Order Code RL33753
Coast Guard Deepwater Program: Background,
Oversight Issues, and Options for Congress
Updated May 18, 2007
Ronald O’Rourke
Specialist in National Defense
Foreign Affairs, Defense, and Trade Division

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Coast Guard Deepwater Program: Background,
Oversight Issues, and Options for Congress
Summary
The Integrated Deepwater Systems (IDS) program, or Deepwater program for
short, is a $24-billion, 25-year project to replace and modernize the Coast Guard’s
aging fleet of deepwater-capable ships and aircraft. It is the largest and most
complex acquisition effort in Coast Guard history, encompassing 91 new cutters, 124
new small surface craft, and 244 new or converted airplanes, helicopters, and
unmanned aerial vehicles (UAVs). The Deepwater program has received a total of
about $4.4 billion through FY2007, including about $1.14 billion in FY2007. The
Coast Guard’s proposed FY2008 budget requests $836.9 million for the program.
The management and execution of the Deepwater program has been strongly
criticized in recent months by the Department of Homeland Security Inspector
General (DHS IG), the Defense Acquisition University (DAU), the Government
Accountability Office (GAO), several Members of Congress from committees and
subcommittees that oversee the Coast Guard, and other observers. House and Senate
committees and subcommittees have conducted several oversight hearings this year
devoted partly or entirely to problems and concerns regarding the management and
execution of the program.
On April 17, 2007, the Coast Guard announced a series of actions to reform the
management of the Deepwater program. Among other things, the Coast Guard
announced it will assume the role of lead system integrator (LSI) for the program.
Since 2002, the LSI role had been performed by Integrated Coast Guard Systems
(ICGS) — an industry team led by Lockheed Martin and Northrop Grumman Ship
Systems (NGSS).
On April 18, 2007, it was reported that the Justice Department is conducting an
investigation of the Deepwater program. Justice reportedly notified Lockheed,
Northrop, and certain other firms involved in the Deepwater program of the
investigation on December 13, 2006, and directed the firms to preserve all documents
relating to the program.
Legislation that would significantly restructure Coast Guard contracting and the
Deepwater program in various ways, and place various new requirements and
conditions on the Deepwater program, includes the following:
! Sections 4402 and 4405 of the conference report (H.Rept. 110-107
of April 24, 2007) on H.R. 1591, the FY2007 emergency
supplemental appropriations act;
! S. 924, the Integrated Deepwater Program Reform Act; and
! S. 889, the Deepwater Accountability Act.
In addition, Section 4404(b)(1) of the conference report on H.R. 1591
appropriates $30 million in additional appropriations to procure four new coastal
patrol boats so as to mitigate the Coast Guard’s patrol boat operational gap. This
report will be updated as events warrant.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Coast Guard Deepwater Missions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Legacy Deepwater-Capable Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
System-Of-Systems (SOS) Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Lead Systems Integrator (LSI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Performance-Based Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ICGS Contract Award And Extension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Revised Implementation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Systems To Be Procured Or Converted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Program Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Earlier Interest In Potential For Program Acceleration . . . . . . . . . . . . . . . . . 6
Congressional Oversight Hearings In 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Problems In Program Management And Execution . . . . . . . . . . . . . . . . . . . . 7
Problems In Cutter Acquisition Efforts . . . . . . . . . . . . . . . . . . . . . . . . . 8
Overall Management Of The Program . . . . . . . . . . . . . . . . . . . . . . . . . 10
Coast Guard Management Reforms Announced April 17, 2007 . . . . . . . . . 12
Other Announced Coast Guard Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Justice Department Investigation Of Program . . . . . . . . . . . . . . . . . . . . . . . 16
Oversight Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Coast Guard’s Announced Management Reforms . . . . . . . . . . . . . . . . . . . . 17
Execution Of FY2007 Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Revolving Door And Potential For Conflicts Of Interest . . . . . . . . . . . . . . 18
Potential Options for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Legislative Activity in 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
FY2007 Emergency Supplemental Appropriations Act (H.R. 1591) . . . . . 21
House . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Senate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Conference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Integrated Deepwater Program Reform Act (S. 924) . . . . . . . . . . . . . . . . . . 29
Deepwater Accountability Act (S. 889) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Appendix A. DAU Quick Look Study, February 2007 . . . . . . . . . . . . . . . . . . . . 37
Appendix B. DHS IG Testimony And Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 41
May 17, 2007, Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
January 2007 Report on NSC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
February 2007 Report on 110-Foot Modernization . . . . . . . . . . . . . . . . . . . 48
December 2006 Report On DHS Management Challenges . . . . . . . . . . . . . 49
August 2006 Report On Deepwater IT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Appendix C. GAO Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
March 8, 2007, and February 14, 2007, Testimony . . . . . . . . . . . . . . . . . . . 51

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Appendix D. Coast Guard Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
May 17, 2007, Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Appendix E. NGSS Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
May 17, 2007, Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Appendix F. Lockheed Martin Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
May 17, 2007, Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
List of Tables
Table 1. Deepwater Program Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

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Coast Guard Deepwater Program:
Background, Oversight Issues, and Options
for Congress
Introduction
The Integrated Deepwater Systems (IDS) program, or Deepwater program for
short, is a $24-billion, 25-year project to replace and modernize the Coast Guard’s
aging fleet of deepwater-capable ships and aircraft. It is the largest and most
complex acquisition effort in Coast Guard history, encompassing 91 new cutters, 124
new small surface craft, and 244 new or converted airplanes, helicopters, and
unmanned aerial vehicles (UAVs).
The Deepwater program has received a total of about $4.4 billion through
FY2007, including about $1.14 billion in FY2007. The Coast Guard’s proposed
FY2008 budget requests $836.9 million for the program.
The management and execution of the Deepwater program has been strongly
criticized in recent months by the Department of Homeland Security Inspector
General (DHS IG), the Defense Acquisition University (DAU), the Government
Accountability Office (GAO), several Members of Congress from committees and
subcommittees that oversee the Coast Guard, and other observers. House and Senate
committees and subcommittees have conducted several oversight hearings this year
devoted partly or entirely to problems and concerns regarding the management and
execution of the program.
On April 17, 2007, the Coast Guard announced a series of actions to reform the
management of the Deepwater program. Among other things, the Coast Guard
announced it will assume the role of lead system integrator (LSI) for the program.
Since 2002, the LSI role had been performed by Integrated Coast Guard Systems
(ICGS) — an industry team led by Lockheed Martin and Northrop Grumman Ship
Systems (NGSS).
On April 18, 2007, it was reported that the Justice Department is conducting an
investigation of the Deepwater program. Justice reportedly notified Lockheed,
Northrop, and certain other firms involved in the Deepwater program of the
investigation on December 13, 2006, and directed the firms to preserve all documents
relating to the program.
Congress has several potential options it may consider for improving
management and execution of the Deepwater program. Congress’s decisions
regarding the Deepwater program could significantly affect Coast Guard capabilities,
Coast Guard funding requirements, and federal acquisition practices.

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Background1
Coast Guard Deepwater Missions
The Coast Guard performs a variety of missions in the deepwater environment,
which generally means waters more than 50 miles from shore. These mission include
drug interdiction, alien migrant interdiction, fisheries enforcement, search and rescue,
the International Ice Patrol in northern waters; overseas maritime intercept
(sanctions-enforcement) operations, overseas port security and defense, overseas
peacetime military engagement; general defense operations in conjunction with the
Navy; marine pollution law enforcement, enforcement of lightering (i.e., at-sea
cargo-transfer) zones, and overseas inspection of foreign vessels entering U.S. ports.
Deepwater-capable assets are also used closer to shore for various operations.
Legacy Deepwater-Capable Assets
When the Deepwater program began in the late 1990s, the Coast Guard’s
existing (i.e., “legacy”) assets for performing deepwater missions included 93 aging
cutters and patrol boats and 207 aging aircraft. Many of these ships and aircraft are
expensive to operate (in part because the cutters require large crews), increasingly
expensive to maintain, technologically obsolete, and in some cases poorly suited for
performing today’s deepwater missions.
System-Of-Systems (SOS) Acquisition
Rather than replacing its various deepwater-capable cutters, patrol boats, and
aircraft through a series of individual procurement programs, the Coast Guard
decided to pursue the Deepwater program as a system-of-systems (SOS) acquisition,
under which a combination of new and modernized cutters, patrol boats, aircraft,
along with associated C4ISR systems2 and logistics support, would be procured as
a single, integrated package. The Coast Guard believes that a system-of-systems
approach permits the Deepwater project to be optimized (i.e., made cost effective)
at the overall, system-of-systems level, rather than suboptimized at the level of
individual platforms and systems.
Lead Systems Integrator (LSI)
To execute this system-of-systems acquisition approach, the Coast Guard
initially decided to use a private-sector lead system integrator (LSI) — an industry
entity responsible for designing, building, and integrating the various elements of the
package so that it meets the Coast Guard’s projected deepwater operational
requirements at the lowest possible cost. The Coast Guard initially decided to use
a private-sector LSI to execute the Deepwater program in part because the size and
1 For additional background information on the Deepwater program on the internet, log onto
[http://www.uscg.mil/deepwater/] and [http://www.teamdeepwater.com].
2 C4I stands for command, control, communications, computers, intelligence, surveillance,
and reconnaissance.

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complexity of the project was thought to be beyond the system-integration
capabilities of the Coast Guard’s relatively small in-house acquisition work force.
Another major acquisition effort being pursued as a system-of-systems acquisition
with an LSI is the Army’s Future Combat System (FCS).3
Performance-Based Acquisition
The Coast Guard decided to pursue the Deepwater program as a performance-
based acquisition, meaning that it would set performance requirements for the
program and permit the Deepwater LSI some latitude in determining how the
Deepwater system would meet those requirements.
ICGS Contract Award And Extension
The Coast Guard ran a competition for the Deepwater LSI role. Three industry
teams competed, and on June 25, 2002, the Coast Guard awarded the role to
Integrated Coast Guard Systems (ICGS) — an industry team led by Lockheed Martin
and Northrop Grumman Ship Systems (NGSS). ICGS was awarded an indefinite
delivery, indefinite quantity (ID/IQ) contract for the Deepwater program that includes
a five-year baseline term ending in June 2007, and five potential additional award
terms of up to five years (60 months) each. On May 19, 2006, the Coast Guard
announced that it was awarding ICGS a 43-month first additional award term,
reflecting good but not excellent performance by ICGS. With this additional award
term, the contract would extend to January 2011.
Revised Implementation Plan
The original (1998) Deepwater implementation plan reflected a pre-9/11
analysis of Coast Guard mission demands. On March 25, 2005, the Coast Guard
submitted to Congress a revised Deepwater implementation plan reflecting an
analysis of the Coast Guard’s expanded post-9/11 missions. The revised
implementation plan increased the capabilities to be acquired under the Deepwater
program. Primarily because of the increase in capabilities to be acquired, the
Deepwater program’s estimated acquisition cost increased from $17 billion to $24
billion, and the program’s acquisition period increased from about 20 years to 25
years.
Some observers have expressed concern that the Deepwater program’s estimated
total acquisition cost has increased from $17 billion to $24 billion. An April 2006
Government Accountability Office (GAO) report stated the following:
The revised Deepwater implementation plans change the balance between
new and legacy assets, alter the delivery schedule for some assets, lengthen the
3 For more on the FCS program, see CRS Report RL32888, The Army’s Future Combat
System (FCS): Background and Issues for Congress, by Andrew Feickert. For more on LSIs
in general, see CRS Report RS22631, Defense Acquisition: Use of Lead System Integrators
(LSIs) — Background, Oversight Issues, and Options for Congress, by Valerie Bailey
Grasso.

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overall acquisition schedule by 5 years, and increase the projected program cost
from $17 billion to $24 billion. The higher cost generally relates to upgrading
assets to reflect added homeland security mission requirements. Upgrades to
vessels account for the single largest area of increase; with upgrades to the
command, control, communications and other capabilities being second highest.
In contrast, because the revised plans upgrade rather than replace most legacy
aircraft and reduce the number of unmanned aircraft, the cost for Deepwater
aircraft drops. The revised plans, like the original plan, are heavily dependent
on receiving full funding each year. Coast Guard officials state that a shortfall
in funding in any year could substantially increase total costs.4
Some observers expected the revised Deepwater implementation plan to include
more ships and aircraft than the original (1998) Deepwater plan. A 2004 RAND
Corporation report recommended substantially increasing the numbers of cutters and
aircraft to be acquired under the original plan.5 The revised implementation plan,
however, did not substantially increase ship and aircraft numbers. The Coast Guard
says the revised force would have considerably more capability than the 1998-
planned force because the ships and aircraft would be individually more capable than
under the 1998 plan. Coast Guard officials have also acknowledged, however, that
the revised force would not have enough capacity to meet long-term (FY2005-
FY2009) Government Performance and Review Act (GPRA) goals. An April 2006
GAO report concluded that
The Coast Guard’s analytical methods were appropriate for determining if
the revised asset mix would provide greater mission performance and whether
the mix is appropriate for meeting Deepwater missions. GAO and other
independent experts found the Coast Guard’s methods were reliable for assessing
the effects of changing the asset mix and a Department of Defense review board
facilitated accreditation of the Coast Guard’s approach.”6
Systems To Be Procured Or Converted
The revised Deepwater implementation plan includes the acquisition of the
following:
4 Government Accountability Office: Coast Guard[:] Changes to Deepwater Plan Appear
Sound, and Program Management Has Improved, but Continued Monitoring Is Warranted,
GAO-06-546, June 2006.
5 John Birkler, et al., The U.S. Coast Guard’s Deepwater Force Modernization Plan: Can
It Be Accelerated? Will It Meet Changing Security Needs? RAND, National Security
Research Division, MG-114, 2004.
6 Government Accountability Office: Coast Guard[:] Changes to Deepwater Plan Appear
Sound, and Program Management Has Improved, but Continued Monitoring Is Warranted,
GAO-06-546, June 2006.
For further discussion regarding the adequacy of proposed Deepwater assets, see Statement
of Ronald O’Rourke, Specialist in National Defense, Congressional Research Service,
Before the Senate Commerce, Science, and Transportation Committee Subcommittee on
Fisheries and the Coast Guard Hearing on the Coast Guard’s Revised Deepwater
Implementation Plan, June 21, 2005, pp. 1-5.

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Ships, boats, and surface craft:
! 8 new National Security Cutters, or NSCs, displacing about 4,000
tons each (i.e., ships analogous to today’s high-endurance cutters);
! 25 new Offshore Patrol Cutters, or OPCs, displacing about 3,200
tons each (i.e., ships analogous to today’s medium-endurance
cutters);
! 58 new Fast Response Cutters (FRCs) displacing 200 tons each;
! 33 new Long Range Interceptor (LRI) craft displacing 15 tons each;
and
! 91 new Short Range Prosecutor (SRP) craft displacing 9 tons each.
Aircraft:
! 6 missionized HC-130J and 16 converted HC-130H Long Range
Search (LRS) aircraft;
! 36 new HC-144A Medium Range Maritime Patrol Aircraft (MPA)
based on the European Aeronautic Defence and Space Company
(EADS) CASA HC-235 Persuader MPA aircraft design;
! 42 converted HH-60J Medium Range Recovery (MRR) helicopters;
! 95 converted HH-65C Multi-Mission Cutter Helicopters (MCHs);
! 45 new HV-911 Eagle Eye VTOL (vertical take-off or landing)
Unmanned Aerial Vehicles (VUAVs); and
! 4 leased RQ-4A Global Hawk High Altitude Endurance UAVs
(HAEUAVs).
In addition to the above items, the Deepwater program included the conversion
of the Coast Guard’s existing 49 Island-class 110-foot patrol boats into modernized,
123-foot patrol boats, so that these boats could remain in service until the delivery
of replacement FRCs.
Program Funding
Table 1 below shows funding for the Deepwater program. As can be seen in
the table, the program has received a total of about $4.4 billion through FY2007,
including $1,144.6 million in FY2007. The Coast Guard’s proposed FY2008 budget
requests $836.9 million for the program.

