necessary steps to make IPTs effective 
including: (1) training IPT members in a timely manner, (2) chartering
the sub-IPTs, (3) making improvements to the electronic information 
system that would result in better information sharing among IPT 
members who are geographically dispersed;
GAO 2006 Status: Partially Implemented;
GAO 2007 Status: Partially Implemented: The Coast Guard has taken over 
IPT leadership and plans to update the program management plan to 
reflect changing roles and responsibilities between the Coast Guard and 
ICGS. It is too early to assess the impact of these planned changes at 
this time.  

GAO Recommendation 2004, Program Management: As Deepwater assets begin 
to be delivered to operational units, ensure that field operators and 
maintenance personnel are provided with timely information and training 
on how the transition will occur and how maintenance responsibilities 
are to be divided between system integrator and Coast Guard personnel; 
GAO 2006 Status: Partially Implemented;
GAO 2007 Status: Partially Implemented: The Coast Guard has announced 
they are reaffirming the role of the Coast Guard’s chief engineer as 
the technical authority for all acquisition projects. In addition, the 
Coast Guard is now the default provider of maintenance and logistics 
and is responsible for ensuring that logistics products are developed, 
implemented, and delivered. Given these recent decisions, time is 
needed to evaluate the implementation.  

GAO Recommendation 2004, Contractor Accountability: Develop and adhere 
to measurable award fee criteria consistent with the Office of Federal 
Procurement Policy’s guidance.
GAO 2006 Status: Implemented;
GAO 2007 Status: 

GAO Recommendation 2004, Contractor Accountability: In all future award 
fee assessments, ensure that the input of contracting officers’ 
technical representatives COTR) are considered and set forth in a more 
rigorous manner.
GAO 2006 Status: Implemented;
GAO 2007 Status: 

GAO Recommendation 2004, Contractor Accountability: Hold the system 
integrator accountable in future award fee determinations for improving 
the effectiveness of IPTs. 
GAO 2006 Status: Implemented[a];
GAO 2007 Status: 

GAO Recommendation 2004, Contractor Accountability: Establish a TOC 
baseline that can be used to measure whether the Deepwater acquisition 
approach is providing the government with increased efficiencies 
compared to what it would have cost without this approach. 
GAO 2006 Status: USCG will not Implement; 
GAO 2007 Status: Closed: Although set forth in its program management 
plan, the Coast Guard does not intend to establish a baseline cost for 
replacing the assets under a traditional approach which could be used 
as a comparison to the Deepwater system of systems acquisition 
approach.  

GAO Recommendation 2004, Contractor Accountability: Based on the 
current schedule for delivery of Deepwater assets, 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 the contractor’s
progress toward improving operational effectiveness. 
GAO 2006 Status: Partially Implemented; 
GAO 2007 Status: Partially Implemented: Key performance parameters have 
been added to criteria for measuring operational effectiveness; 
however, the models still lack the fidelity to attribute improvements 
to the contractor or the Coast Guard. 

GAO Recommendation 2004, Contractor Accountability: Establish criteria 
to determine when the TOC baseline should be adjusted and ensure that 
the reasons for any changes are documented. 
GAO 2006 Status: Partially Implemented; 
GAO 2007 Status: Partially Implemented: DHS’s oversight requirements 
include an annual review of the Deepwater program baseline and 
submission of quarterly reports. The most recent baseline update (Nov. 
2006) has yet to be approved by DHS. The Coast Guard has provided DHS 
with quarterly program reports. Further, according to a Coast Guard 
official, DHS approval is pending on shifting the baseline against 
which the systems integrator is measured to an asset basis.  

GAO Recommendation 2004, Cost Control Through Competition: For 
subcontracts over $5 million awarded by ICGS to Lockheed Martin and 
Northrop Grumman, require Lockheed Martin and Northrop Grumman to 
notify the Coast Guard of a decision to perform the work themselves 
rather than contracting it out. The documentation should include an 
evaluation of the alternatives considered. 
GAO 2006 Status: Implemented; 
GAO 2007 Status:  

GAO Recommendation 2004, Cost Control Through Competition: Develop a 
comprehensive plan for holding the system integrator accountable for 
ensuring an adequate degree of competition among second-tier suppliers 
in future program years. This plan should include metrics to measure 
outcomes and consideration of how these outcomes will be taken into 
account in future award fee decisions. 
GAO 2006 Status: Partially Implemented; 
GAO 2007 Status: Partially Implemented: Although the Coast Guard had 
requested additional information from ICGS on competition, it does not 
have the information to determine the level of competition achieved. 
Further, they have not included metrics to measure competition outcomes 
in the award fee decisions. In the mean time, the Coast Guard business 
case analyses demonstrated that ICGS did not leverage competition to 
deliver the best value for certain Deepwater assets. The Coast Guard 
plans to gain insight into competition by performing additional 
business case analyses and if necessary re-competing assets. 

