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entitled 'Coast Guard: Deepwater Requirements, Quantities, and Cost 
Require Revalidation to Reflect Knowledge Gained' which was released 
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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

July 2010: 

Coast Guard: 

Deepwater Requirements, Quantities, and Cost Require Revalidation to 
Reflect Knowledge Gained: 

GAO-10-790: 

GAO Highlights: 

Highlights of GAO-10-790, a report to congressional committees. 

Why GAO Did This Study: 

The Deepwater Program includes efforts to build or modernize ships and 
aircraft and to procure other capabilities. After a series of project 
failures, the Coast Guard announced in 2007 that it was taking over 
the systems integrator role from Integrated Coast Guard Systems 
(ICGS). At the same time, a $24.2 billion program baseline was 
established which included schedule and performance parameters at an 
overall system level. GAO has previously reported on the Coast Guard’s 
progress in establishing individual baselines for Deepwater assets and 
has made a number of recommendations, which have largely been 
addressed. In response to the conference report accompanying the 
Department of Homeland Security (DHS) Appropriations Act, 2010, GAO 
assessed (1) DHS and Coast Guard acquisition policies and approach to 
managing the program, (2) whether the program is meeting the 2007 
baseline, and (3) Coast Guard efforts to manage and build its 
acquisition workforce. GAO reviewed Coast Guard and DHS policies and 
program documents, and interviewed officials. 

What GAO Found: 

DHS has revised its approach to managing and overseeing Deepwater by 
making the program subject to its recently finalized acquisition 
directive, which establishes a number of review points to provide 
insight into such key documents as baselines and test reports. DHS has 
also increased the number of its reviews of individual Deepwater 
assets. The Coast Guard’s own management policies are generally 
aligned with DHS directives, although operational testing policies are 
still being revised, and it has developed additional guidance on 
completion of key requirements documents. In taking on the systems 
integrator role, the Coast Guard is also decreasing its dependence on 
ICGS by planning for alternate vendors on some of the assets already 
in production, as well as awarding and managing work outside of the 
ICGS contract for other assets. 

Currently, the Deepwater Program exceeds the 2007 cost and schedule 
baselines, and given revisions to performance parameters for certain 
assets, it is unlikely to meet system-level performance baselines. The 
asset-specific baselines that have been approved to date, while 
providing greater insight into asset-level capabilities, place the 
total cost of Deepwater at roughly $28 billion, or $3.8 billion over 
the $24.2 billion 2007 baseline. The revised baselines also present 
life-cycle costs, which encompass the acquisition cost as well as 
costs for operations and maintenance. While the revised baselines show 
a significant decrease in life-cycle costs, due to changes to 
assumptions like shorter service lives for assets, the Coast Guard’s 
understanding of them continues to evolve as the agency revisits its 
assumptions and produces new cost estimates. Costs could continue to 
grow as four assets currently lack revised cost baselines; among them 
is the largest cost driver in the Deepwater Program, the Offshore 
Patrol Cutter. The asset-level baselines also indicate that schedules 
for some assets are expected to be delayed by several years. Regarding 
system-level performance, the 2007 baseline may not be achievable, as 
the Coast Guard has redefined or eliminated key performance indicators 
for many individual assets, while significant uncertainties surround 
other assets. Further, a planned analysis to reassess the overall 
fleet mix for Deepwater was not completed as planned, and a new 
analysis will include surface assets only. In the meantime, the Coast 
Guard and DHS are proceeding with acquisition decisions on individual 
assets. 

The Coast Guard continues to take steps to address its acquisition 
workforce needs as it assumes the role of system integrator. For 
example, it is using a workforce planning model to estimate current 
and future needs for key acquisition personnel. The Coast Guard has 
also begun to implement initiatives such as promoting career growth 
for acquisition professionals. External limitations on the 
availability of acquisition personnel, coupled with 100 new positions 
authorized in fiscal year 2010, place the Coast Guard’s acquisition 
directorate vacancy rate at about 20 percent. While it is using 
contractors in support roles, the Coast Guard has released guidance 
regarding the roles of government staff in overseeing contractors. 

What GAO Recommends: 

GAO recommends that the Coast Guard complete an overall assessment 
that clarifies the quantities, mix, and cost of assets needed to meet 
requirements, given that the current Deepwater baseline is no longer 
feasible, and that the results be reported to Congress. DHS concurred 
with the recommendation. 

View [hyperlink, http://www.gao.gov/products/GAO-10-790] or key 
components. For more information, contact John P. Hutton at (202) 512- 
4841 or huttonj@gao.gov. 

Contents: 

Letter: 

Background: 

DHS and Coast Guard Acquisition Policies and Processes Continue to 
Evolve, Further Establishing the Coast Guard as Systems Integrator: 

As Understanding of Assets Evolves, Achievement of 2007 Deepwater 
Baselines Is Unlikely: 

Coast Guard Continues to Improve Acquisition Workforce and Develop 
Means to Further Reduce Vacancies: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: GAO Contact and Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Information on Deepwater Assets: 

Table 2: Length of Approval Processes for Department-approved Baseline 
Revisions: 

Table 3: Increased Total Acquisition Costs for Deepwater Assets with 
Approved Baselines as of July 2010 (then-year dollars in millions): 

Table 4: 2007 and Revised Life-cycle Cost Baselines for Deepwater 
Assets (then-year dollars in millions): 

Table 5: Revised Life-cycle Cost Baselines and Current Life-cycle Cost 
Estimates for Deepwater Assets (then-year dollars in millions): 

Table 6: Changes in Initial Operational Capability and Final Asset 
Delivery from 2007 Baseline for Selected Deepwater Assets as of July 
2010: 

Table 7: System-level Requirements from 2007 Deepwater Baseline: 

Figures: 

Figure 1: Key Events in the Deepwater Program: 

Figure 2: Deepwater Assets Within DHS Acquisition Phases and Decision 
Events as of July 2010: 

Figure 3: Acquisition Workforce, as of April 2010: 

Abbreviations: 

C4ISR: Command, Control, Communications, Computers, Intelligence, 
Surveillance, and Reconnaissance: 

DHS: Department of Homeland Security: 

ICGS: Integrated Coast Guard Systems: 

MSAM: Major Systems Acquisition Manual: 

NSC: National Security Cutter: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

July 27, 2010: 

The Honorable Frank Lautenberg: 
Interim Chairman: 
The Honorable George Voinovich: 
Ranking Member: 
Subcommittee on Homeland Security: 
Committee on Appropriations: 
United States Senate: 

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

The Deepwater Program--the largest acquisition program in the Coast 
Guard's history--began in 1996 as an effort to recapitalize the Coast 
Guard's operational fleet. The program now includes projects to build 
or modernize five classes each of ships and aircraft, and procurement 
of other capabilities such as improved command, control, 
communications, computers, intelligence, surveillance, and 
reconnaissance (C4ISR) and unmanned aircraft. Recognizing that it did 
not have a workforce with the experience and depth to manage the 
acquisition, the Coast Guard contracted with Integrated Coast Guard 
Systems (ICGS) in June 2002 to be the systems integrator for 
Deepwater.[Footnote 1] ICGS was contractually responsible for 
designing, constructing, deploying, supporting, and integrating the 
Deepwater assets into a system-of-systems. However, after a series of 
programmatic failures, the Commandant acknowledged in April 2007 that 
the Coast Guard had relied too heavily on contractors to do the work 
of the government and that government and industry had failed to 
control costs. He announced several major changes to the acquisition 
approach for Deepwater--primarily the Coast Guard taking over as the 
systems integrator. In May 2007, soon after this announcement, the 
Department of Homeland Security (DHS) approved an acquisition program 
baseline of $24.2 billion for the Deepwater Program.[Footnote 2] Since 
that time, the Coast Guard--with greater oversight from DHS--has taken 
a number of steps in managing Deepwater projects, such as: 

* reorganizing the acquisition directorate and its relationships with 
Coast Guard technical authorities, 

* applying the knowledge-based acquisition policies and practices 
outlined in the Coast Guard's Major Systems Acquisition Manual (MSAM), 
and: 

* developing baselines on an asset-by-asset level as opposed to a 
system-of-systems level. 

In response to direction in the conference report accompanying the 
Department of Homeland Security Appropriations Act, 2010, and 
discussions with your offices, we assessed (1) changes to DHS and 
Coast Guard acquisition policies, processes, and the approach related 
to Deepwater since our July 2009 report;[Footnote 3] (2) whether the 
Deepwater Program is meeting baselines for cost, schedule, and 
performance; and (3) the Coast Guard's efforts to manage and build its 
acquisition workforce. 

To conduct our work, we reviewed key Coast Guard and DHS documentation 
such as the MSAM, DHS Acquisition Instruction 102-01, original and 
revised acquisition program baselines, and human capital plans. We 
interviewed Coast Guard acquisition directorate officials, including 
program managers and human capital officials, and officials from other 
Coast Guard directorates such as those responsible for providing life- 
cycle support and for assessing and developing operational 
requirements for Deepwater assets. In addition, we interviewed DHS 
officials from the Acquisition Program Management Directorate, Cost 
Analysis Division, and Test and Evaluation Directorate. We also 
interviewed contractor officials from Northrop Grumman Shipbuilding 
and Bollinger Shipyards and toured the shipyards. We relied in part on 
our past work on the Deepwater Program. Appendix I contains more 
information regarding our scope and methodology. We conducted this 
performance audit from October 2009 to July 2010 in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings 
and conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Background: 

The Coast Guard is a multimission, maritime military service within 
DHS. The Coast Guard's responsibilities fall into two general 
categories--those related to homeland security missions, such as port 
security and vessel escort, and those related to the Coast Guard's 
traditional missions, such as search and rescue and polar ice 
operations. To carry out these responsibilities, the Coast Guard 
operates a number of vessels and aircraft, some of which it is 
currently modernizing or replacing through its Deepwater Program. 
Since 2001, we have reviewed the Deepwater Program and have reported 
to Congress, DHS, and the Coast Guard on the risks and uncertainties 
inherent in the acquisition.[Footnote 4] In our July 2009 report on 
the Coast Guard's progress in fulfilling the role of systems 
integrator for the Deepwater Program, we found that the Coast Guard 
had increased its role in managing the requirements, determining how 
assets would be acquired, defining how assets would be employed, and 
exercising technical authority in asset design and 
configuration.[Footnote 5] In addition, we found that the Coast Guard 
was taking steps to improve its insight into individual assets by 
reviewing and revising cost, schedule, and performance baselines. 
Additional insight gained by the review of several assets revealed 
that the program's 2007 baselines for acquisition cost and delivery 
schedules had been exceeded. We concluded that while the steps the 
Coast Guard was taking were beneficial, continued oversight and 
improvement were necessary to further mitigate risks. We made several 
recommendations, which the Coast Guard has taken actions to address. 
For example, we recommended that the Coast Guard not exercise options 
under the Fast Response Cutter (Sentinel class) contract until the 
project was brought into full compliance with the MSAM and DHS 
acquisition directives. Coast Guard program officials stated that the 
program was in compliance with these directives before the low-rate 
initial production option was exercised in December 2009. 