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Table 1. Deepwater Program Funding
(in millions of dollars, rounded to nearest tenth)
Priora
FY02
FY03
FY04
FY05
FY06
FY07
FY08
Request
n/a
320.2
500.0
500.0
678
966.0
934.4
836.9
Appropriation
n/a
320.2
478.0
668.2
724.0
933.1
1,065.9
Rescissions
n/a
3.1
57.6
38.9
98.7
Transfers
n/a
49.7
77.8
78.7
Supplemental approps
n/a
124.2
Totalb
117.0
320.2
474.9
610.6
734.8
1,036.4
1,144.6
Cumulative totalb
117.0
437.2
912.1
1,522.7
2,257.5
3,293.9
4,438.5
Source: Prepared by CRS using Coast Guard data provided on January 29, 2007, and proposed Coast
Guard FY2008 budget.
n/a = not available
a. Pre-award funding prior to 2002.
b. Excludes HC-130J funding prior and airborne use-of-force funding prior to FY2007.
Earlier Interest In Potential For Program Acceleration
Prior to recent strong criticisms regarding management and execution of the
Deepwater program, some Members of Congress expressed interest in accelerating
procurement of Deepwater assets and thereby compressing the Deepwater acquisition
period from 25 years to 15 or 10 years, so as to reduce total Deepwater acquisition
costs and more quickly replace legacy assets. Some of these Members expressed
disappointment that the Coast Guard’s revised implementation plan lengthened the
program’s acquisition period from about 20 years to 25 years. Compressing the
Deepwater program’s acquisition period to 15 or 10 years could reduce total
Deepwater acquisition costs but would require substantially increasing annual
Deepwater acquisition funding levels.7
A 2004 RAND Corporation report, using the original (pre-2005) Deepwater
implementation plan, concluded that “the shipbuilding and air vehicle industrial
bases could produce the USCG’s Deepwater assets on either the 15-year or the
10-year schedule. Manufacturers would require no major facility upgrades to
accommodate acceleration.”8 GAO has cautioned that accelerating the Deepwater
7 Section 888(I) of H.R. 5005/P.L. 107-296 directed DHS to report to Congress on the idea
of compressing the Deepwater program from 20 years to 10 years. On March 12, 2003, the
Coast Guard submitted the report, which concluded that compressing the Deepwater
acquisition period to 10 years was feasible, that it would increase Deepwater acquisition
costs over the period FY2005-FY2011 by about $7.4 billion in then-year dollars, but reduce
total Deepwater acquisition costs over the long run from $16.022 billion in then-year dollars
to $11.473 billion in then-year dollars. (U.S. Coast Guard, Report to Congress on the
Feasibility of Accelerating the Integrated Deepwater System, 2003.)
8 John Birkler, et al., The U.S. Coast Guard’s Deepwater Force Modernization Plan: Can
It Be Accelerated? Will It Meet Changing Security Needs? RAND, National Security
(continued...)

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CRS-7
program could increase program-management risks, but has also acknowledged that
accelerating selected parts of the program might be more feasible.
Congressional Oversight Hearings In 2007
House and Senate committees and subcommittees have conducted several
oversight hearings in 2007 devoted partly or entirely to problems and concerns
regarding the management and execution of the program. Examples of such hearings
include:
! a January 30, 2007, hearing before the Coast Guard and Maritime
Transportation subcommittee of the House Transportation and
Infrastructure Committee;
! February 6 and 15, 2007, hearings before the Homeland Security
subcommittee of the House Appropriations Committee
! a February 8, 2007, hearing before the House Committee on
Oversight and Government Affairs;
! a February 14, 2007, hearing before the Oceans, Atmosphere,
Fisheries, and Coast Guard subcommittee of the Senate Commerce,
Science and Transportation Committee;
! a March 8, 2007, hearing before the Coast Guard and Maritime
transportation subcommittee of the House Transportation and
Infrastructure Committee.
! an April 18, 2007, hearing before the full House Transportation and
Infrastructure Committee;
! an April 18, 2007, hearing before the Oceans, Atmosphere,
Fisheries, and Coast Guard subcommittee of the Senate Commerce,
Science, and Transportation Committee; and
! a May 17, 2007, joint hearing before the Border, Maritime, and
Global Counterterrorism subcommittee and the Management,
Investigations, and Oversight subcommittee of the House Homeland
Security Committee.
Problems In Program Management And Execution
The management and execution of the Deepwater program has been strongly
criticized in recent months by the Department of Homeland Security Inspector
General (DHS IG), the Defense Acquisition University (DAU), the Government
8 (...continued)
Research Division, MG-114, 2004.

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Accountability Office (GAO), several Members of Congress from committees and
subcommittees that oversee the Coast Guard, and other observers.
Criticism of the management and execution of the program has focused on
problems in three cutter acquisition efforts, and on overall management of the
program. Each of these is discussed below.
Problems In Cutter Acquisition Efforts. The Deepwater cutter acquisition
efforts that have experienced problems are the new National Security Cutter (NSC),
the 110-foot patrol boat modernization effort, and the new Fast Response Cutter
(FRC).
National Security Cutter (NSC). A DHS IG report released in January 2007
strongly criticized the NSC program, citing design flaws in the ship and the Coast
Guard’s decision to start construction of NSCs in spite of early internal notifications
about these flaws. The DHS IG report also noted considerable growth in the cost to
build the first two NSCs, and other issues.9
110-Foot Patrol Boat Modernization. As mentioned earlier, as part of the
Deepwater program, the Coast Guard originally planned to modernize its 49 existing
Island-class 110-foot patrol boats so as to improve their capabilities and extend their
lives until their planned eventual replacement with new Deepwater Fast Response
Cutters (FRCs) starting in 2018. Among other things, the modernization lengthened
the boats to 123 feet. The program consequently is referred to as the 110-foot or 123-
foot modernization program.
Eight of the boats were modernized at a total cost of $87 million to $100 million
(sources quote different figures). The first was delivered in March 2004. Structural
problems were soon discovered in them. In June 2005, the Coast Guard stopped the
modernization effort at eight boats after determining that they lacked capabilities
needed for meeting post-9/11 Coast Guard operational requirements.
In August 2006, a former Lockheed engineer posted on the Internet a video
alleging four other problems with the 110-foot patrol boat modernization effort.10
The engineer had previously presented these problems to the DHS IG, and a February
2007 report from the DHS IG confirmed two of the four problems.11
9 Department of Homeland Security, Office of Inspector General, Acquisition of the National
Security Cutter, OIG -07-23, January 2007. The report is available online at
[http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_07-23_Jan07.pdf].
10 Patricia Kime, “Video Alleges Security Problems With Converted U.S. Coast Guard
Cutters,” DefenseNews.com, August 7, 2006. See also Griff Witte, “On YouTube, Charges
Of Security Flaws,” Washington Post, August 29, 2006. The video is posted on the Internet
at [http://www.youtube.com/watch?v=qd3VV8Za04g].
11 Department of Homeland Security, Office of Inspector General, 110'/123' Maritime Patrol
Boat Modernization Project, OIG -07-27, January 2007. The report is available online at
[http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_07-27_Feb07.pdf].

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On November 30, 2006, the Coast Guard announced that it was suspending
operations of the eight modernized 123-foot patrol boats (which were assigned to
Coast Guard Sector Key West, FL) due to the discovery of additional structural
damage to their hulls. The suspension prompted expressions of concern that the
action could reduce the Coast Guard’s border-enforcement capabilities in the
Caribbean. The Coast Guard said it was exploring options for addressing operational
gaps resulting from the decision.12
On April 17, 2007, the Coast Guard announced that it would permanently
decommission the eight converted boats and strip them of equipment and
components that might be reused on other Coast Guard platforms. The Coast Guard
estimates the total value of the recovered equipment at $30 million to $60 million,
depending on how much can be reused.13 In announcing the decision, the Admiral
Thad Allen, the Commandant of the Coast Guard, stated:
A significant step in changing the course of Deepwater is resolving
outstanding issues within the program, so let me begin this morning by
announcing my decision to permanently decommission the eight 123' patrol boats
converted under the Deepwater program.
Multiple extensive studies and analyses by both Coast Guard engineers and
third-party naval architects and marine engineers over many months have
described the failures in these vessels. They have been unable to determine a
single definitive root cause for the 123-foot patrol boat structural problems.
We believe the design of the 123-foot patrol boat reduced the structural
cross section necessary to support the added weight distribution following the
conversion. Our analysis has been complicated, however, by the fact that we’ve
observed permanent deformations of each hull in slightly different ways.
Based on this analysis, any strategy to permanently repair these cutters and
return them to service would require an iterative, phased approach over a long
period of time with uncertain costs and outcome. Initial estimates indicate it
could cost well over $50 million.
The excessive cost and time associated with continuing to pursue an
uncertain resolution to these structural problems has convinced me, with the
recommendation of my chief engineer, that permanently removing these cutters
12 “Coast Guard Statement on Suspension of Converted Patrol Boat Operations,”
InsideDefense.com, November 30, 2006; Patricia Kime, “U.S. Coast Guard Pulls 123s Out
of Service,” DefenseNews.com, November 30, 2006; Calvin Biesecker, “Coast Guard
Suspends 123-Foot Patrol Boat Operations,” DefenseDaily, December 1, 2006; Robert
Block, “Coast Guard Fleet Cuts Could Hurt Border Patrols,” Wall Street Journal, December
1, 2006; Renae Merle, “Coast Guard Finds Flaws In Converted Patrol Boats,” Washington
Post, December 2, 2006; Renae Merle and Spencer S. Hsu, “Costly Fleet Update Falters,”
Washington Post, December 8, 2006.
13 Geoff Fein, “Coast Guard Nixes 123-Foot Patrol Boat, Assumes Lead of Deepwater
Effort,” Defense Daily, April 18, 2007;Patricia Kime, “Coast Guard To Decommission
Troubled 123s,” NavyTimes.com, April 18, 2007.

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CRS-10
from service while recouping any residual value and redirecting funds to other
programs is in the best interest of the government.
We will continue to mitigate the loss of these patrol boat hours through our
ongoing efforts and strategies (such as multi-crewing 110-foot patrol boats and
an extension of the memorandum of understanding for three Navy 179-foot patrol
craft) while we work toward acquiring a new platform as soon as we can to
replace our entire fleet of 110-foot patrol boats.
We will pursue all viably available contractual, legal or other options for
recouping any funds that might be owed the government as a result of the loss of
these hulls.14
On May 17, 2007, the Coast Guard testified that, earlier that same day, it had
issued a letter to ICGS revoking its previous acceptance of the eight converted boats
— an action intended to facilitate Coast Guard attempts to recover from ICGS funds
that were spent on the eight converted boats.15
Fast Response Cutter (FRC). As a result of the problems in the 110-foot
patrol boat modernization project, the Coast Guard accelerated the FRC design and
construction effort by 10 years. Problems, however, were discovered in the FRC
design, and the Coast Guard in February 2006 suspended work on the design.
The Coast Guard has now divided the 58-ship FRC effort into two classes —
12 FRC-Bs, which are to be procured as a near-term stop-gap measure and which are
to be based on an existing patrol boat design (which the Coast Guard calls a “parent
craft” design), and 46 subsequent FRC-As, which are to be based on a fixed version
of the new FRC design. The Coast Guard by mid-November 2006 reportedly had
looked at 27 candidate designs submitted by 19 manufacturers for the FRC-B effort.
In December 2006, the Coast Guard issued a Request for Proposals (RFP) to ICGS
for the FRC-B.
On March 14, 2007, the Coast Guard announced that it intends to procure the
12 FRC-B cutters directly from the manufacturer, rather than through ICGS.16
Overall Management Of The Program. Some observers believe the
problems experienced in the three cutter acquisition efforts are the product of broader
problems in the Coast Guard’s overall management of the Deepwater program. A
14 Coast Guard Press Release dated April 17, 2007, entitled “Statement by Adm. Thad Allen
on the Converted 123-Foot Patrol Boats and Changes to the Deepwater Acquisition
Program.”
15 Dan Caterinicchia, “Coast Guard Wants Refund For Ships,” Associated Press, May 17,
2007; Renae Merle, “Coast Guard Seeks Deepwater Refund,” Washington Post, May 18,
2007: D3.
16 Coast Guard press release, “Coast Guard Reassigns Deepwater Replacement Patrol Boast
Acquisition Project,” March 14, 2007; Calvin Biesecker, “Coast Guard Strips FRC-B Patrol
Boat Acquisition From ICGS,” Defense Daily, March 15, 2007; Renae Merle, “Coast Guard
Cancels Contract,” Washington Post, March 15, 2007; and David Stout, “Coast Guard
Cancels Contract For Vessel,” New York Times, March 15, 2007.

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CRS-11
February 2007 DAU “quick look study,”17 as well as reports from the DHS IG and
GAO, have expressed serious concerns about the Coast Guard’s overall management
of the Deepwater program. These reports, as well as Members of Congress and other
observers, have raised concerns about a number of actual or alleged problems.
Some observers have expressed the view that using an LSI to implement the
Deepwater program made a complex program more complex, and set the stage for
waste, fraud, and abuse by effectively outsourcing oversight of the program to the
private sector and by creating a conflict of interest for the private sector in executing
the program.
Other observers, including the DAU and GAO, have expressed the view that the
LSI approach is basically valid, but that the contract used to implement the approach
for the Deepwater program was flawed in various ways, undermining the Coast
Guard’s ability to assess contractor performance, control costs, ensure accountability,
and conduct general oversight of the program.18
Observers have raised various issues about the Deepwater contract. Among
other things, they have expressed concern that the contract is an indefinite delivery,
indefinite quantity (ID/IQ) contract, which, they say, can be an inappropriate kind of
contract for a program like the Deepwater program. Observers have also expressed
concern that the contract:
! transferred too much authority to the LSI for defining performance
specifications, for subsequently modifying them, and for making
technical judgements;
! permitted the LSI to certify that certain performance goals had been
met — so-called self-certification, which, critics argue, can equate
to no meaningful certification;
! provided the Coast Guard with insufficient authority over the LSI for
resolving technical disputes between the Coast Guard and the LSI;
! was vaguely worded with regard to certain operational requirements
and technical specifications, reducing the Coast Guard’s ability to
assess performance and ensure that the program would achieve
Coast Guard goals;
! permitted the firms making up the LSI to make little use of
competition between suppliers in selecting products to be used in the
Deepwater program, to tailor requirements to fit their own products,
17 Defense Acquisition University, Quick Look Study, United States Coast Guard Deepwater
Program, February 2007.
18 For additional discussion about LSIs in general, see CRS Report RS22631, Defense
Acquisition: Use of Lead System Integrators (LSIs) — Background, Oversight Issues, and
Options for Congress, by Valerie Bailey Grasso.

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CRS-12
and consequently to rely too much on their own products, as
opposed to products available from other manufacturers;
! permitted the LSI’s performance during the first five-year period to
be scored in a way that did not sufficiently take into account recent
problems in the cutter acquisition efforts;
! permitted award fees and incentive fees (i.e., bonuses) to be paid to
the LSI on the basis of “attitude and effort” rather than successful
outcomes; and
! lacked sufficient penalties and exit clauses.
Observers have also expressed concern that the Coast Guard does not have
enough in-house staff and in-house expertise in areas such as program management,
financial management, and system integration, to properly oversee and manage an
acquisition effort as large and complex as the Deepwater program, and that the Coast
Guard did not make sufficient use of the Navy or other third-party, independent
sources of technical expertise, advice, and assessments. They also have expressed
concern that the Coast Guard, in implementing the Deepwater program, has placed
a higher priority on meeting a schedule as opposed to ensuring performance.
In addition, observers have stated that the Coast Guard proceeded with
construction of the first NSCs in spite of early internal warnings about flaws in the
NSC design, failed to report problems about the NSC effort to Congress on a timely
basis, resisted efforts by the DHS IG to investigate the NSC effort, and appears to
have altered briefing slides on the NSC effort so as to downplay the design flaws to
certain audiences. On May 17, 2007, the DHS IG testified that the Coast Guard’s
cooperation with the DHS IG had substantially improved (though some issues
remained), but that Deepwater contractors had establishing unacceptable conditions
for DHS IG to interview contractor personnel about the program.
For additional information on the issues discussed above, see the reprinted
portions of reports and testimony in the appendices to this report.
Coast Guard Management Reforms Announced April 17, 2007
On April 17, 2007, the Coast Guard announced a series of actions to reform the
management of the Deepwater program. Among other things, the Coast Guard
announced it will assume the role of lead system integrator (LSI) for the program.
Since 2002, the LSI role had been performed by Integrated Coast Guard Systems
(ICGS) — an industry team led by Lockheed Martin and Northrop Grumman Ship
Systems (NGSS). In announcing the actions, Admiral Thad Allen, the Commandant
of the Coast Guard, stated in part:
As many of you know, I met with the Lockheed Martin CEO Robert
Stevens and Northrop Grumman CEO Ronald Sugar in January to determine near
and long-term objectives and goals for the Deepwater program. Since then we’ve
spoken frequently, as both the Coast Guard and our industry partners have taken
a number of steps to improve the management, oversight and performance of the

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CRS-13
Deepwater program. More recently, we reached agreement on six fundamental
principles that we have begun implementing to ensure that the government’s
interests are fully and fairly achieved in acquiring and fielding assets and
capabilities being developed and produced under the Integrated Deepwater
System.
These principles will guide us as we seek to obtain the best value for the
government through robust competition and vigilant contract oversight and
management.
Working together with industry, the Coast Guard will make the following
six fundamental changes in the management of our Deepwater program:
The Coast Guard will assume the lead role as systems integrator for all
Coast Guard Deepwater assets, as well as other major acquisitions as appropriate.
I have already begun building my organic staff in the fiscal year 2008 budget
request, and will combine that with other government assets as we transition to
this new role.
The Coast Guard will take full responsibility for leading the management
of all life cycle logistics functions within the Deepwater program under a an
improved logistics architecture established with the new mission support
organization.
The Coast Guard will expand the role of the American Bureau of Shipping,
or other third-parties as appropriate, for Deepwater vessels to increase assurances
that Deepwater assets are properly designed and constructed in accordance with
established standards.
The Coast Guard will work collaboratively with Integrated Coast Guard
Systems to identify and implement an expeditious resolution to all outstanding
issues regarding the national security cutters.
The Coast Guard will consider placing contract responsibilities for
continued production of an asset class on a case-by-case basis directly with the
prime vendor consistent with competition requirements if: (1) deemed to be in
the best interest of the government and (2) only after we verify lead asset
performance with established mission requirements.
Finally, I will meet no less than quarterly with my counterparts from
industry until any and all Deepwater program issues are fully adjudicated and
resolved. Our next meeting is to be scheduled within a month.
These improvements in program management and oversight going forward
will change the course of Deepwater.
By redefining our roles and responsibilities, redefining our relationships
with our industry partners, and redefining how we assess the success of
government and industry management and performance, the Deepwater program
of tomorrow will be fundamentally better than the Deepwater program of
today....