Source: GAO-04-380, GAO-06-546, and GAO analysis of Coast Guard data. 

[a] IPT performance was included in the award fee criteria for the 
February 2005-December 2006 performance evaluation periods, but was 
removed from the award fee criteria for the January 2007-June 2007 
performance evaluation period.  

[End of section] 

Appendix IV: Comments from the Department of Homeland Security: 

U.S. Department of Homeland Security: 
Washington, DC 20528: 

Homeland Security:
[hyperlink, http://www.dhs.gov]: 

June 13, 2007:  

Mr. Stephen L. Caldwell:
Director, Homeland Security and Justice: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Caldwell: 

RE: Draft Report GAO-07-874, Coast Guard: Challenges Affecting 
Deepwater Asset Deployment and Management and Efforts to Address Them 
(GAO Job Code 440533). 

The Department of Homeland Security (DHS) appreciates the opportunity 
to review and comment on the draft report referenced above. While the 
Government Accountability Office (GAO) makes no new recommendations, we 
recognize that numerous challenges remain. 

The Coast Guard remains grateful for all that the Government 
Accountability Office has done to bring attention to issues relating to 
the Deepwater Program's challenges and concurs with the report's 
findings. The Department and, in particular, the Coast Guard 
appreciates the commitment the GAO has made towards making the 
Deepwater Program successful and values the constructive and candid 
criticism. Coast Guard benefits from the oversight and is prudently 
implementing existing recommendations to ensure improvement to its 
acquisition program. 

The Coast Guard's overarching goal is to recapitalize its aging fleet 
of cutters, aircraft and sensors and the actions taken by its 
leadership have been dedicated to that purpose. Agency officials 
appreciate GAO's recognition that the recapitalization must occur 
simultaneously with acquisition reform. The GAO's continuing interest 
in Deepwater has served as a catalyst for the kind of real change 
needed to promote sound stewardship and effective program management at 
all levels. 

Five years into this 25-year acquisition, the Coast Guard has achieved 
several notable successes, but also learned some hard lessons. As a 
result of those lessons learned, Coast Guard is taking aggressive 
action every day to strengthen program management and execution and to 
ensure past mistakes will not be repeated. 

Coast Guard is making the changes necessary to propel the program to 
ultimate success and provide the critical cutters, aircraft and sensors 
needed to meet its dynamic mission requirements. The Department, 
particularly the Coast Guard, is anxious for positive results. 

Acquisition success is dependent upon the proper organizational 
structure and alignment within Coast Guard's acquisition community with 
the stand up of its new Acquisition Directorate (CG-9). 

The initial operation of this new directorate will begin officially on 
July 13, 2007. As part of this consolidation, the Acquisition 
Directorate, the Deepwater Program Office, the Office of Procurement 
Management, the Office of Research, Development, and Technical 
Management, the Research and Development Center, and the Head 
Contracting Authority are being brought together under one roof, led by 
an Assistant Commandant for Acquisition. This means that Coast Guard 
will be better able to allocate its contracting and acquisition 
professionals and resources to focus on excellence in program 
management and execution. Coast Guard expects this change to create 
efficiencies and more consistent and coherent processes, leading 
ultimately to a more effective acquisition organization. However, 
despite efficiency gains, Coast Guard officials are addressing 
personnel shortfalls in several areas and/or building further into 
governmental partnerships to reach full directorate capability. 

Coast Guard senior officials also redefined the role of the Coast 
Guard's chief engineer (CG-4) as the lead technical authority for all 
designs and design changes and the operational community for definition 
of asset performance requirements. This means that project and program 
managers, as well as associated contracting and acquisition 
professionals, have a direct link back to Coast Guard technical and 
operational experts to ensure that designs meet requirements. Agency 
officials are also further defining the role of the Coast Guard's Chief 
information Officer as the technical expert for all C4ISR systems and 
equipment. 

In order to strengthen government management and oversight of the 
Deepwater program as well as to better position the Coast Guard to 
fully oversee the contractor and effectively adjudicate technical 
concerns, senior officials have mandated that all Integrated Product 
Teams (IPT) be chaired by an officer or employee of the Coast Guard. 
That change happened in March 2007. Previously, IPTs were chaired by 
representatives from Integrated Coast Guard Systems (ICGS). 
Additionally, all IPT charters have been re-examined to determine where 
other changes might be made if needed. Coast Guard leadership of IPTs 
means the agency is better able to resolve non-major technical concerns 
or, where concerns persist, raise them to the appropriate management 
and contracting levels for adjudication. 