A Brief History of the Deepwater Program: 

At the start of the Deepwater Program in the late 1990s, the Coast 
Guard chose to use a system-of-systems acquisition strategy. A system- 
of-systems is a set or arrangement of assets that results when 
independent assets are integrated into a larger system that delivers 
unique capabilities. The Coast Guard provided ICGS with broad, overall 
performance specifications--such as the ability to interdict illegal 
immigrants--and ICGS determined the assets needed and their 
specifications. According to Coast Guard officials, the ICGS proposal 
was submitted and priced as a package; that is, the Coast Guard bought 
the entire solution and could not reject any individual component. In 
November 2006, the Coast Guard submitted a revised cost, schedule, and 
performance baseline for the overall Deepwater Program to DHS that 
reflected post-September 11 missions. That baseline established the 
total acquisition cost of the ICGS solution at $24.2 billion and 
projected that the acquisition would be completed in 2027. In May 
2007, shortly after the Coast Guard had announced its intention to 
take over the role of systems integrator, DHS approved the baseline. 

DHS too has changed its approach to oversight and management of the 
Deepwater Program. In 2003, the department had delegated approving 
acquisition decisions at key points in the life cycle of individual 
assets to the Coast Guard, while retaining some oversight at the 
system-of-systems level and requiring annual reviews. In September 
2008, in response to our recommendation, DHS rescinded that authority 
from the Coast Guard, and began officially reviewing and approving 
acquisition decisions for Deepwater assets. In November 2008, DHS also 
instituted requirements for new acquisition documentation at key 
program decision points to be submitted by DHS components, including 
the Coast Guard. Figure 1 provides a time line of key events in the 
Deepwater Program. 

Figure 1: Key Events in the Deepwater Program: 

[Refer to PDF for image: timeline] 

1996: Coast Guard begins Deepwater project. 

1998: Competition for Deepwater system-of-systems acquisition begins. 

2001: September 11 terrorist attacks. 

2002: Systems integrator contract awarded to ICGS with projected cost 
of $17 billion. 

2003: Coast Guard moves into DHS; DHS defers decision authority on 
individual Deepwater assets to Coast Guard. 

2005: ICGS requests adjustment of National Security Cutter contract 
option to account for $300 million in cost growth (negotiations 
completed in 2007). 

2005: Mission needs revised to include post-September 11 homeland 
security operations. 

2006: 123’ patrol boats modified by ICGS removed from service due to 
structural problems. 

2006: ICGS design work on Fast Response Cutter suspended due to 
technical concerns. 

2007: Coast Guard begins transitioning into role of lead systems 
integrator. 

2007: $24.2 billion Deepwater Program baseline approved by DHS. 

2008: Contract for Fast Response Cutter design and construction 
awarded to Bollinger Shipbuilding – first competitive award outside of 
the ICGS contract. 

2008: DHS rescinds delegation of decision authority on individual 
assets and approves first asset level baseline, for the National 
Security Cutter. 

2011: Contract with ICGS set to expire in January. 

2027: Final Deepwater asset scheduled to deliver according to the 2007 
baseline. 

Source: GAO presentation of Coast Guard data. 

[End of figure] 

As we reported in July 2009, since assuming the role of systems 
integrator in April 2007, the Coast Guard has taken a number of key 
steps to reassert its control and management of the Deepwater Program. 
[Footnote 6] While decreasing the scope of work under the ICGS 
contract, which as noted above is scheduled to expire in January 2011, 
the Coast Guard has also reorganized its own acquisition directorate 
to better fulfill its expanded roles in acquiring and managing 
Deepwater assets. In addition, the Coast Guard formalized new 
relationships among its directorates to better establish and maintain 
technical standards for Deepwater assets related to design, 
construction, maintenance, C4ISR, and life-cycle staffing and 
training. The Coast Guard also began transitioning to an asset-based 
acquisition approach--as opposed to the former approach that focused 
at the high-level system-of-systems approach--guided by the formalized 
process outlined in its MSAM. 

As a part of its asset-based acquisition approach, the Coast Guard has 
also begun to develop better-informed cost, schedule, and performance 
baselines. While these new baselines provided increased insight into 
what the Coast Guard is buying, the anticipated cost, schedules, and 
performance of many of the assets have changed since the $24.2 billion 
system-level baseline was approved by DHS in 2007. Table 1 describes 
in more detail the assets the Coast Guard plans to procure or upgrade 
under the Deepwater Program. 

Table 1: Information on Deepwater Assets: 

Asset: National Security Cutter (NSC); 
Planned quantity: 8 cutters; 
Delivered quantity (as of July 2010): 2 cutters; 
Description: The NSC is intended to be the flagship of the Coast 
Guard's fleet, with an extended on-scene presence, long transits, and 
forward deployment. The cutter and its aircraft and small boat assets 
are to operate worldwide. 

Asset: Offshore Patrol Cutter; 
Planned quantity: 25 cutters; 
Delivered quantity (as of July 2010): 0; 
Description: This cutter is intended to conduct patrols for homeland 
security functions, law enforcement, and search and rescue operations. 
It will be designed for long-distance transit, extended on-scene 
presence, and operations with multiple aircraft and small boats. The 
Coast Guard has developed requirements for this asset and submitted 
them to DHS for approval. 

Asset: Fast Response Cutter; 
Planned quantity: 58 boats; 
Delivered quantity (as of July 2010): 0; 
Description: The Fast Response Cutter, also referred to as the 
Sentinel class, is conceived as a patrol boat with high readiness, 
speed, adaptability, and endurance to perform a wide range of 
missions. After terminating ICGS' design efforts, the Coast Guard 
competitively awarded a contract for a modified commercially available 
patrol boat in 2008. 

Asset: Medium Endurance Cutter Sustainment; 
Planned quantity: 27 cutters; 
Delivered quantity (as of July 2010): 19 cutters; 
Description: The cutter sustainment project is intended to improve the 
cutters' operating and cost performance by replacing obsolete, 
unsupportable, or maintenance-intensive equipment. This work is being 
performed at the Coast Guard yard in Curtis Bay, Maryland. 

Asset: Patrol Boat Sustainment; 
Planned quantity: 20 boats; 
Delivered quantity (as of July 2010): 11 boats; 
Description: The patrol boat sustainment project is intended to 
improve the boats' operating and cost performance by replacing 
obsolete, unsupportable, or maintenance-intensive equipment. This work 
is being performed at the Coast Guard yard in Curtis Bay, Maryland. 

Asset: Cutter Small Boats; 
Planned quantity: 124 boats; 
Delivered quantity (as of July 2010): 9 boats; 
Description: Cutter small boats are an integral component of the 
planned capabilities for the larger cutters and patrol boats and are 
critical to achieving success in all operational missions. The Coast 
Guard is currently restructuring its cutter small boat programs. 

Asset: Maritime Patrol Aircraft; 
Planned quantity: 36 aircraft with mission system pallets; 
Delivered quantity (as of July 2010): 9 aircraft, 4 mission system 
pallets; 
Description: This transport and surveillance, fixed-wing aircraft is 
intended to be used to perform search and rescue missions, enforce 
laws and treaties, and transport cargo and personnel. Much of the 
capability for this aircraft, especially for C4ISR-intensive missions, 
is provided by the mission system pallet, a suite of electronic 
equipment installed on the aircraft that enables the aircrew to 
compile data from sensors and transmit them to surface vessels, other 
aircraft, and shore facilities. 

Asset: HC-130J Long-Range Surveillance Aircraft; 
Planned quantity: 6 aircraft; 
Delivered quantity (as of July 2010): 6 aircraft; 
Description: The HC-130J is a four-engine turbo-prop aircraft which 
the Coast Guard has deployed with improved interoperability, C4ISR, 
and sensors to enhance surveillance, detection, classification, 
identification, and prosecution. 

Asset: HC-130H Long-Range Surveillance Aircraft; 
Planned quantity: 16 aircraft; 
Delivered quantity (as of July 2010): 16 aircraft through first 
segment; 
Description: The HC-130H is the legacy Coast Guard long-range 
surveillance aircraft which the Coast Guard intends to update in six 
segments--one of which is currently unfunded--for radar replacement, 
updates and upgrades of avionics, structural sustainability, improved 
mission capabilities, and life extension. 

Asset: HH-65 Multi-mission Cutter Helicopter; 
Planned quantity: 102 aircraft; 
Delivered quantity (as of July 2010): 57 aircraft through third 
segment, 2 through fourth, prototype for fifth; 
Description: The HH-65 Dolphin is the Coast Guard's short-range 
recovery helicopter. It is being upgraded to improve its engines, 
sensors, navigation equipment, avionics, ability to land on the NSC, 
and other capabilities in nine segments--three of which are currently 
unfunded. 

Asset: HH-60 Medium Range Recovery Helicopter; 
Planned quantity: 42 aircraft; 
Delivered quantity (as of July 2010): 10 aircraft through first 
segment; 
Description: The HH-60 is a medium-range recovery helicopter designed 
to perform search and rescue missions offshore in all weather 
conditions. The Coast Guard has planned upgrades to the helicopter's 
avionics, sensors, radars, and C4ISR systems in four segments. 

Asset: Unmanned Aerial System; 
Planned quantity: TBD; 
Delivered quantity (as of July 2010): 0; 
Description: The Coast Guard has deferred acquisition of this asset 
because of challenges in technology maturation of the initial design. 
The Coast Guard continues its analysis of needs and alternatives, and 
an acquisition plan for this asset is in development. 

Asset: C4ISR; 
Planned quantity: 8 segments; 
Delivered quantity (as of July 2010): 1 segment; 
Description: The Coast Guard is incrementally acquiring C4ISR 
capabilities, including upgrades to existing cutters and shore 
installations, acquisitions of new capabilities, and development of a 
common operating picture to provide operationally relevant information 
and knowledge across the full range of Coast Guard operations. 

Source: GAO analysis of Coast Guard data. 

[End of table] 

DHS and Coast Guard Acquisition Policies and Processes Continue to 
Evolve, Further Establishing the Coast Guard as Systems Integrator: 

DHS has revised its approach to managing and overseeing Deepwater by 
conforming the program to its recently finalized acquisition 
directive, Acquisition Management Directive 102-01, which establishes 
a number of review points for the department's acquisitions to provide 
senior acquisition officials insight into such key documents as 
baselines and test reports. DHS has increased the number of reviews of 
individual Deepwater assets and plans to review up to six assets in 
fiscal year 2010. For its part, the Coast Guard's MSAM is generally 
aligned with DHS directives although operational testing policies are 
still being revised, and the Coast Guard has developed additional 
guidance on completing key requirements documents. The Coast Guard is 
also decreasing its dependence on ICGS by planning for alternate 
vendors on some of the assets already in production, as well as 
awarding and managing work outside of the ICGS contract for those 
assets at earlier stages of the acquisition life cycle. 

DHS Oversight of Deepwater Acquisitions Has Increased: 

Since our last report,[Footnote 7] DHS has finalized its Acquisition 
Management Directive 102-01, effective January 2010, which provides 
guidance on planning and executing acquisitions by linking DHS's 
requirements, resourcing, and acquisition processes. The four phases 
of the DHS acquisition life-cycle process, each of which is authorized 
by an acquisition decision event, are as follows. 