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CRS-14
As many of you know, I have directed a number of significant organizational
changes [to the Coast Guard], embedded within direction and orders, to better
prepare the Coast Guard to meet and sustain mission performance long into the
future as we confront a broad range of converging threats and challenges to the
safety, security and stewardship of America’s vital maritime interests.
What’s important to understand here is that these proposed changes in
organizational structure, alignment and business processes, intended to make the
Coast Guard more adaptive, responsive and accountable, are not separate and
distinct from what we have been doing over the past year to improve Deepwater.
In fact, many of these initiatives can be traced directly to challenges we’ve
faced, in part, in our Deepwater program. Consequently, we will be better
organized, better trained, and better equipped to manage large, complex
acquisitions like Deepwater in the coming days, weeks, months and years as we
complete these service-wide enhancements to our mission support systems,
specifically our acquisition, financial and logistics functions. That is the future
of the Coast Guard, and that is the future of Deepwater.
To be frank, I am tired of looking in the rearview mirror - conducting what
has been the equivalent of an archaeological dig into Deepwater. We already
understand all too well what has been ailing us within Deepwater in the past five
years:
We’ve relied too much on contractors to do the work of government as a
result of tightening AC&I budgets, a dearth of contracting personnel in the
federal government, and a loss of focus on critical governmental roles and
responsibilities in the management and oversight of the program.
We struggle with balancing the benefits of innovation and technology
offered through the private sector against the government’s fundamental reliance
on robust competition.
Both industry and government have failed to fully understand each other’s
needs and requirements, all too often resulting in both organizations operating
at counter-odds to one another that have benefited neither industry nor
government.
And both industry and government have failed to accurately predict and
control costs.
While we can — and are — certainly learning from the past, we ought to
be about the business of looking forward — with binoculars even — as we seek
to see what is out over the horizon so we can better prepare to anticipate
challenges and develop solutions with full transparency and accountability.
That is the business of government. And it’s the same principle that needs to
govern business as well.
And it’s precisely what I intend to do: with the changes in management and
oversight I outlined for you here today, with the changes we are making in the
terms and conditions of the Deepwater contract, and with the changes we will
make in our acquisition and logistics support systems throughout the Coast
Guard. If we do, I have no doubt in my mind that we will exceed all expectations
for Deepwater....

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CRS-15
The Deepwater program of tomorrow will be fundamentally better than the
Deepwater program of today.
The Coast Guard has a long history of demonstrating exceptional stewardship
and care of the ships, aircraft and resources provided it by the public, routinely
extending the life of our assets far beyond original design specifications to meet
the vital maritime safety, security and stewardship needs of the nation....
Knowing that to be the case, I am personally committed to ensuring that our
newest ships, aircraft and systems acquired through the Coast Guard’s Integrated
Deepwater System are capable of meeting our mission requirements from the
moment they enter service until they are taken out of service many, many years
into the future....
As I’ve said many times in the past, the safety and security of all Americans
depends on a ready and capable Coast Guard, and the Coast Guard depends on
our Deepwater program to keep us ready long into the future.
The changes to Deepwater management and oversight I outlined here for
you today reflect a significant change in the course of Deepwater. I will
vigorously implement these and other changes that may be necessary to ensure
that our Coast Guard men and women have the most capable fleet of ships,
aircraft and systems they need to do the job I ask them to do each and every day
on behalf of the American people.19
Coast Guard officials state that the Coast Guard intends to proceed with the 43-
month award term with ICGS and use the contract to complete Deepwater acquisition
efforts that are already underway. Coast Guard official state that task orders that the
Coast Guard issues under the 43-month award term will be for performance periods
of 18 to 24 months, with the aim of closing out efforts already underway.20
Other Announced Coast Guard Actions
In addition to the April 17 Coast Guard announcement about Deepwater
management reforms and the March 14 Coast Guard announcement concerning the
FRC-Bs, the Coast Guard in recent weeks has done the following:
! announced a reorganization of certain Coast Guard commands that
is intended in part to strengthen the Coast Guard’s ability to manage
acquisition projects, including the Deepwater program;
! stated that it is making additional internal changes specifically
targeted at improving its ability to manage the Deepwater program;
19 Coast Guard Press Release dated April 17, 2007, entitled “Statement by Adm. Thad Allen
on the Converted 123-Foot Patrol Boats and Changes to the Deepwater Acquisition
Program.”
20 See, for example, the spoken testimony of Admiral Thad Allen, Commandant of the Coast
Guard, before the Oceans, Atmosphere, Fisheries, and Coast Guard subcommittee of the
Senate Commerce, Science, and Transportation Committee on April 18, 2007.

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CRS-16
! stated that it plans to alter the terms of the Deepwater contract for
the 43-month award term that commences in mid-2007 so as to
address concerns raised about the current Deepwater contract;
! stated that it is hiring additional people with acquisition experience,
so as to strengthen its in-house capability for managing the
Deepwater program and other Coast Guard acquisition efforts;
! acted to resolve differences between the Coast Guard and ICGS
regarding the fatigue life of the NSC;
! stated that it concurs with many of the recommendations made in the
DHS IG reports, and is moving to implement them;
! stated that it is weighing the recommendations of the DAU quick
look study; and
! stated that it has also implemented many recommendations
regarding Deepwater program management that have been made by
GAO.
On May 17, 2007, the Coast Guard testified that its Deepwater acquisition staff
had increased from about 250 to about 450, and that it would continue to grow about
10% per year. The Coast Guard testified that it would be generally capable of acting
as the LSI for the Deepwater program within about 12 to 18 months, that the area of
in-house acquisition expertise that is most in need of improvement during this period
is C4ISR, and that the increase in acquisition-related staffing would not impact other
Coast Guard activities because of the service’s increasing end strength. The Coast
Guard testified that it will continue to use the services of independent, third-party
sources of support, such as the Carderock division of the Naval Surface Warfare
Center (NSWC), the Navy’s center of excellence for ships and ship systems.21
Justice Department Investigation Of Program
On April 18, 2007, it was reported that the Justice Department is conducting an
investigation of the Deepwater program. The investigation reportedly centers on
communications systems, the conversion of the Coast Guard’s 110-foot patrol boats,
and the National Security Cutter (NSC). Justice reportedly notified Lockheed,
Northrop, and certain other firms involved in the Deepwater program of the
investigation on December 13, 2006, and directed the firms to preserve all documents
relating to the program.22
21 Spoken testimony of Rear Admiral Gary Blore at May 17, 2007, joint hearing before the
Border, Maritime, and Global Counterterrorism subcommittee and the Management,
Investigations, and Oversight subcommittee of the House Homeland Security Committee.
22 Ana Radelat, “Justice Investigating Deepwater Contractors,” NavyTimes.com, April 18,
2007; Chris Strohm, “Deepwater Contractors Face Justice Probe” GovExec.com, April 19,
(continued...)

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CRS-17
Oversight Issues for Congress
Coast Guard’s Announced Management Reforms
In light of the Deepwater management reforms announced by the Coast Guard
on April 17, 2007, potential oversight questions for Congress regarding management
and execution of the Deepwater program include the following:
! Are the Coast Guard’s announced reforms appropriate? Are they
insufficient, excessive, or about right? Do they properly address all
concerns regarding the management and execution of the Deepwater
program?
! Has the Coast Guard developed a detailed plan for transferring the
Deepwater LSI role from ICGS to the Coast Guard? Which specific
system-integration responsibilities, if any, will continue to be
performed by ICGS?
! Does the Coast Guard have enough in-house technical and program-
management expertise to take on the role of Deepwater LSI? Will
the Coast Guard be able to expand its in-house expertise quickly
enough to meet the added demand for such expertise that will result
from taking on the LSI role? Does the Coast Guard have a career
path for acquisition personnel similar to that in Departmentof
Defense agencies? To what degree will the Coast Guard need to
obtain technical and program-management support from the Navy
or other third parties? Does the Coast Guard have a detailed plan for
expanding its in-house technical and program-management staff and
for obtaining assistance from third parties?
! Has the Coast Guard established milestones that Congress can use
to assess the success of the Coast Guard’s announced management
reforms? If so, what are the milestones, and how were they
determined? If not, does the Coast Guard plan to develop such
milestones?
! What implications, if any, does the Coast Guard’s decision to
perform the Deepwater LSI role have for the concept of using
private-sector LSIs on other federal acquisition programs?23
22 (...continued)
2007; Patricia Kime, “Justice Investigating Deepwater Contract,” NavyTimes.com, April 20,
2007.
23 For more on LSIs in general, see CRS Report RS22631, Defense Acquisition: Use of Lead
System Integrators (LSIs) — Background, Oversight Issues, and Options for Congress, by
Valerie Bailey Grasso.

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CRS-18
Execution Of FY2007 Funds
The pace at which prior-year funding for a program is obligated and expended
is one measure by which Congress assesses the readiness of the program to receive
additional funding in future fiscal years. On March 12, 2007, it was reported that a
large percentage of FY2007 funding for the Deepwater program had not yet been
obligated.24
Revolving Door And Potential For Conflicts Of Interest
The so-called revolving door, which refers to the movement of officials between
positions in government and industry, can create benefits for government and
industry in terms of allowing each side to understand the other’s needs and concerns,
and in terms of spreading best practices from one sector to the other. At the same
time, some observers have long been concerned that the revolving door might create
conflicts of interest for officials carrying out their duties while in government
positions. A March 25, 2007, news article stated in part:
Four of the seven top U.S. Coast Guard officers who retired since 1998
took positions with private firms involved in the Coast Guard’s troubled $24
billion fleet replacement program, an effort that government investigators have
criticized for putting contractors’ interests ahead of taxpayers’.
They weren’t the only officials to oversee one of the federal government’s
most complex experiments at privatization, known as Deepwater, who had past
or subsequent business ties to the contract consortium led by industry giants
Northrop Grumman and Lockheed Martin.
The secretary of transportation, Norman Y. Mineta, whose department
included the Coast Guard when the contract was awarded in 2002, was a former
Lockheed executive. Two deputy secretaries of the Department of Homeland
Security, which the Coast Guard became part of in 2003, were former Lockheed
executives, and a third later served on its board.
Washington’s revolving-door laws have long allowed officials from
industry giants such as Lockheed, the nation’s largest defense contractor, to
spend parts of their careers working for U.S. security agencies that make huge
purchases from those companies, though there are limits.
But Deepwater dramatizes a new concern, current and former U.S. officials
said: how dwindling competition in the private sector, mushrooming federal
defense spending and the government’s diminished contract management skills
raise the stakes for potential conflicts of interest.25
24 Patricia Kime, “Unspent Funds Are Bulk of Deepwater Budget,” DefenseNews.com,
March 12, 2007.
25 A 2002 CRS report on shipyard mergers stated in part:
Movement of senior-level employees between DoD and the defense
industry is common and can be beneficial in terms of improving DoD
(continued...)

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CRS-19
Deepwater also illustrates how federal ethics rules carve out loopholes for
senior policymakers to oversee decisions that may benefit former or prospective
employers. These include outsourcing strategies under which taxpayers bear
most of the risks for failure, analysts said.
There is no sign that any of the retired admirals or former Lockheed
officials did anything illegal.
But the connections between the agencies and the contractors have drawn
the attention of the DHS inspector general, Richard L. Skinner. “That is on our
radar screen,” he said. “It’s something we are very sensitive to.”26
25 (...continued)
understanding of industry concerns, importing efficient industry business
practices into DoD, and improving industry understanding of DoD goals,
procedures, and concerns. It also, however, has the potential to create questions
regarding potential conflicts of interest for senior DoD officials involved in
making decisions about major weapon acquisition programs or regulatory issues
that affect the defense industry, particularly if those officials are potential
candidates for post-DoD employment with a defense firm.
Shipyard mergers since 1995 have contributed to the general consolidation
of defense firms and have reduced in particular the number of major defense
firms that might hire a former DoD or Navy official specifically on account of
that person’s background in Navy shipbuilding programs. Until 1995, for
example, a DoD or Navy official with such a background who was anticipating
or hoping for a post-DoD/Navy career in the private sector knew there were 6
major naval shipbuilding firms (plus several other major contractors involved in
shipbuilding programs) available as potential employers. Now, in contrast, there
are only two firms that own shipyards that build major ships for the Navy (GD
and NOC) and a smaller number of other major defense contractors involved in
shipbuilding programs (e.g., Lockheed Martin and Raytheon).
A potential issue for Congress is whether and how shipyard mergers since 1995, by
reducing the number of potential post-DoD/Navy employers for persons with shipbuilding
backgrounds, might affect decisions made by current senior DoD and Navy officials with
responsibility for Navy shipbuilding programs or regulatory issues affecting the shipyards.
With fewer firms available as potential post-DoD/Navy employers, will DoD/Navy officials
involved in shipbuilding programs be willing to make decisions that might strongly
disappoint one or more of those firms?
(CRS Report RL31400, Navy Shipbuilding: Recent Shipyard
Mergers — Background and Issues for Congress, by Ronald
O’Rourke.)
26 Spencer S. Hsu and Renae Merle, “Coast Guard’s Purchasing Raises Conflict-Of-Interest
Flags,” Washington Post, March 25, 2007.

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CRS-20
Potential Options for Congress
Potential options for Congress regarding the Deepwater program — some of
which might have the effect of legislatively mandating reforms that the Coast Guard
announced on April 17, 2007 — include but are not limited to the following:
! track and assess the changes that the Coast Guard has stated it will
implement regarding management and execution of the Deepwater
program;
! institute additional or stricter reporting requirements for the
Deepwater program;
! encourage or require the Coast Guard to implement
recommendations for the Deepwater program made by the DAU, the
DHS IG, and GAO that the Coast Guard has not already agreed to
implement;
! encourage or require the Coast Guard to make greater use of the
Navy or other third-party, independent sources of expertise to help
the Coast Guard manage the program;
! encourage or require the Coast Guard to cancel its 43-month award
period to the current LSI and to hold a new competition, open to all
bidders, for the LSI role;
! encourage or require the Coast Guard to reduce the role of the LSI
to that of a coordinator of Deepwater program efforts managed and
executed by various firms acting as prime contractors for their
various efforts;
! encourage or require the Coast Guard to end the use of a private-
sector LSI in favor of direct Coast Guard management and
integration of the program;
! encourage or require the Coast Guard to replace the Deepwater
program with a series of separate procurement programs for
replacing individual classes of cutters, boats, and aircraft; and
! prohibit the obligation or expenditure of some or all FY2008
funding for the Deepwater program until the Coast Guard or DHS
takes certain actions or makes certain certifications regarding the
Deepwater program.