Change within Deepwater and the Coast Guard acquisition community 
required agency senior officials to take a hard look at workforce needs 
moving forward. Deepwater was initially envisioned and developed as a 
way to acquire needed assets while maintaining minimal government 
program management staff: Five years later, the Department and Coast 
Guard know that method didn't deliver the desired results. In order to 
support the Coast Guard taking on more appropriate program and contract 
management responsibilities, senior officials are keenly focused on 
building out the workforce to achieve required bench depth in such 
professional areas as program management, systems engineering, cost 
estimating, and contracting. They are dedicated to creating a certified 
corps of professionals with the required experience to compliment the 
existing dedicated contracting and acquisition staffs. 

Along with the Coast Guard analysis to right-size staffing levels, 
officials have reinvigorated the acquisition training and certification 
process to ensure that all technical and support staff, program 
managers and contracting officers have the requisite skills and 
education needed to manage complex acquisitions. Coast Guard's desired 
end state is to become the model for mid-sized federal agency 
acquisition and procurement, in full alignment with the Department of 
Homeland Security acquisition objectives. 

Coast Guard officials are also currently negotiating to modify the 
Deepwater contract for the first award term. While the new award term 
does establish ICGS as a possible sole-source option, it does not 
obligate the government nor guarantee award of any work to ICGS. This 
new contract represents a significant change to the Deepwater 
enterprise and demonstrates the Coast Guard's commitment to robust 
oversight. The scope of the new award term contract is fully one-third 
less than the original base contract, and positions the Coast Guard 
with more favorable terms and conditions. 

The complexity of the Deepwater program and the diverse missions of 
planned assets make design review a crucial element of the successful 
execution of this program. To ensure that designs and assets will meet 
Coast Guard needs, the agency has increased its use of independent, 
third-party review and analysis (in concert with the USCG technical 
authorities) for all new starts or substantial design changes. Inherent 
in this initiative is a renewed commitment to utilize full business 
case analyses for all new acquisition decisions to instill confidence 
that Coast Guard is building and buying the right tools for our Coast 
Guard men and women and at the best value for taxpayers. 

Coast Guard's partnerships and cooperative relationships with the U.S. 
Navy and others extend beyond third party assessments. The Coast Guard 
is leveraging sound principles of systems engineering and integration 
to derive high levels of sub-system and component commonality, improve 
interoperability with the U.S. Navy and other agencies, and achieve 
significant cost avoidances and savings. This approach conforms with 
and directly supports the National Fleet Policy. 

While acknowledging lessons learned from past mistakes, Coast Guard 
also needs and intends to capitalize on significant recent 
accomplishments. With 84 re-engined HH-65C helicopters flying, two 
National Security Cutters under construction, Coast Guard's first Long 
Range Interceptor in the water, eight CASA maritime patrol aircraft on 
contract, and C4ISR upgrades completed on 39 legacy cutters and three 
Communications and Command Centers, Deepwater is moving in the right 
direction as agency officials inject robust government oversight and 
systems integrator skills into this acquisition. 

Furthermore, Deepwater assets are in the fleet today, contributing to 
the successful execution of an array of Coast Guard missions 
including:  

- With a 40 percent power increase and greater reliability, the HH-65C 
has re-established itself as the deployable mainstay of the Coast Guard 
helicopter fleet and played an invaluable part during the Coast Guard's 
response to Hurricane Katrina. And, just last July, a hiker in the 
Olympic National Forest fell 6,500 feet down the side of a mountain and 
owes his life to a daring rescue by a well-trained Coast Guard aircrew, 
flying a newly delivered HH-65C helicopter—recently re-engined as part 
of the Deepwater program. This hoist would have been impossible to 
accomplish with the previous HH-65 model helicopter.  

- A training facility in Petaluma, CA has opened and houses high-tech 
shipboard operation simulators and state-of-the-art radar and 
electronics systems and will provide critical command, control, 
communications, computers, intelligence, surveillance, and 
reconnaissance (C4ISR) training for Coast Guard and U.S. Navy crews. 

- Deepwater upgrades to legacy cutters are also contributing to mission 
success. In March 2007, the crew of the CGC SHERMAN executed the 
largest drug bust in the Coast Guard's history—19.5 metric tons of 
cocaine from the Motor Vessel GATUN off the coast of Panama—which would 
not have been possible without the Deepwater installed C4ISR systems. 