* The first phase identifies the specific functional capabilities 
needed for the asset and how these capabilities fill identified gaps. 

* The second phase explores alternative solutions to provide these 
capabilities and establishes cost, schedule, and performance baselines 
as well as operational requirements. By the end of this phase, a 
decision event is held which reviews the selection of the preferred 
alternative and approves program start. 

* The third phase is focused on developing, testing, and evaluating 
the selected alternative and refining it prior to entering full 
production. This phase can contain multiple decision events depending 
on the complexity of the program. DHS approval is sometimes required 
for supporting acquisitions and activities such as procuring 
demonstrator assets for test and evaluation, service contracts, and 
low-rate initial production.[Footnote 8] 

* In order to proceed into the fourth phase, a final decision event is 
held to review the results of formal operational testing and determine 
if the asset meets requirements and is supportable and sustainable 
within cost baselines. This decision event authorizes full-rate 
production and transfers responsibility for deployment and support to 
the DHS component. 

Figure 2 depicts the DHS acquisition phases and decision events and 
where Deepwater assets currently fall within the process.[Footnote 9] 

Figure 2: Deepwater Assets Within DHS Acquisition Phases and Decision 
Events as of July 2010: 

[Refer to PDF for image: illustration] 

Need: Define the problem; 
Black diamond 0; 
* Unmanned Aircraft Systems; 
* C4ISR Segment III-VIII. 

Analyze/select: Identify alternatives and resource; 
Black diamond 1;
* Cutter Small Boats; 
* Offshore Patrol Cutter; 
* HH-60 Medium Range Recovery Helicopter Upgrades Segment IV; 
Black diamond 2A. 

Obtain: Develop and evaluate capabilities; 
Black diamond 2B; 
* HH-65 Multi-Mission Cutter Helicopter Upgrade Segment VI; 
* HC-130H Segment II; 
* Fast Response Cutter; 
Black diamond 2C; 
* Maritime Patrol Aircraft; 
* HH-60 Medium Range Recovery Helicopter Upgrades Segment I-III; 
* National Security Cutter; 
* C4ISR Increment II; 
* HH-65 Multi-Mission Cutter Helicopter Upgrade Segment V. 

Produce/deploy/support: Produce and maintain the capabilities; 
Black diamond 3;
* HH-65 Multi-Mission Cutter Helicopter Upgrade Segment IV; 
* Medium Endurance Cutter Sustainment; 
* HH-65 Multi-Mission Cutter Helicopter Upgrade Segment I - III; 
* Patrol Boat Sustainment; 
* HC-130H Segment 1; 
* C4ISR Increment I; 
* HC-130J. 

Source: DHS data with GAO presentation. 

Note: Black diamonds denote key DHS acquisition decision events. 

[End of figure] 

Acquisition review boards are the principal mechanism DHS uses to 
oversee major acquisitions. These boards, which include DHS executives 
from the cost, management, and test and evaluation directorates, 
evaluate the progress of an asset at the acquisition events described 
above. The review boards make recommendations about asset acquisition 
decisions and, according to officials, can request the revision of key 
documents, like life-cycle cost estimates and test plans. For example, 
because of concerns about operational testing on the Maritime Patrol 
Aircraft, the DHS review board recommended that the aircraft's 
"obtain" acquisition phase be extended, keeping the aircraft in low-
rate, rather than full-rate, production. In another example, the DHS 
review board authorized low-rate initial production of three 
additional Fast Response Cutters (Sentinel class); however, it asked 
that the Coast Guard revise some documentation, such as the plans for 
logistics support and life-cycle cost estimates. According to Coast 
Guard program officials, this documentation has been submitted to DHS. 

DHS has increased the frequency with which it holds Deepwater 
acquisition decision events: it held no reviews in fiscal year 2008 
and three in fiscal year 2009; thus far three have been held in fiscal 
year 2010 and an additional three are planned. Coast Guard program and 
project managers told us that the level of DHS scrutiny and questions 
has increased significantly, which has led to constructive discussions 
and improvements. However, Coast Guard and DHS approval of key 
documentation such as program baselines can take months. Table 2 
provides approval times for the most recent Deepwater asset baselines. 

Table 2: Length of Approval Processes for Department-approved Baseline 
Revisions: 

National Security Cutter; 
Coast Guard project manager submission: Sept. 2008; 
USCG endorsement: Sept. 2008; 
DHS approval: Dec. 2008; 
Time to final approval: 2 months 9 days. 

Fast Response Cutter; 
Coast Guard project manager submission: Dec. 2008; 
USCG endorsement: Feb. 2009; 
DHS approval: Aug. 2009; 
Time to final approval: 8 months 13 days. 

Maritime Patrol Aircraft; 
Coast Guard project manager submission: July 2008; 
USCG endorsement: Dec. 2008; 
DHS approval: Feb. 2009; 
Time to final approval: 6 months 14 days. 

HC-130J; 
Coast Guard project manager submission: Oct. 2008; 
USCG endorsement: Dec. 2008; 
DHS approval: May. 2009; 
Time to final approval: 7 months 16 days. 

HC130-H; 
Coast Guard project manager submission: Oct. 2008; 
USCG endorsement: Dec. 2008; 
DHS approval: June 2009; 
Time to final approval: 8 months 12 days. 

HH-65; 
Coast Guard project manager submission: Oct. 2008; 
USCG endorsement: Dec. 2008; 
DHS approval: May 2009; 
Time to final approval: 7 months 15 days. 

HH-60; 
Coast Guard project manager submission: Oct. 2008; 
USCG endorsement: Dec. 2008; 
DHS approval: Aug. 2009; 
Time to final approval: 10 months 0 days. 

Source: GAO analysis of Deepwater acquisition baseline documents. 

[End of table] 

Coast Guard officials stated that DHS approval of these documents is 
an iterative process that can take some time but they coordinate 
informally to speed approvals when necessary. According to officials, 
Coast Guard and DHS officials are working together to reduce the 
approval times for key program documents. For example, the Coast Guard 
now forwards a draft version of key acquisition documents, such as 
requirements documentation and cost estimates, to DHS at the same time 
that it is being reviewed within the Coast Guard. This approach gives 
DHS an earlier opportunity to review and comment. 

Coast Guard Continues to Refine Its Processes for Managing Deepwater 
Assets with a Focus on Requirements Definition: 

To support the continued procurement of Deepwater assets, the Coast 
Guard's MSAM is generally aligned with DHS' Acquisition Management 
Directive 102-01. As a result of this and other changes, the MSAM now 
requires additional requirements documentation--referred to as the 
concept of operations and the preliminary operational requirements 
document--to ensure traceability through the design, development, and 
testing of an asset. In particular, the MSAM requires that the 
capabilities directorate, known as CG-7, describe clearly and in 
detail what specific functional capabilities will be filled with a 
proposed asset or system, the relationship of a proposed asset to 
existing assets or systems, and how the asset is expected to be used 
in actual operations. As we have previously reported, determining an 
asset's requirements early in the life cycle is essential, as 
requirements ultimately drive the performance and capability of an 
asset and should be traceable through design, development, and testing 
to ensure that needs are met.[Footnote 10] 

Generation of Coast Guard requirements documentation is now guided by 
USCG Publication 7-7 Requirements Generation and Management Process, 
which was released by CG-7 in March 2009. The previous lack of 
overarching, formalized guidance had often resulted in requirements 
that were vague, not testable, not prioritized, and not supportable or 
defendable. The Coast Guard has also expanded the key stakeholders 
involved in the requirements process to include not only the 
operational users and the capabilities directorate, but also the 
acquisitions directorate, technical authorities, support and 
maintenance authorities, and budget officials. 

One area where the DHS guidance and the MSAM are still not fully 
aligned is the issue of the independent test authority, the entity 
responsible for concurring that an asset's test and evaluation master 
plan ensures adequate demonstration of an asset's ability to meet 
operational needs. Last year, we reported that the MSAM appeared to be 
inconsistent with DHS guidance regarding the role of this test 
authority. The DHS Acquisition Guidebook states that the test 
authority should be independent of both the acquirer and the user, 
while the MSAM allows the Coast Guard's requirements directorate--CG-
7, which represents the end user--to serve as the test authority. We 
recommended that the Coast Guard consult with the DHS Office of Test & 
Evaluation and Standards on this apparent conflict. Both DHS and the 
Coast Guard are in the process of revising their policies to address 
this issue. Coast Guard officials state that a new version of the MSAM 
will be released this summer, and that they are working with DHS to 
determine which entities may act as test authorities for specific 
assets. In May 2009, DHS released its test and evaluation directive 
which states that the test authority may be organic to the component--
the Coast Guard in this case--another government agency, or a 
contractor but must be independent of the developer and the 
development contractor. In commenting on this directive, DHS officials 
stated that the test authority should be independent of the 
acquisition division but can be within another division of the 
component acquiring the asset, including those representing the 
asset's end user. According to DHS officials, it is preferred that a 
test authority independent of both the acquirer and the user 
representative conduct operational testing for assets whose life-cycle 
costs are at or exceed $1 billion. This independent test authority is 
already in place for some of the Deepwater assets, including the NSC, 
the Maritime Patrol Aircraft, and the Fast Response Cutter (Sentinel 
class). However, for assets below this threshold, operational testing 
may be planned and conducted by the user, subject to approval by the 
department. 

Coast Guard Is Reducing Contractual Reliance on ICGS: 

As the Coast Guard has assumed the Deepwater systems integrator role, 
the extent of its reliance on ICGS continues to decrease. ICGS remains 
the prime contractor for four Deepwater assets: the NSC, HC-130J Long- 
Range Surveillance Aircraft, the Maritime Patrol Aircraft, and C4ISR, 
but some of these assets are transitioning away from ICGS. Contracts 
for other assets at earlier stages of the acquisition process, such as 
the Fast Response Cutter (Sentinel class), were awarded outside of the 
ICGS contract. 

The status of Deepwater assets with contracts in place for production 
as of July 2010 is as follows. 

* While ICGS remains under contract for the production of the third 
NSC, the USCGC Stratton, the Coast Guard plans to contract directly 
with Northrop Grumman Ship Systems, previously a subcontractor for 
ICGS, on a sole-source basis to produce the remaining five cutters. 

* Two additional Maritime Patrol Aircraft and eight removable 
electronic command and control mission system pallets also remain on 
contract with ICGS. The Coast Guard intends to hold a limited 
competition for the additional aircraft in order to retain the same 
airframe, issuing a request for proposals in April 2010 for up to nine 
aircraft over the next 5 years. According to Coast Guard officials, 
the procurement strategy for additional mission systems pallets is 
still in development. 

* The Coast Guard is preparing to move the HC-130J into the 
sustainment phase as it nears the end of this acquisition, with ICGS' 
delivery of the sixth and final aircraft on May 27, 2010. 