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CRS-21
Legislative Activity in 2007
FY2007 Emergency Supplemental
Appropriations Act (H.R. 1591)
House. Sections 4403 and 4404 of the House-passed version of H.R. 1591
state:
SEC. 4403. (a) IN GENERAL- Any contract, subcontract, or task order described
in subsection (b) shall contain the following:
(1) A requirement for a technical review of all designs, design changes, and
engineering change proposals, and a requirement to specifically address all
engineering concerns identified in the review before the obligation of further
funds may occur.
(2) A requirement that the Coast Guard maintain technical warrant holder
authority, or the equivalent, for major assets.
(3) A requirement for independent cost estimates of major changes.
(4) A requirement for measurement of contractor and subcontractor performance
based on the status of all work performed.
(b) CONTRACTS, SUBCONTRACTS, AND TASK ORDERS COVERED-
Subsection (a) applies to —
(1) any major procurement contract entered into by the Coast Guard;
(2) any subcontract entered into under such a contract; and
(3) any task order issued pursuant to such a contract or subcontract.
(c) PLAN FOR EXPENDITURE OF DEEPWATER FUNDS- The funds
appropriated in Public Law 109-295 for the Integrated Deepwater Systems
program may not be obligated until the Committees on Appropriations of the
Senate and the House of Representatives receive and approve a plan for
expenditure that —
(1) defines activities, milestones, yearly costs, and lifecycle costs for each
procurement of a major asset, including an independent cost estimate for each;
(2) identifies lifecycle staffing and training needs of Coast Guard project
managers and of procurement and contract staff;
(3) identifies all Integrated Product Teams that are not chaired by Coast Guard
personnel and explains why the Coast Guard does not chair;
(4) identifies competition to be conducted in each procurement;
(5) does not rely on a single industry entity or contract;

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CRS-22
(6) contains very limited indefinite delivery/indefinite quantity contracts and
explains the need for any indefinite delivery/indefinite quantity contracts;
(7) complies with all applicable acquisition rules, requirements, and guidelines,
and incorporates the best systems acquisition management practices of the
Federal Government;
(8) complies with the capital planning and investment control requirements
established by the Office of Management and Budget, including circular A-11,
part 7;
(9) includes a certification by the Chief Procurement Officer of the Department
of Homeland Security that the Coast Guard has established sufficient controls
and procedures to comply with all contracting requirements and that any apparent
conflicts of interest have been sufficiently addressed;
(10) includes a description of the process used to act upon deviations from the
contractually specified performance requirements and clearly explains the
actions taken on such deviations; and
(11) is reviewed by the Government Accountability Office.
SEC. 4404. (a) IN GENERAL- With respect to contracts entered into after May
1, 2007, and except as provided in subsection (b), no entity performing lead
system integrator functions in the acquisition of a major system by the
Department of Homeland Security may have any direct financial interest in the
development or construction of any individual system or element of any system
of systems.
(b) EXCEPTION- An entity described in subsection (a) may have a direct
financial interest in the development or construction of an individual system or
element of a system of systems if —
(1) the Secretary of Homeland Security certifies to the Committees on
Appropriations of the Senate and the House of Representatives and the House
Committee on Homeland Security that —
(A) the entity was selected by the Department of Homeland Security as a
contractor to develop or construct the system or element concerned through the
use of competitive procedures; and
(B) the Department took appropriate steps to prevent any organizational conflict
of interest in the selection process; or
(2) the entity was selected by a subcontractor to serve as a lower-tier
subcontractor, through a process over which the entity exercised no control.
(c) CONSTRUCTION- Nothing in this section shall be construed to preclude an
entity described in subsection (a) from performing work necessary to integrate
two or more individual systems or elements of a system of systems with each
other.

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CRS-23
(d) REGULATIONS UPDATE- Not later than May 1, 2007, the Secretary of
Homeland Security shall update the acquisition regulations of the Department of
Homeland Security in order to specify fully in such regulations the matters with
respect to lead system integrators set forth in this section. Included in such
regulations shall be (1) a precise and comprehensive definition of the term `lead
system integrator’, modeled after that used by the Department of Defense, and
(2) a specification of various types of contracts and fee structures that are
appropriate for use by lead system integrators in the production, fielding, and
sustainment of complex systems.
With regard to these two sections, the House report on the bill (H.Rept. 110-060
of March 20, 2007) states:
The Committee includes a provision [Section 4403] tightening Coast Guard
procurement practices. Numerous studies, including one by the Defense
Acquisition University, have recommended changes to Coast Guard procurement
procedures and contracting practices in order to control costs and procure
equipment that works. The most recent failure in procurement resulted in eight
Coast Guard cutters that are currently grounded due to hull buckling problems.
In order to ensure that Coast Guard quickly reforms its major procurement
systems, the Committee has included bill language mandating: technical reviews
of design and design changes; independent cost estimates of major changes; and
Coast Guard maintaining technical warrant holder equivalent authority and
measuring contractor performance on all work performed. In addition, the
provision requires a robust expenditure plan that is reviewed by the Government
Accountability Office for Coast Guard’s Deepwater program before any 2007
Deepwater funding is obligated.
The Committee includes a provision [Section 4404] limiting the use of lead
system integrator contracts, similar to requirements in law for the Department of
Defense.
Senate. Section 3402 of the Senate-passed version of H.R. 1591 states:
SEC. 3402. INTEGRATED DEEPWATER SYSTEM. (a) COMPETITION FOR
ACQUISITION AND MODIFICATION OF ASSETS-
(1) IN GENERAL- The Commandant of the Coast Guard shall utilize full and
open competition for any contract entered into after the date of enactment of this
Act that provides for the acquisition or modification of assets under, or in
support of, the Integrated Deepwater System Program of the Coast Guard.
(2) EXCEPTIONS- Paragraph (1) shall not apply to the following:
(A) The acquisition or modification of the following asset classes for which
assets of the class and related systems and components under the Integrated
Deepwater System are under a contract for production:
(i) National Security Cutter;
(ii) Maritime Patrol Aircraft;

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CRS-24
(iii) Deepwater Command, Control, Communications, Computer, Intelligence,
Surveillance, and Reconnaissance (C4ISR) System; and
(iv) HC-130J Fleet Introduction.
(B) The modification of any legacy asset class under the Integrated Deepwater
System Program being performed by a Coast Guard entity.
(b) CHAIR OF PRODUCT AND OVERSIGHT TEAMS- The Commandant of
the Coast Guard shall assign an appropriate officer or employee of the Coast
Guard to act as chair of each of the following:
(1) Each integrated product team under the Integrated Deepwater System
Program.
(2) Each higher-level team assigned to the oversight of a product team referred
to in paragraph (1).
(c) LIFE-CYCLE COST ESTIMATE- The Commandant of the Coast Guard may
not enter into a contract for lead asset production under the Integrated Deepwater
System Program until the Commandant obtains an independent estimate of
life-cycle costs of the asset concerned.
(d) REVIEW OF ACQUISITIONS AND MAJOR DESIGN CHANGES-
(1) IN GENERAL- With the exception of assets covered under (a)(2) of this
section, the Commandant of the Coast Guard may not carry out an action
described in paragraph (2) unless an independent third party with no financial
interest in the development, construction, or modification of any component of
the Integrated Deepwater System Program, selected by the Commandant for
purposes of the subsection, determines that such action is advisable.
(2) COVERED ACTIONS- The actions described in the paragraph are as
follows:
(A) The acquisition or modification of an asset under the Integrated Deepwater
System Program.
(B) The implementation of a major design change for an asset under the
Integrated Deepwater System Program.
(e) LINKING OF AWARD FEES TO SUCCESSFUL ACQUISITION
OUTCOMES- The Commandant of the Coast Guard shall require that all
contracts under the Integrated Deepwater System Program that provide award
fees link such fees to successful acquisition outcomes (which shall be defined in
terms of cost, schedule, and performance).
(f) CONTRACTUAL AGREEMENTS-
(1) IN GENERAL- The Commandant of the Coast Guard may not award or issue
any contract, task or delivery order, letter contract modification thereof, or other
similar contract, for the acquisition or modification of an asset under the

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CRS-25
Integrated Deepwater System Program unless the Coast Guard and the contractor
concerned have formally agreed to all terms and conditions.
(2) EXCEPTION- A contract, task or delivery order, letter contract, modification
thereof, or other similar contract described in paragraph (1) may be awarded or
issued if the head of contracting activity of the Coast Guard determines that a
compelling need exists for the award or issue of such instrument.
(g) DESIGNATION OF TECHNICAL AUTHORITY- The Commandant of the
Coast Guard shall designate the Assistant Commandant of the Coast Guard for
Engineering and Logistics as the technical authority for all engineering, design,
and logistics decisions pertaining to the Integrated Deepwater System Program.
(h) REPORT ON PERSONNEL REQUIRED FOR ACQUISITION
MANAGEMENT- Not later than 30 days after the date of the enactment of this
Act, the Commandant of the Coast Guard shall submit to the Committees on
Appropriations of the Senate and the House of Representatives; the Committee
on Commerce, Science and Transportation of the Senate; and the Committee on
Transportation and Infrastructure of the House of Representatives a report on the
resources (including training, staff, and expertise) required by the Coast Guard
to provide appropriate management and oversight of the Integrated Deepwater
System Program.
(i) COMPTROLLER GENERAL REPORT ON PROGRESS- Not later than 60
days after the date of enactment of this Act, the Comptroller General of the
United States shall submit to the Committees on Appropriations of the Senate
and the House of Representatives; the Committee on Commerce, Science and
Transportation of the Senate; and the Committee on Transportation and
Infrastructure of the House of Representatives a report describing and assessing
the progress of the Coast Guard in complying with the requirements of this
section.
Conference. The conference report (H.Rept. 110-107) on H.R. 1591 was
submitted on April 24, 2007.

Section 4402. Section 4402 of the conference report states:
SEC. 4402. (a) IN GENERAL. — Any contract, subcontract, task or delivery
order described in subsection (b) shall contain the following:
(1) A requirement for a technical review of all designs, design changes, and
engineering change proposals, and a requirement to specifically address all
engineering concerns identified in the review before the obligation of further
funds may occur.
(2) A requirement that the Coast Guard maintain technical warrant holder
authority, or the equivalent, for major assets.
(3) A requirement that no procurement subject to subsection (b) for lead asset
production or the implementation of a major design change shall be entered into
unless an independent third party with no financial interest in the development,
construction, or modification of any component of the asset, selected by the
Commandant, determines that such action is advisable.

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CRS-26
(4) A requirement for independent life-cycle cost estimates of lead assets and
major design and engineering changes.
(5) A requirement for the measurement of contractor and subcontractor
performance based on the status of all work performed. For contracts under the
Integrated Deepwater Systems program, such requirement shall include a
provision that links award fees to successful acquisition outcomes (which shall
be defined in terms of cost, schedule, and performance).
(6) A requirement that the Commandant of the Coast Guard assign an appropriate
officer or employee of the Coast Guard to act as chair of each integrated product
team and higher-level team assigned to the oversight of each integrated product
team.
(7) A requirement that the Commandant of the Coast Guard may not award or
issue any contract, task or delivery order, letter contract modification thereof, or
other similar contract, for the acquisition or modification of an asset under a
procurement subject to subsection (b) unless the Coast Guard and the contractor
concerned have formally agreed to all terms and conditions or the head of
contracting activity for the Coast Guard determines that a compelling need exists
for the award or issue of such instrument.
(b) CONTRACTS, SUBCONTRACTS, TASK AND DELIVERY ORDERS
COVERED. — Subsection (a) applies to —
(1) any major procurement contract, first-tier subcontract, delivery or task order
entered into by the Coast Guard;
(2) any first-tier subcontract entered into under such a contract;
(3) any task or delivery order issued pursuant to such a contract or subcontract.
(c) EXPENDITURE OF DEEPWATER FUNDS. — Of the funds available for
the Integrated Deepwater Systems program, $650,000,000 may not be obligated
until the Committees on Appropriations of the Senate and the House of
Representatives receive an expenditure plan directly from the Coast Guard that
—
(1) defines activities, milestones, yearly costs, and life-cycle costs for each
procurement of a major asset, including an independent cost estimate for each;
(2) identifies life-cycle staffing and training needs of Coast Guard project
managers and of procurement and contract staff;
(3) identifies competition to be conducted in each procurement;
(4) describes procurement plans that do not rely on a single industry entity or
contract;
(5) contains very limited indefinite delivery/indefinite quantity contracts and
explains the need for any indefinite delivery/indefinite quantity contracts;

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CRS-27
(6) complies with all applicable acquisition rules, requirements, and guidelines,
and incorporates the best systems acquisition management practices of the
Federal Government;
(7) complies with the capital planning and investment control requirements
established by the Office of Management and Budget, including circular A — 11,
part 7;
(8) includes a certification by the head of contracting activity for the Coast Guard
and the Chief Procurement Officer of the Department of Homeland Security that
the Coast Guard has established sufficient controls and procedures and has
sufficient staffing to comply with all contracting requirements, and that any
conflicts of interest have been sufficiently addressed;
(9) includes a description of the process used to act upon deviations from the
contractually specified performance requirements and clearly explains the
actions taken on such deviations;
(10) includes a certification that the Assistant Commandant of the Coast Guard
for Engineering and Logistics is designated as the technical authority for all
engineering, design, and logistics decisions pertaining to the Integrated
Deepwater Systems program; and
(11) identifies progress in complying with the requirements of subsection (a).
(d) REPORTS. — (1) Not later than 30 days after the date of enactment of this
Act, the Commandant of the Coast Guard shall submit to the Committees on
Appropriations of the Senate and the House of Representatives; the Committee
on Commerce, Science and Transportation of the Senate; and the Committee on
Transportation and Infrastructure of the House of Representatives: (i) a report
on the resources (including training, staff, and expertise) required by the Coast
Guard to provide appropriate management and oversight of the Integrated
Deepwater Systems program; and (ii) a report on how the Coast Guard will
utilize full and open competition for any contract that provides for the acquisition
or modification of assets under, or in support of, the Integrated Deepwater
Systems program, entered into after the date of enactment of this Act; and (2)
within 30 days following the submission of the expenditure plan required under
subsection (c), the Government Accountability Office shall review the plan and
brief the Committees on Appropriations of the Senate and the House of
Representatives on its findings.
Section 4404(b)(1). Section 4404(b)(1) of the conference report appropriates
$30 million in additional appropriations to procure four new coastal patrol boats so
as to mitigate the Coast Guard’s patrol boat operational gap. In discussing this
appropriation, the conference report states:
to address an urgent operational need, the conferees provide $30,000,000 for
Coast Guard “Acquisition, Construction, and Improvements” to help mitigate the
patrol boat operational gap. No additional appropriation was included in either
the House or Senate bills. The Coast Guard is currently operating 25,000 hours,
or twenty-five percent, short of its needed patrol boat mission hours. This “gap”
means that undocumented migrants, drugs, and other unlawful activity are less
likely to be intercepted by the Coast Guard. Funding provided in this section is
to be used to acquire four new Coastal Patrol Boats, as was requested by the

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CRS-28
Department of Homeland Security via official correspondence on March 11,
2007. This includes the production, warranty, training, spares, outfitting and
project management costs for all four patrol boats. The Coast Guard has
indicated these new Coastal Patrol Boats will partially relieve the burden on
existing 110' patrol boats until a replacement patrol boat can be placed in service.
Currently, Florida-based 110' patrol boats average more than 5,500 mission hours
annually which can be performed by the smaller 87' Coastal Patrol Boats
operating out of the three primary Florida ports of Tampa, Miami and Key West.
This will allow the 110' patrol boats currently operating in these areas to be
utilized farther south where undocumented migrant traffic and drug smuggling
are more prevalent.
Section 4405. Section 4405 of the conference report states:
SEC. 4405. (a) IN GENERAL. — With respect to contracts entered into after
June 1, 2007, and except as provided in subsection (b), no entity performing lead
system integrator functions in the acquisition of a major system by the
Department of Homeland Security may have any direct financial interest in the
development or construction of any individual system or element of any system
of systems.
(b) EXCEPTION. — An entity described in subsection (a) may have a direct
financial interest in the development or construction of an individual system or
element of a system of systems if —
(1) the Secretary of Homeland Security certifies to the Committees on
Appropriations of the Senate and the House of Representatives, the Committee
on Homeland Security of the House of Representatives, the Committee on
Transportation and Infrastructure of the House of Representatives, the
Committee on Homeland Security and Governmental Affairs of the Senate, and
the Committee on Commerce, Science and Transportation of the Senate that —
(A) the entity was selected by the Department of Homeland Security as a
contractor to develop or construct the system or element concerned through the
use of competitive procedures; and (B) the Department took appropriate steps to
prevent any organizational conflict of interest in the selection process; or (2) the
entity was selected by a subcontractor to serve as a lower-tier subcontractor,
through a process over which the entity exercised no control.
(c) CONSTRUCTION. — Nothing in this section shall be construed to preclude
an entity described in subsection (a) from performing work necessary to integrate
two or more individual systems or elements of a system of systems with each
other.
(d) REGULATIONS UPDATE. — Not later than June 1, 2007, the Secretary of
Homeland Security shall update the acquisition regulations of the Department of
Homeland Security in order to specify fully in such regulations the matters with
respect to lead system integrators set forth in this section. Included in such
regulations shall be (1) a precise and comprehensive definition of the term “lead
system integrator,” modeled after that used by the Department of Defense, and
(2) a specification of various types of contracts and fee structures that are
appropriate for use by lead system integrators in the production, fielding, and
sustainment of complex systems.