These operational successes just begin to illustrate the tremendous 
potential for Deepwater to greatly enhance the Coast Guard's ability to 
perform its missions. As Deepwater's system of assets continues to be 
delivered, Coast Guard senior officials are confident that they will 
meet or exceed not just capability requirements, but patrol and 
response capacity needs as well. The soon to he aligned acquisition 
organization, along with the other program management initiatives 
discussed here, will enable the Coast Guard to take the steps that the 
GAO and others have recommended. 

Much work still lies ahead, but the Coast Guard is better positioned, 
organized and empowered to execute acquisitions effectively. Open and 
honest dialogue between the Department/Coast Guard and GAO is 
essential. Coast Guard will continue to advise you of its challenges 
and successes, make additional changes where needed and fully support 
the GAO's efforts in helping Coast Guard make Deepwater a success. 

Sincerely, 

Signed by:  

Steven J. Pecinovsky: 
Director: 
Departmental GAO/OIG Liaison Office: 

[End of section] 

Appendix V: GAO Contacts and Acknowledgments: 

GAO Contacts:  

Stephen L. Caldwell at (202) 512-9610 or by e-mail at caldwells@gao.gov;
or John P. Hutton at (202) 512-7773 or by e-mail at huttonj@gao.gov. 

Acknowledgments:
In addition to the above, key contributors to this report were Penny
Augustine, Amy Bernstein, Virginia Chanley, Christopher Conrad, Adam
Couvillion, Kathryn Edelman, Geoffrey Hamilton, Melissa Jaynes, Crystal
Jones, Raffaele Roffo, Sylvia Schatz, and Jonathan R. Tumin. 

Related GAO Products:  

Coast Guard: Status of Efforts to Improve Deepwater Program Management 
and Address Operational Challenges, GAO-07-575T (Washington, D.C.: Mar. 
8, 2007).  

Coast Guard: Preliminary Observations on Deepwater Program Assets and 
Management Challenges, GAO-07-446T (Washington, D.C.: Feb. 15, 2007).  

Coast Guard: Coast Guard Efforts to Improve Management and Address 
Operational Challenges in the Deepwater Program, GAO-07-460T 
(Washington, D.C.: Feb. 14, 2007).  

Homeland Security: Observations on the Department of Homeland 
Security’s Acquisition Organization and on the Coast Guard’s Deepwater 
Program, GAO-07-453T (Washington, D.C.: Feb. 8, 2007).  

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

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

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

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

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

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

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

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

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

Coast Guard’s Acquisition Management: Deepwater Project’s
Justification and Affordability Need to Be Addressed More Thoroughly,
GAO/RCED-99-6 (Washington, D.C.: Oct. 26, 1998).  

[End of section] 

FOOTNOTES:  

[1]H.R. Conf. Rep. No. 109-699 (2006), incorporating GAO reporting 
provisions contained in H.R. Rep. No. 109-476 (2006).  

[2]For purposes of this report, we are using the term “delivery” to 
refer to the date when the Coast Guard takes possession of the asset 
from the contractor. This does not correspond to the date the asset is 
operational, because the asset will generally still require further 
evaluation and testing before it is deployed.  

[3]Integrated product teams are composed of members representing the 
Coast Guard, the contractor, and subcontractors.  

[4]Based on an agreement with the committees’ staff, our work focused 
on the 10 classes of vessels and aircraft within the Deepwater 
program.  

[5]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); Coast Guard: Deepwater Program 
Acquisition Schedule Update Needed, GAO-04-695 (Washington, D.C.: June 
2004); Coast Guard: Status of Efforts to Improve Deepwater Program 
Management and Address Operational Challenges, GAO-07-575T (Washington, 
D.C.: Mar. 8, 2007); Coast Guard: Preliminary Observations on Deepwater 
Program Assets and Management Challenges, GAO-07-446T (Washington, 
D.C.: Feb. 15, 2007).  

[6]H.R. Conf. Rep. No. 109-699 (2006), incorporating GAO reporting 
provisions contained in H.R. Rep. No. 109-476 (2006).  

[7]For purposes of this report, we are using the term "delivery" to 
refer to the date when the Coast Guard takes possession of the asset 
from the contractor. This does not correspond to the date the asset is 
operational, because the asset will generally still require further 
evaluation and testing before it is deployed.  

[8]IPTs are composed of members representing the Coast Guard, ICGS, and 
subcontractors.  

[9] Within Deepwater, 14 chartered IPTs are responsible for managing 
different groups of assets.  

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