* Development of C4ISR, a key Deepwater asset referred to as the 
"glue" intended to make all assets interoperable, is currently in 
transition from ICGS. Under the 2007 Deepwater baseline, the C4ISR 
project was to consist of four segments of capability, plus upgrades 
to Coast Guard shore facilities and legacy cutters. According to 
program officials, C4ISR will now comprise eight segments, including 
the capabilities planned for Deepwater and additional capabilities for 
post-9/11 homeland security missions. ICGS has delivered the first 
segment, which is currently in operation on the NSC, Maritime Patrol 
Aircraft, and HC-130J, and is under contract to develop the second 
segment. This second segment is primarily focused on increasing the 
Coast Guard's ability to develop and maintain future capabilities. It 
is considered a bridge to begin the transition from the ICGS-developed 
architecture to a Coast Guard-developed and managed architecture by 
ensuring that the ICGS systems are operational and supported while the 
Coast Guard puts in place its own capability to support the systems. 
Program officials state that development of the third segment has been 
delayed due to funding constraints, although development of 
capabilities for key assets, such as the Offshore Patrol Cutter, will 
continue. According to officials, the acquisition strategy for future 
C4ISR segments has not been determined. 

* The Coast Guard structured the acquisition of the Fast Response 
Cutter (Sentinel class) as the systems integrator, competitively 
awarding a lead ship design and production contract to Bollinger 
Shipyards in September 2008 for the lead cutter. The Coast Guard has 
exercised contract options for hulls 2 though 4, with the goal of 
having up to 15 cutters either delivered or under contract by 2012. 

As Understanding of Assets Evolves, Achievement of 2007 Deepwater 
Baselines Is Unlikely: 

Currently, the Deepwater Program as a whole exceeds the cost and 
schedule baselines approved by DHS in May 2007, and it is unlikely to 
meet the system-level performance baselines that were approved at that 
time. The new asset-specific baselines that have been developed--and 
approved by DHS for seven of nine assets--put the total cost of 
Deepwater at roughly $28 billion, or $3.8 billion over the $24.2 
billion baseline. The revised baselines also present life-cycle costs, 
which encompass the acquisition cost as well as costs for operations 
and maintenance throughout the assets' life cycle. While the revised 
baselines show a significant decrease in life-cycle costs compared to 
the 2007 baseline, the Coast Guard's understanding of these costs 
continues to evolve as the agency revisits its assumptions and 
produces new cost estimates. These baselines also indicate that some 
schedules are expected to be delayed by several years. Preliminary 
assessments by the Coast Guard indicate that some assets may be at 
risk for further cost and schedule growth. Further, as the Coast Guard 
develops more refined requirements, it has redefined or eliminated key 
performance indicators for many individual assets, while significant 
uncertainties surround other assets like C4ISR, the key to the system-
of-systems as initially envisioned and approved. As a result of the 
way Deepwater was implemented in the past, some assets--including the 
NSC, Maritime Patrol Aircraft, and HC-130J--have begun deployment and 
operations, but their ability to fully satisfy operational 
requirements is unproven as they have not yet undergone operational 
evaluations. Further, because the Coast Guard has not determined the 
overall quantities and mix of assets needed for Deepwater in light of 
changes to the 2007 baseline, it is unknown what the overall Deepwater 
Program should look like going forward. In the meantime, the Coast 
Guard and DHS are proceeding with acquisition decision events on 
individual assets. 

Total Acquisition Costs Continue to Exceed 2007 Baselines: 

As of July 2010, DHS had approved seven of the revised baselines and 
the Coast Guard had approved two of them based on a delegation of 
approval authority from DHS. Regarding total acquisition cost, the 
Coast Guard has determined that some of the assets will significantly 
exceed anticipated costs in the 2007 Deepwater baseline. Due to this 
growth, the total cost of the Deepwater Program is now expected to be 
roughly $28 billion, or $3.8 billion more than the $24.2 billion that 
DHS approved in 2007, an increase of approximately 16 percent. For the 
assets with revised baselines this represents cost growth of 
approximately 35 percent. Further growth could occur, as four 
Deepwater assets currently lack revised cost baselines. Among them is 
the largest cost driver in the program, the 25 cutters of the Offshore 
Patrol Cutter class which, in the 2007 baseline, accounted for over 33 
percent of the $24.2 billion total acquisition cost. 

Table 3 compares the 2007 and revised baselines of asset acquisition 
costs available as of July 2010. The table does not reflect the 
roughly $3.6 billion in other Deepwater costs, such as program 
management, that the Coast Guard states do not require a new baseline. 

Table 3: Increased Total Acquisition Costs for Deepwater Assets with 
Approved Baselines as of July 2010 (then-year dollars in millions): 

Asset: National Security Cutter; 
2007 Baseline: 3,450; 
Revised baseline: 4,749; 
Change: 1,299. 

Asset: Fast Response Cutter[A]; 
2007 Baseline: 3,206; 
Revised baseline: 4,243; 
Change: 1,037. 

Asset: Medium Endurance Cutter Sustainment; 
2007 Baseline: 317; 
Revised baseline: 321[B]; 
Change: 4. 

Asset: Patrol Boat Sustainment; 
2007 Baseline: 117; 
Revised baseline: 194[B]; 
Change: 77. 

Asset: Maritime Patrol Aircraft; 
2007 Baseline: 1,706; 
Revised baseline: 2,400; 
Change: 694. 

Asset: HC-130J; 
2007 Baseline: 11; 
Revised baseline: 176; 
Change: 165. 

Asset: HC-130H; 
2007 Baseline: 610; 
Revised baseline: 745; 
Change: 135. 

Asset: HH-65; 
2007 Baseline: 741; 
Revised baseline: 1,041[C]; 
Change: 300. 

Asset: HH-60; 
2007 Baseline: 451; 
Revised baseline: 487; 
Change: 36. 

Asset: C4ISR; 
2007 Baseline: 1,353; 
Revised baseline: Baseline submitted to DHS January 2009. 

Asset: Offshore Patrol Cutter; 
2007 Baseline: 8,098; 
Revised baseline: Baseline in development. 

Asset: Cutter Small Boats; 
2007 Baseline: 110; 
Revised baseline: Baseline in development. 

Asset: Unmanned Aerial System; 
2007 Baseline: 503; 
Revised baseline: Baseline in development. 

[End of table] 

Note: If the approved baselines present both threshold costs (the 
maximum costs allowable before a breach occurs) and objective costs 
(the minimum cost expected), threshold costs are used. 

[A] In the 2007 baseline, costs for two variants of the Fast Response 
Cutter were presented. The revised baseline presents the total costs 
for the design currently in production. 

[B] The baselines for these assets were approved within the Coast 
Guard. 

[C] We removed the costs of some capabilities introduced in the 
revised baseline to preserve traceability to the 2007 Deepwater 
baseline. A detailed cost estimate for portions of the planned 
upgrades has not been completed, so additional revisions may occur in 
the future. 

Source: GAO analysis of Coast Guard data. 

These revised baselines reflect the Coast Guard's and DHS' improved 
understanding of the acquisition costs of individual Deepwater assets, 
as well as insight into the drivers of the cost growth. We reported 
last year on some of the factors contributing to increased costs for 
the NSC and Maritime Patrol Aircraft.[Footnote 11] More recently, DHS 
approved the revised baseline for the Fast Response Cutter (Sentinel 
class) in August 2009. The Coast Guard has attributed this asset's 
more than $1 billion rise in cost to the use of actual contract costs 
from the September 2008 contract award and costs for shore facilities 
and initial spare parts not included in the original baseline. 

Coast Guard's Assessment of Life-cycle Costs Continues to Evolve: 

As the Coast Guard has revised asset baselines for acquisition costs, 
it has also reevaluated operating costs and their effect on life-cycle 
costs. According to the 2007 Deepwater baseline, the program's life- 
cycle cost was to be approximately $304.4 billion. The life-cycle 
costs presented in the revised asset baselines decreased by 
approximately $96 billion, as shown in table 4. 

Table 4: 2007 and Revised Life-cycle Cost Baselines for Deepwater 
Assets (then-year dollars in millions): 

Asset: National Security Cutter; 
2007 Life-cycle cost baseline: 22,998; 
Revised baseline: 24,277; 
Change: 759. 

Asset: Fast Response Cutter[A]; 
2007 Life-cycle cost baseline: 22,256; 
Revised baseline: 15,634; 
Change: (6,622). 

Asset: Medium Endurance Cutter Sustainment; 
2007 Life-cycle cost baseline: 7,157; 
Revised baseline: 4,515[B]; 
Change: (2,642). 

Asset: Patrol Boat Sustainment; 
2007 Life-cycle cost baseline: 897; 
Revised baseline: 847[B]; 
Change: (50). 

Asset: Maritime Patrol Aircraft; 
2007 Life-cycle cost baseline: 22,773; 
Revised baseline: 13,267; 
Change: (9,506). 

Asset: HC-130J; 
2007 Life-cycle cost baseline: 6,551; 
Revised baseline: 430[C]; 
Change: (6,121). 

Asset: HC-130H; 
2007 Life-cycle cost baseline: 16,582; 
Revised baseline: 16,662; 
Change: 80. 

Asset: HH-65; 
2007 Life-cycle cost baseline: 53,433; 
Revised baseline: 6,298[C]; 
Change: (47,135). 

Asset: HH-60; 
2007 Life-cycle cost baseline: 26,075; 
Revised baseline: 902[C]; 
Change: (25,173). 

Asset: C4ISR; 
2007 Life-cycle cost baseline: 1,353; 
Revised baseline: Baseline submitted to DHS January 2009. 

Asset: Offshore Patrol Cutter; 
2007 Life-cycle cost baseline: 47,601; 
Revised baseline: Baseline in development. 

Asset: Unmanned Aerial System; 
2007 Life-cycle cost baseline: 17,753; 
Revised baseline: Baseline in development. 

Source: GAO analysis of Coast Guard data. 

Note: If the approved baselines present both threshold and objective 
costs, threshold costs (which are the maximum allowable costs) are 
used. 

[A] In the 2007 baseline, costs for two variants of the Fast Response 
Cutter were presented. The revised baseline presents the total costs 
for the design currently in production. 

[B] The baselines for these assets were approved within the Coast 
Guard. 

[C] Reflects only the cost of upgrades to mission systems and not the 
costs to acquire and maintain the whole asset. 

[End of table] 

This substantial reduction in life-cycle costs is due in part to new 
assumptions applied by the Coast Guard in calculating the costs to 
support and maintain its assets. In preparing the revised baselines, 
the Coast Guard updated its assumptions by reducing the time it 
expects certain assets to continue in operations. Any reduction of the 
years in service for an asset reduces the total life-cycle cost, as 
the overall cost for operating the asset would decrease. For example, 
the useful life of the HH-65 was reduced from 40 years to 23 years of 
extended service, contributing to a $47 billion reduction in life-
cycle costs in the revised baseline. According to the Coast Guard, a 
40-year extended service life for the HH-65 was not realistic, as the 
first of these assets became operational in 1984 and upgrades to 
extend the service life will not enable the helicopters to operate for 
an additional 40 years. The service life expected of the HH-60 was 
also reduced, from 30 years of additional service to 20, which 
contributed to its $25.2 billion decrease in life-cycle costs. 
Assumptions for the expected service life of the Fast Response Cutter 
(Sentinel class) also changed as a result of selecting an alternate 
design for production. The current Sentinel class design is expected 
to have a service life of 20 years, less than ICGS' proposed Fast 
Response Cutter-A--which had an estimated service life of 35 years--
but more than its proposed Fast Response Cutter-B, which had a 
proposed 15-year service life. While altering these assumptions does 
reduce the expected life-cycle costs associated with the current 
Deepwater Program, it also indicates that the Coast Guard may need to 
acquire new assets sooner than anticipated in the 2007 baseline. 