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CRS-29
Integrated Deepwater Program Reform Act (S. 924)
This bill was introduced on March 20, 2007. On April 25, 2007, the Senate
Commerce, Science, and Transportation Committee ordered the bill to be reported
favorably with an amendment in the nature of a substitute. The text of the bill below
is the version introduced on March 20. (The text of the version reported on April 25
was not posted on LIS as of mid-afternoon on April 30.)
Section 1 provides a short title for the bill and a table of contents. The
remaining sections of the bill are as follows:
SEC. 2. PROCUREMENT STRUCTURE.
(a) In General-
(1) USE OF LEAD SYSTEMS INTEGRATOR- Except as provided in
subsection (b), the United States Coast Guard may not use a private sector entity
as a lead systems integrator for procurements under, or in support of, the
Integrated Deepwater Program after the date of enactment of this Act.
(2) FULL AND OPEN COMPETITION- The United States Coast Guard shall
utilize full and open competition for any other procurement for which an outside
contractor is used under, or in support of, the Integrated Deepwater Program after
the date of enactment of this Act.
(b) Exceptions-
(1) COMPLETION OF PROCUREMENT BY LEAD SYSTEMS
INTEGRATOR- Notwithstanding subsection (a), the Coast Guard may use a
private sector entity as a lead systems integrator —
(A) to complete, without modification, any delivery order or task order that was
issued to the lead systems integrator on or before the date of enactment of this
Act;
(B) for procurements of —
(i) the HC-130J and the C41SR, and
(ii) National Security Cutters or Maritime Patrol Aircraft under contract or order
for construction as of the date of enactment of this Act,
if the requirements of subsection (c) are met with respect to such procurements;
and
(C) for the procurement of additional National Security Cutters or Maritime
Patrol Aircraft if the Commandant determines, after conducting the analysis of
alternatives required by section 3, that —
(i) the justifications of FAR 6.3 are met;

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CRS-30
(ii) the procurement and the use of a private sector entity as a lead systems
integrator for the procurement is in the best interest of the Federal Government;
and
(iii) the requirements of subsection (c) are met with respect to such procurement.
(2) REPORT ON DECISION-MAKING PROCESS- If the Coast Guard
determines under paragraph (1) that it will use a private sector lead systems
integrator for a procurement, the Commandant shall transmit a report to the
Senate Committee on Commerce, Science, and Transportation and the House of
Representatives Committee on Transportation and Infrastructure notifying the
Committees of its determination and explaining the rationale for the
determination.
(c) LIMITATION ON LEAD SYSTEMS INTEGRATORS- Neither an entity
performing lead systems integrator functions for a procurement under, or in
support of, the Integrated Deepwater Program, nor a Tier 1 subcontractor, for any
procurement described in subparagraph (B) or (C) of subsection (b)(1) may have
a financial interest below the tier 1 subcontractor level unless —
(1) the entity was selected by the Coast Guard through full and open competition
for such procurement;
(2) the procurement was awarded by the lead systems integrator or a
subcontractor through full and open competition; or
(3) the procurement was awarded by a subcontractor through a process over
which the lead systems integrator or a Tier 1 subcontractor exercised no control.
SEC. 3. ANALYSIS OF ALTERNATIVES.
(a) IN GENERAL- Except with respect to a procurement described in
subparagraph (A) or (B) of section 2(b)(1) of this Act, no procurement may be
awarded under the Integrated Deepwater Program until an analysis of alternatives
has been conducted under this section.
(b) INDEPENDENT ANALYSIS- Within 30 days after the date of enactment of
this Act, the Commandant shall execute a contract for an analysis of alternatives
with a Federally Funded Research and Development Center, an appropriate entity
of the Department of Defense, or a similar independent third party entity that has
appropriate acquisition expertise for independent analysis of all of the proposed
procurements under, or in support of, the Integrated Deepwater Program,
including procurements described in section 2(b)(1)(B), and for any future major
changes of such procurements. The Commandant may not contract under this
subsection for such an analysis with any entity that has a substantial financial
interest in any part of the Integrated Deepwater Program as of the date of
enactment of this Act or in any alternative being considered.
(c) ANALYSIS- The analysis of alternatives provided pursuant to the contract
under subsection (b) shall include —
(1) a discussion of capability, interoperability, and other advantages and
disadvantages of the proposed procurements;

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CRS-31
(2) an examination of feasible alternatives;
(3) a discussion of key assumptions and variables, and sensitivity to changes in
such assumptions and variables;
(4) an assessment of technology risk and maturity; and
(5) a calculation of costs, including life-cycle costs.
(d) REPORT TO CONGRESS- As soon as possible after an analysis of
alternatives has been completed, the Commandant shall develop a plan for the
procurements addressed in the analysis and shall transmit a report describing the
plan to the Senate Committee on Commerce, Science, and Transportation and the
House of Representatives Committee on Transportation and Infrastructure.
SEC. 4. CERTIFICATION.
(a) IN GENERAL- A contract, delivery order, or task order for procurement
under, or in support of, the Coast Guard’s Integrated Deepwater Program may
not be executed by the Coast Guard until the Commandant certifies that —
(1) appropriate market research has been conducted prior to technology
development to reduce duplication of existing technology and products;
(2) the technology has been demonstrated in a relevant environment;
(3) the technology demonstrates a high likelihood of accomplishing its intended
mission;
(4) the technology is affordable when considering the per unit cost and the total
procurement cost in the context of the total resources available during the period
covered by the Integrated Deepwater Program;
(5) the technology is affordable when considering the ability of the Coast Guard
to accomplish its missions using alternatives, based on demonstrated technology,
design, and knowledge;
(6) reasonable cost and schedule estimates have been developed to execute the
product development and production plan for the technology;
(7) funding is available to execute the product development and production plan
for the technology; and
(8) the technology complies with all relevant policies, regulations, and directives
of the Coast Guard.
(b) REPORT TO CONGRESS- The Commandant shall transmit a copy of each
certification required under subsection (a) to the Senate Committee on
Commerce, Science, and Transportation and the House of Representatives
Committee on Transportation and Infrastructure within 30 days after the
completion of the certification.
SEC. 5. CONTRACT REQUIREMENTS.

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CRS-32
The Commandant shall ensure that any contract, delivery order, or task order for
procurement under, or in support of, the Integrated Deepwater Program executed
by the Coast Guard —
(1) incorporates provisions that address the recommendations related to award
fee determination and award term evaluation made by the Government
Accountability Office in its March, 2004, report entitled Coast Guard’s
Deepwater Program Needs Increased Attention to Management and Contractor
Oversight, GAO-04-380, and any subsequent Government Accountability Office
recommendations relevant to the contract terms issued before the date of
enactment of this Act, including that any award or incentive fee is tied to
program outcomes;
(2) provides that certification of any Integrated Deepwater Program procurement
for performance, safety, and any other relevant factor will be conducted by an
independent third party;
(3) does not include —
(A) for any contract extending the existing Integrated Deepwater Program
contract term, minimum requirements for the purchase of a given or determinable
number of specific assets;
(B) provisions that commit the Coast Guard without express written approval by
the Coast Guard;
(C) any provision allowing for equitable adjustment that differs from the Federal
Acquisition Regulations; and
(4) for any contract extending the existing Integrated Deepwater Program
contract term, is reviewed by, and addresses recommendations made by, the
Under Secretary of Defense for Acquisition, Technology, and Logistics through
the Defense Acquisition University.
SEC. 6. IMPROVEMENTS IN COAST GUARD MANAGEMENT.
(a) IN GENERAL- As soon as practicable after the date of enactment of this Act,
the Commandant shall take action to ensure that —
(1) the measures contained in the Coast Guard’s report entitled Coast Guard:
Blue Print for Acquisition Reform are implemented fully;
(2) any additional measures for improved management recommended by the
Defense Acquisition University in its Quick Look Study of the United States
Coast Guard Deepwater Program, dated February 5, 2007, are implemented;
(3) integrated product teams, and all higher-level teams that oversee integrated
product teams, are chaired by Coast Guard personnel; and
(4) the Assistant Commandant for Engineering and Logistics is designated as the
Technical Authority for all design, engineering, and technical decisions for the
Integrated Deepwater Program.

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CRS-33
(b) TRANSFER-
(1) IN GENERAL- Section 93(a) of title 14, United States Code, is amended —
(A) by striking ‘and’ after the semicolon in paragraph (23);
(B) by striking ‘appropriate.’ in paragraph (24) and inserting ‘appropriate; and’;
and
(C) by adding at the end thereof the following:
‘(25) notwithstanding any other provision of law, in any fiscal year transfer funds
made available for personnel, compensation, and benefits from the appropriation
account ‘Acquisition, Construction, and Improvement’ to the appropriation
account ‘Operating Expenses’ for personnel compensation and benefits and
related costs necessary to execute new or existing procurements of the Coast
Guard.’
(2) NOTIFICATION- Within 30 days after making a transfer under section
93(a)(25) of title 14, United States Code, the Commandant shall notify the Senate
Committee on Commerce, Science, Transportation and Infrastructure, the Senate
Committee on Appropriations, the House Committee on Transportation and
Infrastructure, and the House Committee on Appropriations.
SEC. 7. PROCUREMENT AND REPORT REQUIREMENTS.
(a) SELECTED ACQUISITION REPORTS- The Commandant shall submit to
the Senate Committee on Commerce, Science, and Transportation and the House
of Representatives Committee on Transportation and Infrastructure reports on the
Integrated Deepwater Program that contain the same type of information with
respect to that Program, to the greatest extent practicable, as the Secretary of
Defense is required to provide to the Congress under section 2432 of title 10,
United States Code, with respect to major defense procurement programs.
(b) UNIT COST REPORTS- Each Coast Guard program manager under the
Coast Guard’s Integrated Deepwater Program shall provide to the Commandant,
or the Commandant’s designee, reports on the unit cost of assets acquired or
modified that are under the management or control of the Coast Guard program
manager on the same basis and containing the same information, to the greatest
extent practicable, as is required to be included in the reports a program manager
is required to provide to the service procurement executive designated by the
Secretary of Defense under section 2433 of title 10, United States Code, with
respect to a major defense procurement program.
(c) REPORTING ON COST OVERRUNS AND DELAYS- Within 30 days after
the Commandant becomes aware of a likely cost overrun or scheduled delay, the
Commandant shall transmit a report to the Senate Committee on Commerce,
Science, and Transportation and the House of Representatives Committee on
Transportation and Infrastructure that includes —
(1) a description of the known or anticipated cost overrun;
(2) a detailed explanation for such overruns;

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CRS-34
(3) a detailed description of the Coast Guard’s plans for responding to such
overrun and preventing additional overruns; and
(4) a description of any significant delays in procurement schedules.
SEC. 8. GAO REVIEW AND RECOMMENDATIONS.
(a) AWARD FEE AND AWARD TERM CRITERIA- The Coast Guard may not
execute a new contract, delivery order, or task order, nor agree to extend the term
of an existing contract, with a prime contractor for procurement under, or in
support of, the Integrated Deepwater Program until the Commandant has
consulted with the Comptroller General to ensure that the Government
Accountability Office’s recommendations, in its March, 2004, report entitled
Coast Guard’s Deepwater Program Needs Increased Attention to Management
and Contractor Oversight, GAO-04-380, and any subsequent Government
Accountability Office recommendations issued before the date of enactment of
this Act, with respect to award fee and award term criteria have been fully
addressed.
(b) OTHER RECOMMENDATIONS- The Commandant shall ensure that all
other recommendations in that report, and any subsequent recommendations
issued before the date of enactment of this Act, are implemented to the maximum
extent practicable by the Coast Guard within 1 year after the date of enactment
of this Act. The Commandant shall report to the Senate Committee on
Commerce, Science, and Transportation and the House of Representatives
Committee on Transportation and Infrastructure on the Coast Guard’s progress
in implementing such recommendations.
(c) GAO REPORTS ON IMPLEMENTATION- Beginning 6 months after the
date of enactment of this Act, the Comptroller General shall submit an annual
report to the Senate Committee on Commerce, Science, and Transportation and
the House of Representatives Committee on Transportation and Infrastructure on
the Coast Guard’s progress in implementing the Government Accountability
Office’s recommendations, in its March, 2004, report entitled Coast Guard’s
Deepwater Program Needs Increased Attention to Management and Contractor
Oversight, GAO-04-380, and any subsequent Government Accountability Office
recommendations issued before the date of enactment of this Act, in carrying out
this Act.
SEC. 9. DEFINITIONS.
In this Act:
(1) COMMANDANT- The term `Commandant’ means the Commandant of the
United States Coast Guard.
(2) INTEGRATED DEEPWATER PROGRAM- The term `Integrated Deepwater
Program’ means the Integrated Deepwater Systems Program described by the
Coast Guard in its Report to Congress on Revised Deepwater Implementation
Plan, dated March 25, 2005, including any subsequent modifications, revisions,
or restatements of the Program.
(3) PROCUREMENT- The term `procurement’ includes development,
production, sustainment, modification, conversion, and missionization.

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Deepwater Accountability Act (S. 889)
Ths bill was introduced on March 15, 2007. Section 1 provides a short title for
the bill. The remaining sections of the bill are as follows:
SEC. 2. IMPROVEMENT OF ACQUISITION UNDER THE DEEPWATER
PROGRAM OF THE COAST GUARD.
(a) Competition Requirements for Future Acquisitions-
(1) REQUIREMENT- The Secretary of Homeland Security shall, upon reaching
the end of the period of performance currently under contract with Integrated
Coast Guard Systems in June 2007 under the Deepwater program of the Coast
Guard, acquire the completion, delivery, and acceptance of all assets under that
contract through new contracts solicited under the full and open competition
requirements of section 6.1 of the Federal Acquisition Regulation.
(2) PROHIBITION ON USE OF LEAD SYSTEMS INTEGRATOR- The
Secretary shall not utilize the services of a lead systems integrator in any manner
to acquire the completion, delivery, or acceptance of assets under this subsection.
(b) Exception-
(1) IN GENERAL- Notwithstanding subsection (a), the Secretary may enter into
a new contract with Integrated Coast Guard Systems for the completion, delivery,
and acceptance of assets for which construction has commenced, but not been
completed, under the contract referred to in that subsection as of the date of the
enactment of this Act if the Secretary certifies that —
(A) the completion, delivery, and acceptance of such assets under a contract
other than with Integrated Coast Guard Systems would pose an immediate or
near-term risk to the national security interests of the United States; or
(B) the cost of the completion, delivery, and acceptance of such assets under a
contract with other than Integrated Coast Guard Systems would exceed the cost
of the completion, delivery, and acceptance of such assets under a contract with
Integrated Coast Guard Systems.
(2) REPORTS TO CONGRESS- If the Secretary determines under paragraph (1)
to acquire the completion, delivery, and acceptance of assets under a contract
with Integrated Coast Guard Systems, the Secretary shall, not later than 180 days
after the date of such determination and every 180 days thereafter until the
completion, delivery, and acceptance of such assets, submit to Congress a report
on the current construction status of such assets.
(c) Report on Proposed Acquisition to Acquire Completion, Delivery, and
Acceptance of Assets- Not later than 30 days after the date of the enactment of
this Act, the Secretary shall submit to Congress a report on the acquisition of
assets under the Deepwater program. The report shall set forth the following:
(1) A list of each asset under the Deepwater program that has not been
completed, delivered, and accepted as of the date of such report.

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(2) A list of each such asset of which the Secretary proposes to acquire
completion, delivery, and acceptance under contracts entered into under
subsection (a).
(3) A list of each such asset of which the Secretary proposes to acquire
completion, delivery, and acceptance under a contract under subsection (b) with
Integrated Coast Guard Systems.
(d) Inspector General Review of Deepwater Program- Not later than 180 days
after the date of the enactment of this Act, the Inspector General of the
Department of Homeland Security shall submit to the Secretary, and to Congress,
a report on the acquisition of assets under the Deepwater program. The report
shall include —
(1) a description of each decision, if any, of the Coast Guard or Integrated Coast
Guard Systems relating to the acquisition of assets under the Deepwater program
that directly or indirectly resulted in cost overruns or program cost increases to
the United States;
(2) an assessment whether any decision covered by paragraph (1) violated the
terms of the contract of Integrated Coast Guard Systems for the Deepwater
program;
(3) an assessment of how much program costs under the Deepwater program
have increased as a result of any such decision;
(4) an assessment of whether the Coast Guard or Integrated Coast Guard Systems
is responsible for the payment of any cost overruns associated with any such
decision.
(e) Definitions- In this section:
(1) The term `asset’ means any product to be acquired under the contract of the
Coast Guard for the Deepwater program referred to in subsection (a), including
vessels, fixed-wing aircraft, and rotary-wing aircraft, and any component thereof.
(2) The term `Integrated Coast Guard Systems’ means the joint venture,
commonly referred to as `Integrated Coast Guard Systems’ or `ICGS’ between
Lockheed Martin Corporation and Northrop Grumman Corporation for the
purposes of completing and delivering assets to the Coast Guard under the
Deepwater program.

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Appendix A. DAU Quick Look Study, February 2007
The executive summary of the DAU “quick look” study on the Deepwater
program27 states:
27 Defense Acquisition University, Quick Look Study, United States Coast Guard Deepwater
Program, February 2007.

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Appendix B. DHS IG Testimony And Reports
May 17, 2007, Testimony
At a May 17, 2007, joint hearing before the Border, Maritime, and Global
Counterterrorism subcommittee and the Management, Investigations, and Oversight
subcommittee of the House Homeland Security Committee, the DHS IG testified in
part:
Deepwater Program Management and Oversight
We have identified several common themes and risks from our audits of
assets and information technology systems being acquired under the Deepwater
contract. These include the dominant influence of expediency, unfavorable
contract terms and conditions, poorly defined performance requirements, and
inadequate management and technical oversight. These deficiencies contributed
to schedule delays, cost increases, and asset designs that did not meet minimum
Deepwater performance requirements.
Systems Integrator Approach -- The Coast Guard’s decision to outsource
program management to the systems integrator fully empowered the contractor
with authority for making day-to-day decisions regarding all aspects of the
contract. According to the Coast Guard, its acquisition workforce did not have
the requisite training, experience, and certification to manage an acquisition the
size, scope, and complexity of the Deepwater Program. Further, the Coast Guard
was reluctant to exercise a sufficient degree of authority to influence the design
and production of its own assets. As a result, the Systems Integrator (ICGS)
assumed full technical authority over all asset design and configuration decisions
while the Coast Guard's technical role was limited to that of an expert “advisor.”
However, there was no contractual requirement that the Systems Integrator
accept or act upon the Coast Guard’s technical advice, regardless of its proven
validity. Furthermore, there are no contract provisions ensuring government
involvement into subcontract management and “make or buy” decisions. The
Systems Integrator decided who is the source of the supply. Also, as the primary
management tool for the Coast Guard to contribute its input on the development
of Deepwater assets, the effectiveness of the contractor-led Integrated Product
teams (IPTs) to resolve the Coast Guard’s technical concerns, has been called
into question by both the Government Accountability Office (GAO) and my
office.
Contractor Accountability -- Our reviews have raised concerns with the
definition and clarity of operational requirements, contract requirements and
performance specifications, and contractual obligations. For example, in our
National Security Cutter (NSC) report, we reported that the Coast Guard and the
American Bureau of Shipping jointly developed standards that would govern the
design, construction, and certification of all cutters acquired under the Deepwater
Program. These standards were intended to ensure that competing industry teams
developed proposals that met the Coast Guard’s unique performance
requirements. Prior to the Phase 2 contract award, the Coast Guard provided
these design standards to the competing industry teams. Based on their feedback,
the Coast Guard converted the majority of the standards (85% of the 1,175
standards) to guidance and permitted the industry teams to select their own

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alternative standards. Without a contractual mechanism in place to ensure that
those alternative standards met or exceeded the original guidance standards, the
competing teams were allowed to select cutter design criteria.
Additionally, the Deepwater contract gave the Systems Integrator the
authority to make all asset design and configuration decisions necessary to meet
system performance requirements. This condition allowed ICGS to deviate
significantly from a set of cutter design standards originally developed to support
the Coast Guard’s unique mission requirements, and ICGS was further permitted
to self-certify compliance with those design standards. As a result, the Coast
Guard gave ICGS wide latitude to develop and validate the design of its
Deepwater cutters, including the NSC.
Deepwater Performance Requirements Are Ill-Defined -- Vague contract
terms and conditions have also compromised the Coast Guard’s ability to hold
the contractor accountable by making possible competing interpretations of key
performance requirements. For example, the performance specifications
associated with upgrading the information systems on the Coast Guard’s 123'
Island Class Patrol Boats did not have a clearly defined expected level of
performance. Also, in our review of the Helicopter Interdiction Tactical
Squadron (HITRON) lease, we determined that vague contract performance
requirements challenged the Coast Guard’s ability to assess contractor
performance. In another example, the performance specifications for the NSC
were not clearly defined, which resulted in disagreements, both within the Coast
Guard and between the Coast Guard and ICGS, regarding the actual intent behind
the cutter performance requirements.
Deepwater Cost Increases -- The cost of NSCs 1 and 2 is expected to
increase well beyond the current $775 million estimate, as this figure does not
include a $302 million Request for Equitable Adjustment (REA) submitted to the
Coast Guard by ICGS on November 21, 2005. The REA represents ICGS’s
re-pricing of all work associated with the production and deployment of NSCs
1 and 2 caused by adjustments to the cutters’ respective implementation
schedules as of January 31, 2005. The Coast Guard and ICGS are currently
engaged in negotiations over the final cost of this REA. ICGS has also indicated
its intention to submit additional REAs for adjusted work schedules impacting
future NSCs, including the additional cost of delays caused by Hurricane
Katrina.
In addition, the $775 million cost estimate for NSCs 1 and 2 does not
include the cost of structural modifications to be made to mitigate known design
deficiencies. The cost of these modifications and the cost of future REAs could
add hundreds of millions of dollars to the total NSC acquisition cost. We remain
concerned that these and other cost increases within the Deepwater Program
could result in the Coast Guard acquiring fewer and less capable NSCs, FRCs,
and OPCs under the Deepwater contract.
Impact on Coast Guard Operational Capabilities -- Short and Long Term
The problems the Coast guard is experiencing with the Deepwater Program
could impact the Coast Guard’s short and long-term operational capabilities. For
example, while the reengining of the HH-65B helicopters resulted in aircraft with
significantly improved capabilities, the program has experienced schedule delays
and cost increases. The delivery of the first 84 re-engined HH-65Cs will be

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completed by the end of this month, 11 months beyond the Commandant’s
original July 2006 deadline. Extending the delivery schedule unnecessarily
exposed HH-65B aircrews to additional risk due to the rate in which in-flight loss
of power mishaps were occurring.
There are also problems with Coast Guard's acquisition of the Vertical
Unmanned Aerial Vehicle (VUAV). VUAVs have the potential to provide the
Coast Guard’s flight-deck-equipped cutters with expanded air surveillance,
detection, classification, and identification capabilities. Currently, the VUAV
acquisition is over budget and more than 12 months behind schedule. On May 8,
2007, the Coast Guard issued a second work stop order and the Commandant
recently testified that the VUAV was under review by Coast Guard’s Research
and Development Center. The review is expected to provide recommendations
for the way ahead with the VUAV.
Not having VUAV capability would significantly reduce the long-range
surveillance capability of the NSC and the Offshore Patrol Cutter (OPC) from
58,000 square nautical miles to that of the Coast Guard’s Hamilton class high
endurance cutters (13,500 square nautical miles). This represents a 76%
reduction in Deepwater surveillance capability. The Coast Guard's Revised
Deepwater Implementation Plan of 2005 called for the acquisition of 45 VUAVs
at a total cost of approximately $503.3 million. As of March 31, 2007, the Coast
Guard had obligated $113.6 million (76.9%) of the $147.7 million to the project.
According to the Coast Guard estimates, it would take an additional $50 million
and 18 months to deliver the first two VUAV systems.
The increased cost, schedule delays, and structural design problems
associated with the 123-foot patrol boat have further impacted the Coast Guard’s
patrol boat operational hour and capability gap. The Coast Guard is attempting
to mitigate the problem by extending an agreement with the U.S. Navy to
continue the operation of the 179-foot “Cyclone” class patrol boats from 2009
to 2011, and to extend the operational capability of the 110-foot Island Class
fleet through the use of multiple crews. While the increased operations tempo
will help in the short-term, it will further increase the wear and tear (e.g.,
equipment breakdowns and other unscheduled casualties, etc.), on these aging
patrol boats in the long term. As a result, we expect the maritime patrol boat gap
(which has been reported to be in excess of 20,000 hours) to increase rather than
decrease until which time the service life extensions on the 110’s are completed
and the FRC-Bs deployed....
Coast Guard’s “Way Forward” - Blueprint for Acquisition Reform
To its credit, the Coast Guard recognizes that urgent and immediate
changes are needed to meet the management challenges facing its Deepwater
acquisitions program. As part of its endeavors to improve the Deepwater
Program, the Coast Guard recently issued its Blueprint for Acquisition Reform
(Blueprint), which catalogues many of the aforementioned challenges and risks
that have impeded the efficient execution of the Deepwater contract. According
to the Coast Guard, implementing this Blueprint will enhance its ability to
execute asset-based “traditional” acquisition projects, effectively use a
governmental or commercial entity as a systems integrator for complex
acquisitions, and execute minor acquisitions contracts for goods and services.

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According to the Coast Guard, the Blueprint outlines its plans for
reorganizing and rebuilding its acquisition workforce. Specifically, the Blueprint
calls for the:
• Consolidation of all Coast Guard acquisition functions under one directorate;
• Reassertion of Coast Guard’s technical authority;
• Use of independent, third party assessments; and,
• Redefinition of the contract terms and conditions.
While the Blueprint contains a number of key initiatives, the Coast Guard
should adopt measures of performance or desired outcomes that would enable it
to assess the progress being made. These include the specific numbers and types
of acquisition professionals needed, when they are scheduled to arrive onboard,
and the financial cost associated with the realignment, reorganization, retraining,
and rebuilding of its acquisition workforce.
The Coast Guard is beginning to take aggressive action to resolve some of
the management oversight issues identified in recent OIG reports. In the long
term, if all goes as planned, the Coast Guard's reorganization of its Acquisitions
Directorate will be fully implemented during FY 2010. But in the meantime, the
Coast Guard is planning to move ahead with the second phase of the Deepwater
contract with Award Term I, which will entail the estimated expenditure of more
than $3 billion dollars over a 43 month period starting June 2007.
Conclusion
We are encouraged that the Coast Guard recognizes these challenges and
is beginning to take aggressive action to strengthen program management and
oversight—such as technical authority designation; use of independent, third
party assessments; consolidation of acquisition activities under one directorate;
and redefinition of the contract terms and conditions, including award fee
criteria. Furthermore, the Coast Guard is beginning to implement its plan to
increase its staffing for the Deepwater Program, and to reinvigorate its
acquisition training and certification processes to ensure that staff has the
requisite skills and education to manage the program.
These steps should improve the Coast Guard’s ability to oversee major
acquisitions. However, we are mindful that the Coast Guard’s system-of-systems
approach will require the highest levels of planning and coordination to mitigate
cost overruns, schedule delays, asset performance shortcomings, or potential
operational gaps due to delays in asset acquisition. Most importantly, we believe
that there is considerable risk associated with Coast Guard assuming the lead
systems integrator role at this time without having fully implemented its
Blueprint for Acquisition Reform, specifically without having closed the
Deepwater human capital gap. We also believe the Coast Guard should exercise
caution and take a slower or phased approach to assuming the systems integrator
role.
In conclusion, we remain committed to the oversight of the Deepwater
Program and other major acquisitions within the department. We are working
with the Coast Guard to identify milestones and due dates to assess the most

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appropriate cycle for reporting the program’s progress. If properly and
fully-implemented, Coast Guard’s steps should significantly increase its level of
management oversight over the air, surface, and C4ISR assets that are acquired
or modernized under the Deepwater Program. We look forward to working
closely with the Coast Guard to continue the improvement of the efficiency,
effectiveness, and economy of the Deepwater Program.28
January 2007 Report on NSC
A January 2007 DHS IG report on the NSC effort states in part:
The NSC, as designed and constructed, will not meet performance
specifications described in the original Deepwater contract. Specifically, due to
design deficiencies, the NSC’s structure provides insufficient fatigue strength to
be deployed underway for 230 days per year over its 30-year operational service
life under Caribbean (General Atlantic) and Gulf of Alaska (North Pacific) sea
conditions. Coast Guard technical experts believe the NSC’s design deficiencies
will also increase the cutter’s maintenance costs and reduce its service life. To
mitigate the effects of these deficiencies, the Coast Guard intends to modify the
NSC’s design to support an operational profile of 170 to 180 days underway per
year in the North Pacific region, lower than the 230-day performance standard
required by the Deepwater contract.
The NSC’s design and performance deficiencies are fundamentally the
result of the Coast Guard’s failure to exercise technical oversight over the design
and construction of its Deepwater assets. The Coast Guard’s technical experts
first identified and presented their concerns about the NSC’s structural design to
senior Deepwater Program management in December 2002, but this did not
dissuade the Coast Guard from authorizing production of the NSC in June 2004
or from awarding ICGS a contract extension in May 2006.
Since the Deepwater contract was signed in June 2002, the combined cost
of NSCs 1 and 2 has increased from $517 million to approximately $775 million,
resulting primarily from design changes necessary to meet post 9/11 mission
requirements and other government costs not included in the original contract
price. The $775 million estimate does not include costs to correct or mitigate the
NSC’s structural design deficiencies, additional labor and materials costs
resulting from the effects of Hurricane Katrina, and the final cost of a $302
million Request for Equitable Adjustment (REA) that the Coast Guard is
currently negotiating with ICGS....
Finally, we encountered resistance from the Coast Guard and ICGS in our
effort to evaluate the structural design and performance issues associated with
the NSC. The impediments we experienced in obtaining access to personnel,
information, and documentation associated with the NSC acquisition are
unacceptable in light of the statutory mandates of our office; the severity of the
NSC design and performance deficiencies; the importance of the NSC to the
28 Statement of Richard L. Skinner, Inspector General, U.S. Department of Homeland
Security, Before the Committee on Homeland Security. Subcommittee on Border, Maritime,
and GLobal Counterterrorism and Committee on Homeland Security Sebcommittee on
Management, INvetigations and Oversight, U.S. House of Representatives, “Deepwater:
Charting a Course for Safer Waters,” May 17, 2007, pp. 3-5, 8-10.