The Coast Guard also used different assumptions about what support 
costs were included in its revised baselines. For example, the life- 
cycle costs in the revised baselines for the HH-65, HH-60, and the HC- 
130J reflect only the costs to support the upgraded mission systems 
and not the costs of the entire aircraft and therefore appear to be 
understated. As a result, the stated life-cycle costs for these assets 
significantly decreased; for example, in the case of the HC-130J costs 
decreased from $6.6 billion to $430 million. 

However, the Coast Guard's understanding of life-cycle costs continues 
to evolve. DHS approved all the revised Deepwater asset baselines on 
the condition that the Coast Guard resubmit life-cycle cost estimates. 
According to Coast Guard officials, DHS also requested that new 
estimates for the HC-130J, HH-60, and HH-65 reflect the cost to 
support the entire aircraft. As of July 2010, the Coast Guard has 
submitted life-cycle cost estimates for eight assets: NSC, Fast 
Response Cutter (Sentinel class), Maritime Patrol Aircraft, HC-130J, 
C4ISR, HH-65, and the two mission effectiveness programs. These 
estimates suggest that some assets may meet the revised cost baselines 
while others are in danger of exceeding them. Table 5 compares the 
revised baselines to the Coast Guard's current life-cycle cost 
estimates. 

Table 5: Revised Life-cycle Cost Baselines and Current Life-cycle Cost 
Estimates for Deepwater Assets (then-year dollars in millions): 

Asset: National Security Cutter; 
Revised baseline: 24,277; 
Current estimate[A]: 16,859; 
Difference: (7,419). 

Asset: Fast Response Cutter[B]; 
Revised baseline: 15,634; 
Current estimate[A]: 13,174; 
Difference: (2,460). 

Asset: Medium Endurance Cutter Sustainment; 
Revised baseline: 4,515[C]; 
Current estimate[A]: 4,427; 
Difference: (88). 

Asset: Patrol Boat Sustainment; 
Revised baseline: 847[C]; 
Current estimate[A]: 861; 
Difference: 14. 

Asset: Maritime Patrol Aircraft; 
Revised baseline: 13,267; 
Current estimate[A]: 25,493; 
Difference: 12,226. 

Asset: HC-130J; 
Revised baseline: 430[D]; 
Current estimate[A]: 1,705; 
Difference: 1,275. 

Asset: HC-130H; 
Revised baseline: 16,662; 
Current estimate[A]: Estimate in development. 

Asset: HH-65; 
Revised baseline: 6,298[D]; 
Current estimate[A]: 8,173; 
Difference: 1,875. 

Asset: HH-60; 
Revised baseline: 902[D]; 
Current estimate[A]: Estimate in development. 

Asset: C4ISR; 
Revised baseline: Baseline submitted to DHS January 2009; 
Current estimate[A]: 6,713[E]; 
Difference: 5,360[E]. 

Source: GAO analysis of Coast Guard data. 

Note: If the approved baselines present both threshold and objective 
costs, threshold costs (which are the maximum allowable costs) are 
used. 

[A] The current estimates presented represent the risk-adjusted costs 
which, according to program managers, are the estimates used for 
budgeting purposes. 

[B] In the 2007 baseline, costs for two variants of the Fast Response 
Cutter were presented. The revised baseline presents the total costs 
for the design currently in production. 

[C] The baselines for these assets were approved within the Coast 
Guard. 

[D] Reflects only the cost of upgrades to mission systems and not the 
costs to acquire and maintain the whole asset. 

[E] Although DHS has not yet approved the C4ISR acquisition program 
baseline, the Coast Guard has approved a life-cycle cost estimate for 
this asset. 

[End of table] 

As shown in the table above, expected life-cycle costs for some 
assets, such as the NSC and the Fast Response Cutter (Sentinel class), 
continue to decrease as more information about the actual costs to 
operate and acquire these assets is used to refine estimates. The 
expected life-cycle costs of other assets, however, have increased 
beyond their current baselines. Coast Guard officials told us they 
have worked to make their life-cycle cost estimates consistent, in 
keeping with DHS guidance, and plan to update them every 12 to 18 
months. A discussion of the estimates for the NSC, Fast Response 
Cutter (Sentinel class), Maritime Patrol Aircraft, C4ISR, and the HH-
65 follows. 

* The current estimate for the NSC is $7.4 billion below the revised 
baseline for life-cycle costs even when additional costs are added to 
the estimate to account for identified risks. These risks include 
unstable C4ISR requirements, which could result in modifications to 
the ship, and the Coast Guard's change in contract type for 
construction of the last five NSCs from cost-reimbursement to fixed 
price-incentive fee. Generally, cost-reimbursement contracts are 
suitable only when uncertainties involved in contract performance do 
not permit costs to be estimated with sufficient accuracy to use a 
fixed-price contract--such as the lack of cost experience in 
performing the work or unstable manufacturing techniques or 
specifications.[Footnote 12] Under cost-reimbursement contracts, most 
of the cost risk is placed on the government, while under fixed-price 
incentive fee contracts an increased share of cost performance risk is 
borne by the builder. Because of this additional risk, the cost 
estimate assumed that the contract price would increase. 

* The current life-cycle cost estimate for the Fast Response Cutter 
(Sentinel class) is also below its revised life-cycle cost baseline, 
by $2.5 billion, even after additional costs were added to account for 
risks. The most significant risk is attributable to the Coast Guard's 
acquisition approach for this asset. The government plans to procure a 
total of 58 cutters. Under the contract for design and production of 
the first patrol boat, the government plans to procure 24-34 boats, 
with the remaining portion to be competitively procured, potentially 
resulting in a change of contractor. This competition would be for 
construction of the remaining boats utilizing the same design. The 
Coast Guard adopted this acquisition strategy as a means of reducing 
overall risk under the contract. The current cost estimate states that 
there could be an increase in cost if a new contractor were brought on 
board, potentially modifying the design to fit its construction 
processes in addition to establishing the production line and learning 
how to more efficiently produce the boats. The cost estimate also 
presents risks in the estimates of operating costs. As the Sentinel 
class has never been used operationally, these costs were determined 
by using historical data on similar ships and discussions with the 
intended Coast Guard user, meaning true costs are unknown and could 
exceed or be lower than the current estimates. Uncertainty about 
future fuel costs also drives risk. 

* The $12.2 billion increase between the current life-cycle cost 
estimate and the revised baseline for the Maritime Patrol Aircraft is 
primarily attributable to a difference in assumptions about crew sizes 
and cost per flight hour, which affect the cost to operate the 
aircraft. Further, additional costs for training devices are now 
included in the estimate. The primary risks discussed in the estimate, 
which have also added costs, are the Euro/dollar exchange rate and the 
cost to maintain the aircraft over time. Because a portion of the 
aircraft the Coast Guard currently has under contract is produced in 
Europe, any fluctuation in the strength of the dollar could have an 
effect, positive or negative, on the aircraft's cost. The estimate 
also states that long-term maintenance of the mission systems pallet 
could be problematic if parts become obsolete, a risk identified for 
other systems dependent on C4ISR-intensive systems. 

* The current life-cycle cost estimate for C4ISR places the cost at 
$6.7 billion, well above the $1.3 billion baseline established in 
2007. This estimate presents, for the first time, a full life-cycle 
cost for this capability, as the 2007 baseline presented only 
acquisition costs for C4ISR and assumed that operations and 
maintenance costs were included in the baselines for individual 
assets. This increase is attributed to the changing nature of the 
program and the risks involved. When the Coast Guard made the decision 
to become systems integrator, it also assumed greater oversight of the 
software development and maintenance associated with C4ISR. The Coast 
Guard intends to establish laboratories to develop, integrate, and 
support this software, which accounts for a portion of the cost 
increase. According to program officials, costs have also increased 
due to maintenance needs, especially the need for upgrades to keep 
software and information secure. The risks are driven primarily by 
technical uncertainty due to undefined requirements in later segments 
and the effect of technology changes on C4ISR capabilities in the 
future. As the Coast Guard has not yet fully defined the capabilities 
it wants from C4ISR, it is difficult to assess the associated costs. 
The interrelated nature of segments, with each segment building upon 
and enhancing the capabilities of prior segments, could lead to 
cascading effects on cost and schedule if one is delayed. To account 
for these uncertainties, the Coast Guard built additional costs into 
the estimate. 

* The current life-cycle cost estimate for the HH-65 Multi-mission 
Cutter Helicopter is $8.2 billion--$1.9 billion above the cost stated 
in the revised baseline. The majority of the increase is due to a 
change in the assumptions about the costs to operate and maintain the 
asset over its life cycle. As mentioned previously, the revised 
baseline included only the costs to support the upgraded mission 
systems aboard the HH-65. The current cost estimate includes support 
for the entire aircraft and raises the cost of operations and 
maintenance from $5.164 billion to $7.033 billion. The current cost 
estimate also takes into account risks the aircraft may encounter in 
the further development of its upgraded mission systems and risks that 
could increase operational costs. The risks discussed in the estimate 
include the possibility of a structural redesign or installation 
issues associated with a new sub-system that improves the helicopter's 
ability to land on the NSC, the possibility of software or labor cost 
growth for other upgrades, and the uncertainty surrounding the future 
price of fuel. To account for these uncertainties, the Coast Guard 
built additional costs into the estimate. 

Revisions to Asset Baselines Show Further Schedule Delays: 

The Coast Guard's reevaluation of asset baselines has also improved 
insight into the schedules for when assets are expected to begin 
operations--also known as initial operational capability--and when all 
assets have been delivered and are ready for operations--or full 
operational capability. For example, the Fast Response Cutter 
(Sentinel class) patrol boat is now scheduled to deliver the final 
asset by September 2021, rather than 2016 as stated in the 2007 
baseline--a delay of 5 years. The HH-60 Medium Range Recovery 
helicopter will also not complete deliveries until later than planned 
due to a restructuring of scheduled upgrades. This asset will now 
complete upgrades by 2020, a 1-year delay from the previous baseline. 
The schedule to upgrade the capabilities of the HH-65 Multi-mission 
helicopter has also been restructured, but a date for completing all 
the necessary upgrades has not yet been determined. Table 6 provides 
more information on changes in asset schedules. 

Table 6: Changes in Initial Operational Capability and Final Asset 
Delivery from 2007 Baseline for Selected Deepwater Assets as of July 
2010: 

Asset: National Security Cutter; 
Initial operational capability (FY): 2007 baseline: 2008; 
Initial operational capability (FY): Current baseline: 2009; 
Initial operational capability (FY): Change: 12 months; 
Final asset delivery (FY): 2007 baseline: 2014; 
Final asset delivery (FY): Current baseline: 2016; 
Final asset delivery (FY): Change: 24 months. 

Asset: Fast Response Cutter[A]; 
Initial operational capability (FY): 2007 baseline: 2010; 
Initial operational capability (FY): Current baseline: 2013; 
Initial operational capability (FY): Change: 27 months; 
Final asset delivery (FY): 2007 baseline: 2016; 
Final asset delivery (FY): Current baseline: 2021; 
Final asset delivery (FY): Change: 60 months. 

Asset: Medium Endurance Cutter Sustainment; 
Initial operational capability (FY): 2007 baseline: 2006; 
Initial operational capability (FY): Current baseline: 2006[B]; 
Initial operational capability (FY): Change: 0 months; 
Final asset delivery (FY): 2007 baseline: 2016; 
Final asset delivery (FY): Current baseline: 2017[B]; 
Final asset delivery (FY): Change: 17 months. 

Asset: Patrol Boat Sustainment; 
Initial operational capability (FY): 2007 baseline: 2009; 
Initial operational capability (FY): Current baseline: 2007[B]; 
Initial operational capability (FY): Change: (18 months); 
Final asset delivery (FY): 2007 baseline: 2013; 
Final asset delivery (FY): Current baseline: 2014[B]; 
Final asset delivery (FY): Change: 17 months. 

Asset: Maritime Patrol Aircraft; 
Initial operational capability (FY): 2007 baseline: 2008; 
Initial operational capability (FY): Current baseline: 2009; 
Initial operational capability (FY): Change: 21 months; 
Final asset delivery (FY): 2007 baseline: 2016; 
Final asset delivery (FY): Current baseline: 2020; 
Final asset delivery (FY): Change: 57 months. 

Asset: HC-130J; 
Initial operational capability (FY): 2007 baseline: 2008; 
Initial operational capability (FY): Current baseline: 2009; 
Initial operational capability (FY): Change: 3 months; 
Final asset delivery (FY): 2007 baseline: 2009; 
Final asset delivery (FY): Current baseline: 2011; 
Final asset delivery (FY): Change: 21 months. 

Asset: HC-130H; 
Initial operational capability (FY): 2007 baseline: 2013; 
Initial operational capability (FY): Current baseline: to be 
determined; 
Final asset delivery (FY): 2007 baseline: 2017; 
Final asset delivery (FY): Current baseline: to be determined. 

Asset: HH-65; 
Initial operational capability (FY): 2007 baseline: 2009; 
Initial operational capability (FY): Current baseline: to be 
determined; 
Final asset delivery (FY): 2007 baseline: 2013; 
Final asset delivery (FY): Current baseline: to be determined. 

Asset: HH-60; 
Initial operational capability (FY): 2007 baseline: 2014; 
Initial operational capability (FY): Current baseline: to be 
determined; 
Final asset delivery (FY): 2007 baseline: 2019; 
Final asset delivery (FY): Current baseline: 2020; 
Final asset delivery (FY): Change: 12 months. 

Source: GAO analysis of Coast Guard data. 

Note: If the approved baselines present both threshold and objective 
dates, threshold dates (which are the latest allowable dates) are used. 

[A] In the 2007 baseline, costs for two variants of the Fast Response 
Cutter were presented. For the 2007 baseline initial operational 
capability date we use the first delivery and for full operating 
capability the last possible date reported. 

[B] The baselines for these assets were approved within the Coast 
Guard. 

[End of table] 

System-level Performance Baselines Unlikely to be Met: 

In addition to establishing cost and schedule baselines, the 2007 
Deepwater acquisition program baseline also established a baseline for 
system-of-systems level performance and the key performance parameters 
at the asset level that contribute to this performance. This system- 
level baseline remains important, as the Coast Guard continues to 
pursue system-of-systems level effects even as it devolves its 
approach to Deepwater management to an asset level. According to the 
Coast Guard's 2005 mission needs statement, the intent of the 
Deepwater Program was to improve the capability to detect, intercept, 
and interdict potential threats in the maritime domain using a layered 
defense of major cutters, patrol boats, helicopters, unmanned aerial 
vehicles, and maritime patrol aircraft, all connected using a single 
command and control architecture. This description is still valid 
given that the Coast Guard is still pursuing the same types of assets 
and capabilities proposed by ICGS. The 2007 baseline describes 
thresholds and objectives for three system-level performance 
requirements.[Footnote 13] 

* Available mission hours: Establishes the numbers of hours surface 
and aviation assets must perform on an annual basis to meet mission 
needs. 

* Surveillance of nautical square miles: Describes system-level 
effects specific to an NSC acting in concert with its embarked HH-65 
helicopter and unmanned aerial vehicles. 

* System task sequence: Establishes the number of nautical square 
miles in which the fully deployed Deepwater Program is capable of 
searching for, identifying, and prosecuting targets of interest per 
day. 

The specific capabilities to be achieved under these overarching 
performance requirements are listed in table 7. 

Table 7: System-level Requirements from 2007 Deepwater Baseline: 

Available mission hours: 
Threshold: 366,257 hours; 
Objective: 445,000 hours. 

Available mission hours: Surface vessels; 
Threshold: 265,572 hours; 
Objective: 305,000 hours. 

Available mission hours: Aircraft; 
Threshold: 100,685 hours; 
Objective: 140,000 hours. 

National Security Cutter Force Package Surveillance; 
Threshold: 13,489 nm[2]; 
Objective: 56,000 nm[2]. 

System task sequence: Search; 
Threshold: 1,101,593 nm[2]/day; 
Objective: 2,500,000 nm[2]/day. 

System task sequence: Identify; 
Threshold: 500,182 nm[2]/day; 
Objective: 1,300,000 nm[2]/day. 

System task sequence: Prosecute; 
Threshold: 351,583 nm[2]/day; 
Objective: 850,000 nm[2]/day. 

Source: GAO analysis of Coast Guard data. 

[End of table] 

The ability of the overall system to meet these capabilities hinges on 
the ability of the individual assets to meet key performance criteria 
that contribute to the overall performance. For example, assets 
contribute to the ability to search a given area by meeting criteria 
for detection range and speed. In addition, the ability to meet 
mission hours largely depends on the assets' availability for 
operations and ability to remain in operations for a set period of 
time. These asset-level criteria are evolving as the Coast Guard 
revisits requirements baselines for individual assets. According to 
Coast Guard officials, the primary focus when revising the asset 
baselines has been on accurately stating the asset's expected 
capabilities or, when possible, on making trade-offs between 
performance and cost. While Coast Guard officials told us that the 
effect of revised asset-level baselines on the overall system-level 
performance was considered to some extent, the revised baselines do 
not reflect any impact on the system-of-systems requirements. 

In addition, the revised, asset-level performance baselines for assets 
already in production or being upgraded have redefined or eliminated 
key performance criteria that were in the 2007 baseline. As the Coast 
Guard develops more comprehensive requirements documentation for 
Deepwater assets, the performance criteria for many of these assets 
has changed as key performance criteria are added, altered, or 
eliminated. According to program officials, these changes are being 
made to ensure that requirements are measurable and testable. For 
example, the criteria for speed and detection range or operational 
availability have been deleted--or redefined in a manner that makes 
traceability to the system-level requirements difficult--in the 
revised baselines for the HH-60, HH-65, Maritime Patrol Aircraft, HC-
130J, and the Fast Response Cutter (Sentinel class). In total, the 
revised acquisition program baselines for only 4 of the 13 assets 
included in the 2007 baseline--the NSC, HC-130H, and medium cutter and 
patrol boat sustainment programs--have not yet had changes to the key 
performance criteria. According to program officials, changes to 
performance criteria are made to clarify requirements and develop 
measurable criteria for testing. The Coast Guard has not fully taken 
into account, however, how these changes affect system-of-systems 
level requirements, although officials state that those requirements 
are being revalidated. 

Some assets or capabilities key to the performance of the Deepwater 
Program as a whole--including the 25 ships of the Offshore Patrol 
Cutter class, the capabilities provided by the integrated C4ISR 
system, and the cutter-based Unmanned Aerial Vehicle essential to 
extending major cutter surveillance times and ranges--remain in 
development. The capabilities provided by C4ISR are particularly 
important to achieving the performance required for Deepwater. These 
systems are at the core of every Coast Guard activity and provide the 
essential situational awareness, data processing, interoperability, 
and records accountability and transparency necessary to successfully 
execute the Coast Guard's many missions. If the designs of these 
assets, and therefore the performance criteria they are able to meet, 
were to be significantly different than those proposed under the ICGS 
baseline, the system's ability to achieve the higher-level performance 
requirements set forth in the 2007 system-level baseline would be 
doubtful. 

Results of Ongoing and Planned Operational Assessments May Further 
Affect Performance Baselines: 

To determine whether Deepwater assets can meet their revised 
performance baselines, the Coast Guard has performed operational and 
capability assessments, through formalized test procedures or through 
limited operations, on a number of assets. Three of the Deepwater 
assets--the NSC, Maritime Patrol Aircraft, and HC-130J--have begun 
limited operations although they have not undergone formal testing to 
determine whether capabilities meet requirements. The Fast Response 
Cutter (Sentinel class) has undergone an early operational assessment 
to determine whether its capabilities meet requirements, and the Coast 
Guard plans to conduct an operational evaluation of the asset in 2011. 
Additional information on the status of operational testing for these 
assets follows. 

* The first NSC completed an assessment of its operational 
capabilities in 2007, before final delivery to the Coast Guard, and 
has since been performing limited operations from its homeport in 
Alemeda, California.[Footnote 14] While it has completed some missions 
successfully, shortfalls in the expected overall capabilities have 
been noted. Specifically, the lack of unmanned air vehicles limits the 
full capability of the cutter to conduct surveillance as reflected in 
the 2007 performance baseline. The Coast Guard is also continuing to 
address design problems with the NSC's small boat launch and recovery 
systems.[Footnote 15] The operational evaluation for the NSC is 
currently scheduled to begin in 2011; however, there are some aspects 
of the cutter's performance that will not be demonstrated at that 
time. Coast Guard officials stated that the NSC will not demonstrate 
the ability to operate for 230 days away from port. This demonstration 
requires the use of four sets of crews to operate three cutters at 
different times in order to maintain operations without exceeding 
regulations governing how long crews can remain at sea. This 
multicrewing concept could have an effect on the maintenance needs of 
these vessels or on personnel deployment times. The Coast Guard states 
that it will not fully demonstrate this multicrewing capability until 
2014 or 2015, when three cutters are available for operations. In 
addition, the operational evaluation will not demonstrate the ability 
of an unmanned aerial system to operate as intended from the NSC, as 
the Coast Guard has not selected an appropriate unmanned system and 
has not indicated when it plans to do so. According to officials, some 
demonstrations of the ability of an unmanned system to take off and 
land on the cutter may take place, but operational missions with an 
unmanned aerial system will not be performed. 

* The Maritime Patrol Aircraft underwent an operational assessment in 
2009 using aircraft previously delivered to the Coast Guard. This 
asset, too, has been used in limited operations before completing 
operational evaluation. Program officials stated that while the 
aircraft itself is performing well in those limited operations, the 
mission systems pallet--which contributes significantly to operational 
capabilities--has previously experienced reliability and maintenance 
challenges. The Coast Guard is working to address these challenges by 
updating the software and hardware. Currently, the Maritime Patrol 
Aircraft is expected to provide 1,200 hours of operational performance 
per year. Coast Guard officials stated that the ability of the 
aircraft to achieve this will be demonstrated in fiscal year 2011 
during the aircraft's operational evaluation. 