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Coast Guard’s national security and Deepwater missions; and the expenditure of
billions of taxpayer dollars that are being invested in this critical acquisition.
We are making five recommendations to the Coast Guard, and one to the
Department’s Chief Procurement Officer and Office of General Counsel. Our
recommendations are intended to: (1) ensure the National Security Cutter is
capable of fulfilling all performance requirements outlined in the Deepwater
contract; (2) improve the level of Coast Guard technical oversight and
accountability; and (3) ensure Office of Inspector General access to all records,
personnel, and contractors of the department during all current and future audits
and inspections.29
The report also stated:
The Deepwater contract gives the Systems Integrator the authority to make
all asset design and configuration decisions necessary to meet system
performance requirements. This condition allowed ICGS to deviate significantly
from a set of cutter design standards originally developed to support the Coast
Guard’s unique mission requirements, and ICGS was further permitted to
self-certify compliance with those design standards. As a result, the Coast Guard
gave ICGS wide latitude to develop and validate the design of its Deepwater
cutters, including the NSC.
Conversely, the Coast Guard chose to limit the technical oversight role of
the Systems Directorate on Deepwater to providing “expertise and credible
advice in core integrated engineering and logistics competencies.”... However,
the Deepwater contract does not require that ICGS or its subcontractors accept
or act upon the advice of the Coast Guard’s designated technical experts. As a
result of this relationship, the Coast Guard is limited in its ability to exercise
technical oversight over its assets acquired under the Deepwater contract. This,
in our opinion, is the primary factor contributing to the inclusion of the structural
deficiencies that currently compromise the NSC’s operational viability.
In contrast to the Coast Guard’s approach, the U.S. Navy retains technical
authority and accountability over the design and construction of its ships through
the institution of Technical Warrant Holder (TWH) authority....
TWHs ensure that the technical aspects of Navy asset designs are given
independent consideration by providing technical authority that is separate from
program authority for cost, schedule, and performance. Navy surface asset
Program Managers yield to TWH decisions on technical issues and must secure
TWH approval for design changes. Efforts of the Coast Guard’s technical experts
to resolve their long-standing concerns with the NSC design were thwarted
because they lack a similar degree of authority on Deepwater.30
The report also stated that the Coast Guard and the American Bureau of
Shipping (ABS):
29 Department of Homeland Security, Office of Inspector General, Acquisition of the
National Security Cutter, OIG -07-23, January 2007. The report is available online at
[http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_07-23_Jan07.pdf].
30 Ibid., pp. 12-13.

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initially specified a certifying agent for each standard to ensure that all cutters
would be objectively evaluated for compliance. However, the Coast Guard
ultimately allowed the competing industry teams to determine the certifying
entity for any non-ABS standards it selected and, to the extent that it was
permitted, ICGS elected to self-certify compliance with these standards.20 This
decision to permit contractor self-certification contrasts sharply with the intended
role of an independent certifying authority, as articulated in the Deepwater
contract...
U.S. Navy and classification community subject matter experts expressed
similar opinions, that, “self-certification is no certification.” By allowing
contractor self-certification, the Coast Guard eliminated yet another oversight
tool for ensuring that cutter designs developed under the Deepwater Program
would meet both contractual and Deepwater mission performance requirements.31
The report also stated that:
the Coast Guard’s acquisition management capacity lacks the appropriate work
force, business processes, and management controls for executing a major
acquisition program such as the Integrated Deepwater System. Key positions are
still being identified and filled. The Coast Guard is still trying to come from
behind and create the organization needed to manage the program. That is why
we believe the Coast Guard needs to proceed with caution as it moves forward
with the implementation of the Integrated Deepwater System initiative.
Expediency and urgency should not drive the acquisition; instead, the Coast
Guard needs to ensure that it has the capacity to manage such an initiative. Then,
and only then, can it provide assurances that it is being a good steward of the
taxpayers’ dollar. Also, the Coast Guard needs to ensure performance
management systems and processes are in place and functioning. The design
flaws of the NSC, as well as the problems that the Coast Guard has experienced
with the System Integrator’s design of the Fast Response Cutters and the
123-Cutters, clearly demonstrate that improvements are needed. The Coast
Guard needs to build the management and oversight capacity that will allow it
to acquire the needs to build a performance management system that will ensure:
— Transparency — a clear roadmap on how the systems integrator plans to
meet the Coast Guard’s deepwater objectives.
— Visibility — a clear, open line of communications with all stakeholders on
the progress of the initiative.
— Accountability — the means to determine, on a real time basis, what is
working and what is not working.
— Oversight — including not only by the Coast Guard’s technical and
program management offices, but also by the OIG and the Congress.32
31 Ibid., p. 14.
32 Ibid., pp. 35-36. Underlining as in the original.

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February 2007 Report on 110-Foot Modernization
The February 2007 DHS IG report on the 110-foot patrol boat modernization
program states in part:
On February 10, 2006, our office received a Hotline Complaint alleging that
the Coast Guard’s 123-foot Island Class Patrol Boats (123' cutter) and
short-range prosecutor (prosecutor) contained safety and security vulnerabilities.
The 123' cutter is a modification of the 110' Island Class patrol boat and was
phased into service as part of the Deepwater project. The original Deepwater
plan projected the conversion of forty-nine 110' patrol boats into 123' patrol
boats as a bridging strategy to meet patrol boat needs until the new Fast
Response Cutter was introduced. The prosecutor is a 24' 6" small boat that can
be deployed from the National Security Cutter, Fast Response Cutter, and
Offshore Patrol Cutter. The revised Deepwater Implementation Plan calls for the
acquisition of 91 prosecutors. The complaint said that these vulnerabilities were
the result of the contractor’s failure to comply with Command, Control,
Communications, Computer, Intelligence, Surveillance, and Reconnaissance
(C4ISR) design requirements as defined in the Deepwater contract. Specifically,
the complainant alleged that:
— The safety of the 123' cutter’s crew was compromised by the contractor’s
failure to utilize low smoke cabling;
— The contractor knowingly installed aboard the 123' cutter and prosecutor
external C4ISR equipment that did not meet specific environmental requirements
outlined in the Deepwater contract;
— The cable installed during the upgrade to the cutter’s C4ISR system
represented a security vulnerability; and,
—
The video surveillance system installed aboard the 123' cutter does not meet
the cutter’s physical security requirements.
Finally, the complainant provided information detailing his attempts, over
a 2 ½ year period, to compel the contractor to comply with Deepwater contract
requirements....
Aspects of the C4ISR equipment installed aboard the 123' cutters do not
meet the design standards set forth in the Deepwater contract. Specifically, two
of the four areas of concern identified by the complainant were substantiated and
are the result of the contractor not complying with the design standards identified
in the Deepwater contract. For example, the contractor did not install low smoke
cabling aboard the 123' cutter, despite a Deepwater contract requirement that
stated, “all shipboard cable added as a result of the modification to the vessel
shall be low smoke.” The intent of this requirement was to eliminate the
polyvinyl chloride jacket encasing the cables, which for years produced toxic
fumes and dense smoke during shipboard fire. Additionally, the contractor
installed C4ISR topside equipment aboard both the 123' cutters and prosecutors,
which either did not comply or was not tested to ensure compliance with specific
environmental performance requirements outlined in the Deepwater contract.
The remaining two areas of concern identified by the complainant were in
technical compliance with the Deepwater contract and deemed acceptable by the
Coast Guard. Specifically, while the type of cabling installed during the C4ISR
system upgrade to the 123' cutter was not high-grade braided cable; the type of
cable used met the Coast Guard’s minimum-security standards as required by the
Deepwater contract. Concerning the installation of the video surveillance system,

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while the system did not provide 360 degrees of coverage, it met minimum
contract requirements.33
December 2006 Report On DHS Management Challenges
A December 2006 DHS IG report on major DHS management challenges stated:
USCG has also encountered a number of challenges in executing its
Deepwater Acquisition program despite the expenditure of more than $3 billion
over four years. This is particularly true within the Deepwater surface and air
domains. For example, the 110-foot patrol boat conversion project was curtailed
at eight cutters due to design, construction, performance, and cost concerns.
Further, strict operational restrictions have been imposed on these cutters until
additional structural analyses can be completed. In response to these challenges,
USCG accelerated plans to design, construct, and deploy the composite Fast
Response Cutter (FRC) by more than 10 years as a replacement for the 110-foot
patrol boat. However, an independent analysis confirmed that the FRC design
is outside patrol boat design parameters, i.e., too heavy, too overpowered, and
not streamlined enough to reduce resistance. These concerns led to USCG’s
April 2006 decision to suspend work on the FRC until these issues could be
resolved or an alternative commercial off-the-shelf design identified. In the
Deepwater air domain, the HH-65C helicopter7 and unmanned aerial vehicle
(VUAV) acquisitions have encountered schedule delays and cost increases.
These Deepwater design, construction, performance, scheduling, and cost issues
are expected to present significant challenges to USCG’s Deepwater Program
during FY 2007.34
August 2006 Report On Deepwater IT
An August 2006 report by the DHS Inspector General (IG) on the Coast Guard’s
acquisition of information technology (IT) for the Deepwater program stated:
We audited the Coast Guard’s efforts to design and implement command,
control, communications, computers, intelligence, surveillance, and
reconnaissance (C4ISR) systems to support the Integrated Deepwater System
program. As a result of our audit, we determined that the Coast Guard’s efforts
to develop its Deepwater C4ISR systems could be improved. Although Coast
Guard officials are involved in high-level Deepwater IT requirements definition
processes, they have limited influence over contractor decisions toward meeting
these requirements. A lack of discipline in requirements change management
processes provides little assurance that the requirements remain up-to-date or
effective in meeting program goals. Certification and accreditation of Deepwater
C4ISR equipment has been difficult to achieve, placing systems security and
operations at risk. Further, although the Deepwater program has established IT
testing procedures, the contractor has not followed them consistently to ensure
33 Department of Homeland Security, Office of Inspector General, 110'/123' Maritime Patrol
Boat Modernization Project, OIG -07-27, January 2007. The report is available online at
[http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_07-27_Feb07.pdf].
34 U.S. Department of Homeland Security, Office of Inspector General, Major Management
Challenges Facing the Department of Homeland Security (Excerpts from the FY 2006 DHS
Performance and Accountability Report), December 2006. (OIG-07-12) p. 6.

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that C4ISR systems and the assets on which they are installed perform
effectively.
Additionally, the Coast Guard faces several challenges to implementing
effectively its Deepwater C4ISR systems. Due to limited oversight as well as
unclear contract requirements, the agency cannot ensure that the contractor is
making the best decisions toward accomplishing Deepwater IT goals.
Insufficient C4ISR funding has restricted accomplishing the “system-of-systems”
objectives that are considered fundamental to Deepwater asset interoperability.
Inadequate training and guidance hinder users from realizing the full potential
of the C4ISR upgrades. Instituting effective mechanisms for maintaining C4ISR
equipment have been equally challenging.35
A December 2006 DHS IG report on major DHS management challenges
reiterated these points.36
35 U.S. Department of Homeland Security, Office of Inspector General. Improvements
Needed in the U.S. Coast Guard’s Acquisition and Implementation of Deepwater
Information Technology Systems, August 2006. (Office of Information Technology, OIG-06-
55) p. 1.
36 U.S. Department of Homeland Security, Office of Inspector General, Major Management
Challenges Facing the Department of Homeland Security (Excerpts from the FY 2006 DHS
Performance and Accountability Report), December 2006. (OIG-07-12) p. 13.

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Appendix C. GAO Testimony
March 8, 2007, and February 14, 2007, Testimony
At a March 8, 2007, hearing on the Coast Guard’s proposed FY2008 budget
before the Coast Guard and Maritime Transportation subcommittee of the House
Transportation and Infrastructure Committee, and at a February 14, 2007, hearing on
the Deepwater program before the Oceans, Atmosphere, Fisheries, and Coast Guard
subcommittee of the Senate Commerce, Science and Transportation Committee,
GAO provided its views on the Deepwater program. At the March 8, 2007, hearing,
GAO testified in part:
Summary
In 2001, we described the Deepwater program as “risky” due to the unique,
untried acquisition strategy for a project of this magnitude within the Coast
Guard. The Coast Guard used a system-of-systems approach to replace
deteriorating assets with a single, integrated package of aircraft, vessels, and
unmanned aerial vehicles to be linked through systems that provide command,
control, communications, computer, intelligence, surveillance, and
reconnaissance (C4ISR), and supporting logistics. In a system-of-systems, the
delivery of Deepwater assets are interdependent, thus schedule slippages and
uncertainties associated with potential changes in the design and capabilities of
any one asset increases the overall risk that the Coast Guard might not meet its
expanded homeland security missions within given budget parameters and
milestone dates. The Coast Guard also used a systems integrator — which can
give the contractor extensive involvement in requirements development, design,
and source selection of major system and subsystem subcontractors. The
Deepwater program is also a performance-based acquisition, meaning that it is
structured around the results to be achieved rather than the manner in which the
work is performed. If performance-based acquisitions are not appropriately
planned and structured, there is an increased risk that the government may
receive products or services that are over cost estimates, delivered late, and of
unacceptable quality.
In 2004 and in subsequent assessments in 2005 and 2006, we reported
concerns about the Deepwater program related to three main areas — program
management, contractor accountability, and cost control. The Coast Guard’s
ability to effectively manage the program has been challenged by staffing
shortfalls and poor communication and collaboration among Deepwater program
staff, contractors, and field personnel who operate and maintain the assets.
Despite documented problems in schedule, performance, cost control, and
contract administration, measures for holding the contractor accountable resulted
in an award fee of $4 million (of the maximum $4.6 million) for the first year.
Through the first 4 years of the Deepwater contract, the systems integrator
received award fees that ranged from 87 percent to 92 percent of the total
possible award fee (scores that ranged from “very good” to “excellent” based on
Coast Guard criteria), for a total of over $16 million. Further, the program’s
ability to control Deepwater costs is uncertain given the Coast Guard’s lack of
detailed information on the contractor’s competition decisions. While the Coast
Guard has taken some actions to improve program outcomes, our assessment of
the program and its efforts to address our recommendations continues, and we
plan to report on our findings later this year.

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Of the 10 classes of upgraded or new Deepwater aircraft and vessels, the
delivery record for first-in-class assets (that is, the first of multiple aircraft or
vessels to be delivered within each class) is mixed. Specifically, 7 of the 10 asset
classes are on or ahead of schedule. Among these, five first-in-class assets have
been delivered on or ahead of schedule; and two others remain on schedule but
their planned delivery dates are in 2009 or beyond. Three Deepwater asset
classes are currently behind schedule due to various problems related to designs,
technology, or funding. For example, the Fast Response Cutter (a new vessel),
which had been scheduled for first-in-class delivery in 2007, has been delayed
by at least 2 years in part because work on its design was suspended until
technical problems related to its hull and other issues can be addressed. The
Vertical Unmanned Aerial Vehicle (a new aircraft), which had also been
scheduled for delivery in 2007, has been delayed by 6 years due to evolving
technological developments, among other things. In addition, the Offshore Patrol
Cutter, which had a planned delivery date in 2010, has now been delayed by 5
years.
The Coast Guard is facing operational challenges because of performance
and design problems with Deepwater patrol boats. Specifically, the conversion
of legacy 110-foot patrol boats to upgraded 123-foot patrol boats was stopped at
eight hulls (rather than the entire fleet of 49) due to deck cracking, hull buckling,
and shaft alignment problems. These patrol boat conversion problems ultimately
led the Coast Guard to suspend all normal operations of the eight converted
123-foot patrol boats on November 30, 2006. The Coast Guard is now exploring
options to address the resulting short-term operational gaps. There have also been
design problems with the new Fast Response Cutter (FRC), intended to replace
all 110-foot and 123-foot patrol boats. In February 2006, the Coast Guard
suspended design work on the FRC due to design risks, such as excessive weight
and horsepower requirements.2 According to the Coast Guard, it has decided to
acquire two classes of FRCs in an effort to not delay delivery of the FRCs
further. One class is to be based on an adapted design from a patrol boat already
on the market and another class is to be redesigned to address the problems in the
original FRC design plans. As with the 123-foot patrol boats, the Coast Guard is
looking at options to address these long-term operational gaps....
Deepwater Indicative of Broader, Systematic Acquisition Challenges
Some of the problems the Coast Guard is experiencing with the Deepwater
program are similar to problems we have reported on in other complex,
developmental systems. These problems stem from:
• Program requirements that are set at unrealistic levels, then changed frequently
as recognition sets in that they cannot be achieved. As a result, too much time
passes; threats may change; and/or members of the user and acquisition
communities may simply change their minds. The resulting program instability
causes cost escalation, schedule delays, fewer quantities, and reduced contractor
accountability.
• Program decisions to move into design and production without adequate
standards or knowledge.
• Contracts, especially service contracts, that often do not have measures in place
at the outset in order to control costs and facilitate accountability.
• Contracts that typically do not accurately reflect the complexity of projects or
appropriately allocate risk between the contractors and the taxpayers.