* The HC-130J did not undergo any operational testing or assessments 
conducted by an independent operational test authority and none are 
planned. The current approved operational requirements document, which 
establishes the performance baseline for the aircraft and should be 
reflected in the key performance criteria to which the asset is 
tested, was signed in 2003 and does not necessarily reflect the 
current capabilities or established baseline for the aircraft. 
According to officials, the Coast Guard and DHS have developed a 
report that defines the aircraft's performance by describing the 
demonstrations that have already been conducted to quantify the 
characteristics of the aircraft and mission systems--such as the 
performance capabilities of the radar. This report, however, is not 
akin to a test plan that demonstrates the aircraft is able to meet 
operational needs. Determining the capabilities in this manner makes 
it difficult to assess whether the aircraft meets asset-level or 
system-level capabilities. However, DHS and the Coast Guard have 
agreed that no further testing or documentation is necessary, as 
production for the aircraft is complete. 

* The Fast Response Cutter (Sentinel class) is one of the few 
Deepwater assets to undergo an early operational assessment, conducted 
by an independent test authority--the Navy's Commander Operational 
Test and Evaluation Force--prior to the project's critical design 
review, which allowed for early detection and rectification of issues. 
According to Coast Guard program and Navy test officials, all but five 
minor items recommended for correction as a result of this assessment 
were addressed prior to the design review. However, program and test 
officials stated that the cutter will not undergo an additional 
assessment before as many as 15 of the expected 58 vessels are under 
contract and operational testing is completed. If significant issues 
are found in testing, these vessels may have to undergo costly 
modifications. The Coast Guard acknowledges the risks inherent in this 
approach and states that it is reducing risk by conducting testing of 
the patrol boat's design and subsystems and closely monitoring the 
contractor's performance during production. 

Coast Guard Has Not Yet Revalidated the Quantities or Mix of Assets 
Required to Meet Needs: 

While the Coast Guard has made progress in revising baselines for the 
cost, schedule, and capabilities of individual assets, it has not yet 
revalidated the quantities of those assets needed to meet operational 
needs--as it stated that it would in assuming the role of systems 
integrator. Determining the force structure and size of the Deepwater 
Program, specifically the number and type of assets needed to meet 
mission demands, is key to managing the acquisition and will have an 
impact on the final cost and performance of the program. 

The Coast Guard planned to complete a comprehensive fleet mix analysis 
in July 2009 to eliminate uncertainty surrounding future mission 
performance and to produce a baseline for the acquisition. The 
analysis, which began in October 2008--and is now termed the fleet mix 
analysis Phase I--was led by the capabilities directorate and included 
a review of all Deepwater missions and assets. Assumptions on asset 
capabilities were based on the capabilities of the current fleet as 
well as the capabilities that are projected for the Deepwater assets. 
In most cases, Coast Guard officials stated, Deepwater assets retained 
the capabilities determined by ICGS with a few exceptions. For 
example, the Offshore Patrol Cutter was assumed to operate away from 
port for 230 days out of the year as envisioned by ICGS, but the 
Maritime Patrol Aircraft was assumed to operate for 800 instead of 
1,200 flight hours per year. For those assets that have evolved 
significantly since 2007, the analysis made "best guess" assumptions 
that utilized the capabilities currently being pursued by the Coast 
Guard. While the 2007 Deepwater baseline was considered the "floor" 
for asset capabilities and quantities, officials stated that the 
analysis did not impose financial constraints on the outcome and that, 
therefore, the result was not feasible in terms of what the Coast 
Guard could afford. As a result, officials stated that they do not 
intend to use the results to produce recommendations on a baseline for 
fleet mix decisions, as originally intended. The results of the 
analysis have not been released. 

As a result of discussions with DHS, the Coast Guard intends to 
conduct a second, cost-constrained fleet mix analysis Phase II, 
limited to surface assets. This analysis is being conducted to further 
validate mission needs, roles, and responsibilities and will produce 
recommendations on the numbers and types of surface assets the Coast 
Guard should procure. It is intended to be complete in February 2011. 
In the meantime, the Coast Guard continues to pursue quantities of 
planned procurements that, to a large extent, reflect the 2007 
baseline. 

The Coast Guard also completed a study in August 2008 on the 
appropriate number and type of HC-130 aircraft to procure to meet 
needs, but no decision has been made yet. The Coast Guard currently 
operates two models of the HC-130 aircraft: the HC-130H, which entered 
operations in the 1970s, and the HC-130J, which entered operations in 
the last few years. Both models were upgraded as part of the Deepwater 
Program but, given the advanced age and deteriorating state of many of 
the older HC-130H aircraft, the Coast Guard decided to revalidate how 
many of each aircraft should be upgraded and maintained. The study 
concluded that while the HC-130J offered more capability than the HC- 
130H, and a longer expected life cycle, budgetary concerns prevent 
retiring all the older aircraft in favor of HC-130Js. Instead, a 
hybrid plan was proposed to maintain 11, instead of the currently 
planned 16, HC-130Hs and to increase the numbers of HC-130Js from the 
currently planned 6 to 11. However, the Coast Guard has not yet taken 
the additional actions needed to purchase additional HC-130Js. 
Officials stated that any additional acquisitions would necessitate a 
revalidation of HC-130J requirements and resubmission of much of the 
asset's documentation, including baselines and test plans. 

Coast Guard Continues to Improve Acquisition Workforce and Develop 
Means to Further Reduce Vacancies: 

The Coast Guard sought a systems integrator at the outset of the 
Deepwater Program in part because its workforce lacked the experience 
and depth to manage the acquisition internally. As the Coast Guard 
assumes the role of system integrator it is important that it 
understand its needs and builds an acquisition workforce to manage the 
Deepwater Program. One key method the Coast Guard uses is a workforce 
planning model, modified from a model developed by the Air Force, to 
improve its estimates of workforce needs. According to Coast Guard 
officials, input from project managers is used in the model to 
estimate current and future needs for key personnel such as project 
managers, contracting officials, and business and financial managers. 
Officials stated that the output of the model is then discussed in a 
forum of all the project managers, and requests for additional 
personnel are then developed and forwarded for inclusion in the budget. 

Since our last report, the Coast Guard has begun to implement 
initiatives aimed at further reducing its acquisition workforce gap. 
One such initiative is the acquisition professional career program, a 
3-year internship program that targets engineering and business 
students for development as civilian acquisition personnel. As of 
July, the Coast Guard had approximately 20 interns supporting 
contracting and other program management areas. The career entry 
opportunity program is another initiative meant to attract qualified 
employees to the Coast Guard while also promoting career growth for 
current Coast Guard employees. Participants in the program receive on-
the-job training for 2 to 3 years in a variety of positions within the 
acquisition directorate and, upon completing the program, are 
permanently placed in positions in the Coast Guard's acquisition 
community. Officials said they are also attempting to obtain direct 
hire authority to streamline the hiring process and avoid delays in 
placing new hires. Along with enhancing its recruiting and improving 
its hiring process for civilian personnel, officials discussed how 
they are attempting to make employment in the acquisitions area more 
appealing for military personnel by developing an acquisition career 
path that offers opportunities for advancement similar to other 
uniformed career paths within the Coast Guard. 

The Coast Guard has had some success in narrowing the acquisition 
workforce gap we have reported on in the past. Officials stated that 
by the end of fiscal year 2009, 11 percent of the Coast Guard's 
civilian acquisition workforce positions remained unfilled, down from 
the 16 percent that the Coast Guard reported for April 2009.[Footnote 
16] In its fiscal year 2010 budget, however, the acquisition 
directorate received an additional 100 government positions that must 
be filled. Officials stated that 25 percent of these new positions 
were going to be allocated to the Offshore Patrol Cutter program, due 
to the need for more staff as the program prepares to award a design 
and construction contract, and 40 percent were going to different 
sponsors and technical authorities that support the acquisition 
directorate. This increase in number of positions has had an effect on 
the Coast Guard's current vacancy rate. As of April 2010, the Coast 
Guard had a total of 951 government acquisition workforce positions, 
consisting of 556 civilian positions and 395 military positions. Of 
these 951 positions, 190 were vacant as of April 2010, leaving a 
workforce gap of approximately 20 percent. 

Although workforce gaps remain, the Coast Guard has increased the 
number of certifications for the acquisition officials it has in place 
for areas such as program management, business management, and systems 
engineering. These officials are required to complete specialized 
training in their respective acquisition career fields in order to 
manage or execute acquisition contracts at various dollar thresholds. 
Since April 2009, the Coast Guard reports that it has increased the 
total number of certified acquisition officials in a number of these 
types of fields from 593 to 862, an approximately 45 percent increase. 
The number of certified program managers alone rose from 357 in April 
2009 to 601 in June 2010, for an increase of about 68 percent. 

Although the Coast Guard is attempting to close its acquisition 
workforce gaps it faces challenges--like many federal agencies that 
acquire major systems--in recruiting and retaining a sufficient number 
of government employees in acquisition positions such as contract 
specialists, cost estimators, system engineers, and program management 
support. When these gaps cannot be filled, contractors are often used 
to support the work performed by government staff. For example, the 
Coast Guard has used support contractors to perform life-cycle cost 
estimates and to assist in the drafting of program documentation. As 
shown in figure 3, support contractors made up 24 percent of the 
acquisition workforce as of April 2010. 

Figure 3: Acquisition Workforce, as of April 2010: 

[Refer to PDF for image: pie-chart] 

Civilian: 42%; 
Military: 30%; 
Support contractors: 24%; 
Other government agency support: 4%. 

Source: GAO analysis of Coast Guard data. 

[End of figure] 

The Coast Guard acknowledges that the use of support contractors puts 
it at risk for potential conflicts of interest and the possibility of 
these contractors functioning in roles that closely support inherently 
governmental functions. To address conflicts of interest, all 
solicitations and contracts include appropriate clauses where a 
potential for conflict may exist, according to Coast Guard officials, 
and staff are trained on how to identify and manage conflicts of 
interest. Further, the Coast Guard has made efforts to ensure that 
support contractors do not perform inherently governmental work. These 
efforts include releasing guidance to define inherently governmental 
roles and the roles of government staff in overseeing contractors and 
ensuring appropriate oversight and approval of work performed. 

Conclusions: 

In creating new baselines for individual asset cost, schedule, and 
performance, the Coast Guard has deepened its understanding of the 
resources needed and capabilities required on an asset level in a 
manner that improves oversight and management of the Deepwater 
Program. As it does so, it is also becoming increasingly clear that 
the baselines for cost, schedule, and performance established in 2007 
cannot be achieved. Because the Coast Guard has not revalidated its 
system-level requirements, it lacks the analytical framework needed to 
inform Coast Guard and DHS decisions about asset trade-offs in the 
future. In the absence of recommendations from the fleet mix analysis, 
it remains unclear what number of assets are required to meet the 
Coast Guard's needs or what trade-offs in capabilities or mission 
goals are required to control costs in a fiscally constrained 
environment. 

Recommendation for Executive Action: 

To capitalize on the increase in knowledge gained by creating new 
baselines for Deepwater assets, and to better manage acquisitions of 
further assets and capabilities, we recommend that the Commandant of 
the Coast Guard complete, and present to Congress, a comprehensive 
review of the Deepwater Program that clarifies the overall cost, 
schedule, quantities, and mix of assets that are needed to meet 
mission needs and what trade-offs need to be made considering fiscal 
constraints, given that the currently approved Deepwater baseline is 
no longer feasible. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Coast Guard and DHS. DHS 
provided oral comments via an e-mail stating that it concurred with 
the recommendation. The Coast Guard provided technical comments, which 
we incorporated into the report as appropriate. 

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

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

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

Signed by: 

John P. Hutton: 
Director Acquisition and Sourcing Management: 

[End of section] 

Appendix I: Scope and Methodology: 

In conducting this review, we relied in part on the information and 
analysis in our past work, including reports completed in 2008 and 
2009.[Footnote 17] Additional scope and methodology information on 
each objective of this report follows. 

To assess changes to the Department of Homeland Security (DHS) and 
Coast Guard acquisition policies, processes, and approach related to 
Deepwater since our July 2009 report we reviewed DHS' Acquisition 
Directive 102-01, Acquisition Guidebook 102-01-001, Directive 026-06 
on test and evaluation, as well as acquisition decision and other 
memoranda. We also reviewed the Coast Guard's Major Systems 
Acquisition Manual (MSAM), Requirements Generation and Management 
Process, and other policy documents. We also interviewed senior 
acquisition directorate officials, representatives of the Coast 
Guard's capabilities directorate, and representatives of Coast Guard's 
technical and support authorities. We also interviewed program and 
project managers to discuss the effect of the policies and processes 
on Deepwater assets and spoke with DHS officials about the 
department's major acquisition review process and reporting 
requirements. To determine the contractual status of Deepwater assets 
we reviewed Coast Guard contracts and acquisition strategies and spoke 
with contracting and acquisition officials. In addition, we met with 
contractor and Coast Guard officials at Northrop Grumman facilities in 
Pascagoula, Mississippi and with Bollinger officials in Lockport, 
Louisiana. We also met with Coast Guard officials at the Aviation 
Logistics Center in Elizabeth City, North Carolina; Surface Fleet 
Logistics Center in Curtis Bay, Maryland; Lockheed Martin facilities 
in Moorestown, New Jersey; and the Command and Control Engineering 
Center in Portsmouth, Virginia to discuss their role in upgrading and 
maintaining Deepwater assets. 

To assess whether the Deepwater Program is meeting baselines for cost, 
schedule, and performance, we reviewed the Deepwater Program's 2007 
baseline and compared it to the revised baselines for individual 
assets that have been approved to date. We also interviewed senior 
acquisition directorate officials and program and project managers to 
discuss how the Coast Guard is developing new acquisition program 
baselines for individual assets and how the process used differs from 
that in the 2007 baseline, such as the basis for cost estimates. In 
addition we reviewed the life-cycle cost estimates for selected 
assets. We also reviewed operational requirements documents for 
selected assets in various stages of the development and production 
processes to understand the major drivers of cost growth, schedule 
delays, and capability changes. We interviewed acquisition directorate 
officials and program and project managers to discuss options for 
controlling cost growth by making trade-offs in asset quantities 
and/or capabilities, as well as some of the potential implications of 
unplanned schedule delays. We also interviewed Coast Guard officials 
and analyzed documentation for the fleet-mix analysis and follow-on 
studies being conducted by the capabilities directorate. In addition 
we met with Navy and Coast Guard officials at the U.S. Navy's 
Commander Operational Test and Evaluation Force in Norfolk, Virginia 
to discuss their role in conducting operational testing. 

To assess the Coast Guard's efforts to manage and build its 
acquisition workforce, we reviewed Coast Guard information on 
government, contractor, and vacant positions. We supplemented this 
analysis with interviews of acquisition directorate officials, 
including contracting and Office of Acquisition Workforce Management 
officials and program and project managers to discuss current vacancy 
rates and the Coast Guard's plans to increase the size of the 
acquisition workforce. We also reviewed documentation and interviewed 
senior acquisition directorate officials about the use of support 
contractors and oversight to prevent contractors from performing 
inherently governmental functions. We reviewed documentation such as 
the updated Acquisition Human Capital Strategic Plan and discussed 
workforce initiatives, challenges, and obstacles to building an 
acquisition workforce, including recruitment and difficulty in filling 
key positions. 

We conducted this performance audit between October 2009 and July 2010 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: GAO Contact and Acknowledgments: 

For further information about this report, please contact John P. 
Hutton, Director, Acquisition and Sourcing Management, at (202) 512- 
4841 or huttonj@gao.gov. Other individuals making key contributions to 
this report include Michele Mackin, Assistant Director; J. Kristopher 
Keener; Matthew Alemu; Kelly Bradley; and Kristine Hassinger. 

[End of section] 

Related GAO Products: 

Coast Guard: Observations on the Requested Fiscal Year 2011 Budget, 
Past Performance, and Current Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-10-411T]. Washington, D.C.: February 
25, 2010. 

Coast Guard: Better Logistics Planning Needed to Aid Operational 
Decisions Related to the Deployment of the National Security Cutter 
and Its Support Assets. [hyperlink, 
http://www.gao.gov/products/GAO-09-497]. Washington, D.C.: July 17, 
2009. 

Coast Guard: As Deepwater Systems Integrator, Coast Guard Is 
Reassessing Costs and Capabilities but Lags in Applying Its 
Disciplined Acquisition Approach. [hyperlink, 
http://www.gao.gov/products/GAO-09-682]. Washington, D.C.: July 14, 
2009. 

Coast Guard: Change in Course Improves Deepwater Management and 
Oversight, but Outcome Still Uncertain. [hyperlink, 
http://www.gao.gov/products/GAO-08-745]. Washington, D.C.: June 24, 
2008. 

Coast Guard: Observations on Changes to Management and Oversight of 
the Deepwater Program. [hyperlink, 
http://www.gao.gov/products/GAO-09-462T]. Washington, D.C.: March 24, 
2009. 

Status of Selected Assets of the Coast Guard's Deepwater Program. 
[hyperlink, http://www.gao.gov/products/GAO-08-270R]. Washington, 
D.C.: March 11, 2008. 

Coast Guard: Status of Efforts to Improve Deepwater Program Management 
and Address Operational Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-07-575T]. Washington, D.C.: March 8, 
2007. 

Coast Guard: Status of Deepwater Fast Response Cutter Design Efforts. 
[hyperlink, http://www.gao.gov/products/GAO-06-764]. Washington, D.C.: 
June 23, 2006. 

Coast Guard: Changes to Deepwater Plan Appear Sound, and Program 
Management Has Improved, but Continued Monitoring Is Warranted. 
[hyperlink, http://www.gao.gov/products/GAO-06-546]. Washington, D.C.: 
April 28, 2006. 

Coast Guard: Progress Being Made on Addressing Deepwater Legacy Asset 
Condition Issues and Program Management, but Acquisition Challenges 
Remain. [hyperlink, http://www.gao.gov/products/GAO-05-757]. 
Washington, D.C.: July 22, 2005. 

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

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

Contract Management: Coast Guard's Deepwater Program Needs Increased 
Attention to Management and Contractor Oversight. [hyperlink, 
http://www.gao.gov/products/GAO-04-380]. Washington, D.C.: March 9, 
2004. 

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

[End of section] 

Footnotes: 

[1] ICGS is a business entity jointly owned by Northrop Grumman and 
Lockheed Martin. These companies are first-tier subcontractors to ICGS 
and under the ICGS contract provide Deepwater assets or award second- 
tier subcontracts. 

[2] The Deepwater Program originally had an estimated cost of $17 
billion. The May 2007 baseline of $24.2 billion reflects changes to 
the program to reflect the Coast Guard's post-September 11, 2001, 
missions. 

[3] GAO, Coast Guard: As Deepwater Systems Integrator, Coast Guard Is 
Reassessing Costs and Capabilities but Lags in Applying Its 
Disciplined Acquisition Approach, [hyperlink, 
http://www.gao.gov/products/GAO-09-682] (Washington, D.C.: July 14, 
2009). 

[4] See a list of related GAO products at the end of this report. 

[5] [hyperlink, http://www.gao.gov/products/GAO-09-682]. 

[6] [hyperlink, http://www.gao.gov/products/GAO-09-682]. 

[7] [hyperlink, http://www.gao.gov/products/GAO-09-682]. 

[8] DHS officials stated that a decision event has been added to 
authorize low-rate initial production; this addresses a recommendation 
in GAO, Homeland Security: Successes and Challenges in DHS's Efforts 
to Create an Effective Acquisition Organization, [hyperlink, 
http://www.gao.gov/products/GAO-05-179] (Washington, D.C.: Mar. 29, 
2005). 

[9] For information on how DHS' process is being applied to programs 
across the department, see GAO, Department of Homeland Security: 
Assessments of Selected Complex Acquisitions, [hyperlink, 
http://www.gao.gov/products/GAO-10-588SP] (Washington, D.C.: June 30, 
2010). 

[10] GAO, Coast Guard; Change in Course Improves Deepwater Management 
and Oversight, but Outcome Still Uncertain, [hyperlink, 
http://www.gao.gov/products/GAO-08-745] (Washington D.C.: June 24, 
2008). 

[11] [hyperlink, http://www.gao.gov/products/GAO-09-682]. 

[12] We recently reported on the government's use of cost-
reimbursement contracts. GAO, Contract Management: Extent of Federal 
Spending under Cost-Reimbursement Contracts Unclear and Key Controls 
Not Always Used, [hyperlink, http://www.gao.gov/products/GAO-09-921] 
(Washington, D.C.: Sept. 30, 2009). 

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

[14] An operational assessment focuses on significant trends noted in 
development efforts, programmatic voids, risk areas, adequacy of 
requirements, and the ability of the program to support operational 
testing. An operational assessment may be conducted at any time using 
technology demonstrators, prototypes, mock-ups, engineering 
development models, or simulations, but is not to substitute for 
initial operational testing and evaluation. 

[15] We recently reported on the operational effects of delays in the 
delivery of the NSC class and its accompanying support assets of 
unmanned aircraft and small boats. GAO, Coast Guard: Better Logistics 
Planning Needed to Aid Operational Decisions Related to the Deployment 
of the National Security Cutter and Its Support Assets, [hyperlink, 
http://www.gao.gov/products/GAO-09-497] (Washington, D.C.: July 17, 
2009). 

[16] [hyperlink, http://www.gao.gov/products/GAO-09-682]. 

[17] GAO, Coast Guard: As Deepwater Systems Integrator, Coast Guard Is 
Reassessing Costs and Capabilities but Lags in Applying Its 
Disciplined Acquisition Approach, [hyperlink, 
http://www.gao.gov/products/GAO-09-682] (Washington, D.C.: July 14, 
2009) and GAO, Change in Course Improves Deepwater Management and 
Oversight, but Outcome Still Uncertain, [hyperlink, 
http://www.gao.gov/products/GAO-08-745] (Washington, D.C.: June 24, 
2008). 

[End of section] 

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