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CRS-53
• Agency acquisition workforces that are challenged because of size, skills,
insufficient knowledge, and succession planning.
• Incentive and award fees that are often paid based on contractor efforts versus
positive results, such as cost, quality, and schedule.
• Inadequate government oversight that results in little to no accountability for
recurring and systemic problems.
Preliminary Observations on Deepwater Program Management, Contractor
Accountability, and Cost Control
Since the inception of the Deepwater program, we have expressed concerns
about the risks involved with the Coast Guard’s system-of-systems acquisition
approach and the Coast Guard’s ability to manage and oversee the program. Our
concerns have centered on three main areas: program management, contractor
accountability, and cost control through competition. We have made a number
of recommendations to improve the program — most of which the Coast Guard
has agreed with and is working to address. However, while actions are under
way, a project of this magnitude will likely continue to experience other
problems as more becomes known.
Program Management
In 2004, we reported that the Coast Guard had not effectively implemented
key components needed to manage and oversee the systems integrator.
Specifically, we reported at that time and subsequently on issues related to
integrated product teams (IPT), the Coast Guard’s human capital strategy, and
communication with field personnel (individuals responsible for operating and
maintaining the assets). Our preliminary observations on the Coast Guard’s
progress in improving these program management areas, based on our ongoing
work, follow.
Integrated Product Teams
In 2004, we found that IPTs, the Coast Guard’s primary tool for managing
the Deepwater program and overseeing the contractor, had not been effective due
to changing membership, understaffing, insufficient training, lack of authority
for decision making, and inadequate communication. We recommended the
Coast Guard take actions to address IPT effectiveness. We subsequently reported
that IPT decision-making was to a large extent stovepiped, and some teams
lacked adequate authority to make decisions within their realm of responsibility.8
Coast Guard officials stated that they believed collaboration among the
subcontractors was problematic and that the systems integrator wielded little
influence to compel decisions among them. For example, proposed design
changes to assets under construction were submitted as two separate proposals
from both subcontractors rather than one coherent plan. More recently, Coast
Guard performance monitors reported this approach complicated the government
review of design changes because the two proposals often carried overlapping
work items, thereby forcing the Coast Guard to act as the systems integrator in
those situations. Although some efforts have been made to improve the
effectiveness of the IPTs — such as providing them with more timely charters
and entry-level training — our preliminary observations are that more
improvements are needed.

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Despite changes to the metrics, the Coast Guard’s ability to assess IPT
performance continues to be problematic. Former assessments of IPT
effectiveness simply focused on measures such as frequency of meetings,
attendance, and training. As a result, IPTs received positive assessments while
the assets under their realm of responsibility — such as the National Security
Cutter — were experiencing problems. While the Coast Guard’s new IPT
measurements include outcome-based metrics, such as cost and schedule
performance of assets, Deepwater’s overall program management quarterly
reports, which are prepared by Coast Guard in collaboration with ICGS, show
that the connection between IPT performance and program results continues to
be misaligned. For example, the first quarterly report to incorporate the new
measurements, covering the period October to December 2006, indicates that the
IPTs’ performance for all domains is “on-schedule or non-problematic” even
while some assets’ cost or schedule performance is rated “behind schedule or
problematic.” Further, even though the Deepwater program is addressing
fundamental problems surrounding the 123-foot patrol boat and FRC, IPTs no
longer exist for these assets. In some cases, Coast Guard officials stated they
have established work groups outside of the existing IPT structure to address
identified issues and problems related to assets, such as the NSC.
Human Capital
We also reported in 2004 that the Coast Guard had not adequately staffed
its program management function for Deepwater. Although its Deepwater human
capital plan set a goal of a 95 percent or higher “fill rate” annually for both
military and civilian personnel, funded positions were below this goal. We
recommended that the Coast Guard follow the procedures in its Deepwater
human capital plan to ensure that adequate staffing was in place and that turnover
of Coast Guard military personnel was proactively addressed. The Coast Guard
subsequently revised its Deepwater human capital plan in February 2005 to
emphasize workforce planning, including determining needed knowledge, skills,
and abilities and developing ways to leverage institutional knowledge as staff
rotate out of the program. We reported in 2005 that the Coast Guard also took
some short-term steps to improve Deepwater program staffing, such as hiring
contractors to assist with program support functions, shifting some positions
from military to civilian to mitigate turnover risk, and identifying hard-to-fill
positions and developing recruitment plans specifically for them.
However, more recently we have learned that while the Coast Guard has
revised a human capital plan, key human capital management objectives outlined
in the revised plan have not been fully implemented. Thus, key human capital
management objectives outlined in the revised plan have not been accomplished
and the staffing levels needed to accomplish the known workload have not been
achieved. In one example, a manager cited the need for five additional staff per
asset under his domain to satisfy the current workload in a timely manner:
contracting officer’s technical representative, scheduler, cost estimator, analyst,
and configuration manager. Further, a February 2007 independent analysis found
that the Coast Guard does not possess a sufficient number of acquisition
personnel or the right level of experience needed to manage the Deepwater
program.11 The Coast Guard has identified an acquisition structure
re-organization that includes human capital as one component of the reform.

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Communication with Operations and Maintenance Personnel
In 2004, we found that the Coast Guard had not adequately communicated
to operations and maintenance personnel in field locations about decisions on
how the new and old assets were to be integrated during the transition and
whether Coast Guard or systems integrator personnel — or both — would be
responsible for maintenance. We recommended that the Coast Guard provide
timely information and training on the transition to Deepwater assets. In 2006,
we reported that the Coast Guard had taken some steps to improve
communications between Deepwater program and field personnel, including
having field personnel as members on some IPTs. However, we continued to
express concerns that field personnel were not receiving important information
regarding training, maintenance, and integration of new Deepwater assets.
During our ongoing work, the field personnel involved in operating and
maintaining the assets and Deepwater program staff we interviewed expressed
continued concern that maintenance and logistics plans had not been finalized.
Another official commented that there continues to be a lack of clarity defining
roles and responsibilities between the Coast Guard and systems integrator for
maintenance and logistics. Coast Guard officials stated in fall 2006 that the
systems integrator was contractually responsible for developing key documents
related to plans for the maintenance and logistics for the NSC and Maritime
Patrol Aircraft. However, Deepwater program officials stated that because the
Coast Guard was not satisfied with the level of detail provided in early drafts of
these plans, it was simultaneously developing “interim” plans that it could rely
on while the systems integrator continued to develop its own versions.
Concerns Remain with Holding Systems Integrator Accountable
Our 2004 review revealed that the Coast Guard had not developed
quantifiable metrics to hold the systems integrator accountable for its ongoing
performance. For example, the process by which the Coast Guard assessed
performance to make the award fee determination after the first year of the
contract lacked rigor. At that time, we also found that the Coast Guard had not
yet begun to measure contractor performance against Deepwater contract
requirements — the information it would need by June 2006 to decide whether
to extend the systems integrator’s contract award term by up to another 5 years.
Additionally, we noted that the Coast Guard needed to establish a solid baseline
against which to measure progress in lowering total ownership cost — one of the
three overarching goals of the Deepwater program. Furthermore, the Coast Guard
had not developed criteria for potential adjustments to the baseline.
Award Fee Criteria
In 2004 we found the first annual award fee determination was based
largely on unsupported calculations. Despite documented problems in schedule,
performance, cost control, and contract administration throughout the first year,
the program executive officer awarded the contractor an overall rating of 87
percent, which fell in the “very good” range as reported by the Coast Guard
award fee determining official. This rating resulted in an award fee of $4 million
of the maximum $4.6 million. The Coast Guard continued to report design, cost,
schedule, and delivery problems, and evaluation of the systems integrator’s
performance continued to result in award fees that ranged from 87 percent to 92
percent of the total possible award fee (with 92 percent falling into the

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“excellent” range), or $3.5 to $4.8 million annually, for a total of over $16
million the first 4 years on the contract.
The Coast Guard continues to refine the award fee criteria under which it
assesses the systems integrator’s performance. The current award fee criteria
demonstrate the Coast Guard’s effort to use both objective and subjective
measures and to move toward clarity and specificity with the criteria being used.
For example, the criteria include 24 specific milestone activities and dates to
which the systems integrator will be held accountable for schedule management.
However, we recently observed two changes to the criteria that could affect the
Coast Guard’s ability to hold the contractor accountable. First, the current award
fee criteria no longer contain measures that specifically address IPTs, despite a
recommendation we made in 2004 that the Coast Guard hold the systems
integrator accountable for IPT effectiveness. The Coast Guard had agreed with
this recommendation and, as we reported in 2005, it had incorporated award fee
metrics tied to the systems integrator’s management of Deepwater, including
administration, management commitment, collaboration, training, and
empowerment of the IPTs. Second, a new criterion to assess both schedule and
cost management states that the Coast Guard will not take into account milestone
or cost impacts determined by the government to be factors beyond the systems
integrator’s control. However, a Coast Guard official stated that there are no
formal written guidelines that define what factors are to be considered as being
beyond the systems integrator’s control, what process the Coast Guard is going
to use to make this determination, or who is ultimately responsible for making
those determinations.
Award Term Evaluation
The Deepwater program management plan included three overarching goals
of the Deepwater program: increased operational effectiveness, lower total
ownership cost, and customer satisfaction to be used for determining whether to
extend the contract period of performance, known as the award term decision.
We reported in 2004 that the Coast Guard had not begun to measure the systems
integrator’s performance in these three areas, even though the information was
essential to determining whether to extend the contract after the first 5 years.12
We also reported that the models the Coast Guard was using to measure
operational performance lacked the fidelity to capture whether improvements
may be due to Coast Guard or contractor actions, and program officials noted the
difficulty of holding the contractor accountable for operational effectiveness
before Deepwater assets are delivered. We made a recommendation to Coast
Guard to address these issues.
According to a Coast Guard official, the Coast Guard evaluated the
contractor subjectively for the first award term period in May 2006, using
operational effectiveness, total ownership costs, and customer satisfaction as the
criteria. The result was a new award term period of 43 of a possible 60 months.
To measure the system’s operational effectiveness, the Coast Guard has
developed models to simulate the effect of the Deepwater assets’ capabilities on
its ability to meet its missions and to measure the “presence” of those assets.
However, in its assessment of the contractor, the Coast Guard assumed full
operational capability of assets and communications and did not account for
actual asset operating data. Furthermore, the models still lacked the fidelity to
capture whether operational improvements are attributable to Coast Guard or
contractor actions. As a result the contractor received credit for factors that may

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have been beyond its control — although no formal process existed for
approving such factors. Total ownership cost was difficult to measure, thus the
contractor was given a neutral score, according to Coast Guard officials. Finally,
the contractor was rated “marginal” in customer satisfaction.
The Coast Guard has modified the award term evaluation criteria to be used
to determine whether to grant a further contract extension after the 43-month
period ends in January 2011. The new criteria incorporate more objective
measures.
• While the three overall Deepwater program objectives (operational
effectiveness, total ownership costs, and customer satisfaction) carried a weight
of 100 percent under the first award term decision, they will represent only about
a third of the total weight for the second award term decision. The criteria
include items such as new operational effectiveness measures that will include
an evaluation of asset-level key performance parameters, such as endurance,
operating range, and detection range.
• The new award term criteria have de-emphasized measurement of total
ownership cost, concentrating instead on cost control. Program officials noted
the difficulty of estimating ownership costs far into the future, while cost control
can be measured objectively using actual costs and earned value data. In 2004,
we recommended that the Coast Guard establish a total ownership cost baseline
that could be used to periodically measure whether the Deepwater
system-of-systems acquisition approach is providing the government with
increased efficiencies compared to what it would have cost without this
approach. Our recommendation was consistent with the cost baseline criteria set
forth in the Deepwater program management plan. The Coast Guard agreed with
the recommendation at the time, but subsequently told us it does not plan to
implement it.
Establishing Criteria and Documenting Changes to the Baseline
Establishing a solid baseline against which to measure progress in lowering
total ownership cost is critical to holding the contractor accountable. The Coast
Guard’s original plan, set forth in the Deepwater program management plan, was
to establish as its baseline the dollar value of replacing assets under a traditional,
asset-by-asset approach as the “upper limit for total ownership cost.” In practice,
the Coast Guard decided to use the systems integrator’s estimated cost of $70.97
billion plus 10 percent (in fiscal year 2002 dollars) for the system-of-systems
approach as the baseline. In 2004, we recommended that the Coast Guard
establish criteria to determine when the total ownership cost baseline should be
adjusted and ensure that the reasons for any changes are documented.
Since then, the Coast Guard established a process that would require DHS
approval for adjustments to the total ownership cost baseline. The Deepwater
Program Executive Officer maintains authority to approve baseline revisions at
the asset or domain level. However, depending on the severity of the change,
these changes are also subject to review and approval by DHS. In November
2005, the Coast Guard increased the total ownership cost baseline against which
the contractor will be evaluated to $304 billion. Deepwater officials stated that
the adjustment was the result of incorporating the new homeland security
mission requirements and revising dollar estimates to a current year basis.
Although the Coast Guard is required to provide information to DHS on causal

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factors and propose corrective action for a baseline breach of 8 percent or more,
the 8 percent threshold has not been breached because the threshold is measured
against total program costs and not on an asset basis. For example, the decision
to stop the conversion of the 49 110-foot patrol boats after 8 hulls did not exceed
the threshold; nor did the damages and schedule delay to the NSC attributed to
Hurricane Katrina. During our ongoing work, Coast Guard officials
acknowledged that only a catastrophic event would ever trigger a threshold
breach. According to a Coast Guard official, DHS approval is pending on
shifting the baseline against which the systems integrator is measured to an asset
basis.
Limited Knowledge of Cost Control Achieved Through Competition
Our 2004 report also had recommendations related to cost control through
the use of competition. We reported that, although competition among
subcontractors was a key mechanism for controlling costs, the Coast Guard had
neither measured the extent of competition among the suppliers of Deepwater
assets nor held the systems integrator accountable for taking steps to achieve
competition. As the two first-tier subcontractors to the systems integrator,
Lockheed Martin and Northrop Grumman have sole responsibility for
determining whether to provide the Deepwater assets themselves or hold
competitions — decisions commonly referred to as “make or buy.” We noted that
the Coast Guard’s hands-off approach to make-or-buy decisions and its failure
to assess the extent of competition raised questions about whether the
government would be able to control Deepwater program costs.
The Coast Guard has taken steps to establish a reporting requirement for the
systems integrator to provide information on competition on a semi-annual basis.
The systems integrator is to provide detailed plans, policies, and procedures
necessary to ensure proper monitoring, reporting, and control of its
subcontractors. Further, reports are to include total procurement activity, the
value of competitive procurements, and the subcontractors’ name and addresses.
The systems integrator provided the first competition report in October 2006.
However, because the report did not include the level of detail required by Coast
Guard guidelines, a Coast Guard official deemed that the extent of competition
could not be validated by the information provided and a request was made to the
systems integrator for more information. We will continue to assess the Coast
Guard’s efforts to hold the systems integrator accountable for ensuring an
adequate degree of competition....
Performance and Design Problems Creating Operational Challenges
In addition to the overall management problems, there have been problems
with the performance and design of Deepwater patrol boats and its replacement
vessel, the FRC, that pose significant operational challenges for the Coast Guard.
Performance Problems with the Converted 123-foot Patrol Boats
Between January 2001 and November 2006, numerous events led up to the
failure of the Coast Guard’s bridging strategy to convert the legacy 110-foot
patrol boats into 123-foot patrol boats. In January 2001, an independent study
found that the 110-foot patrol boats based in south Florida and Puerto Rico were
experiencing severe hull corrosion and that their structural integrity was
deteriorating rapidly. To address these issues, the Coast Guard’s original (2002)

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Deepwater plan included a strategy to convert all 49 of the 110-foot patrol boats
into 123-foot patrol boats and to strengthen the hulls. Also, the plan was to
provide additional capabilities, such as stern launch and recovery capabilities and
enhanced C4ISR. While Coast Guard originally planned to convert all 49 of its
110-foot patrol boats to 123-foot patrol boats, it halted the patrol boat conversion
program after 8 boats because of continued deck cracking, hull buckling, and the
inability of these converted patrol boats to meet post-September 11, 2001
mission requirements. The Commandant then decided to remove these 8
converted boats from service on November 30, 2006 because of operational and
safety concerns.
The Coast Guard is taking actions to mitigate the operational impacts
resulting from the removal of the 123-foot patrol boats from service. Specifically,
in recent testimony, the Commandant of the Coast Guard stated that Coast Guard
has taken the following actions:
• multi-crewing certain 110-foot patrol boats with crews from the 123-foot patrol
boats that have been removed from service so that patrol hours for these vessels
can be increased;
• deploying other Coast Guard vessels to assist in missions formerly performed
by the 123-foot patrol boats; and
• securing permission from the U.S. Navy to continue using 179-foot cutters on
loan from the Navy for an additional 5 years (these were originally to be returned
to the Navy in 2008) to supplement the Coast Guard’s patrol craft.
Design Problems with the Fast Response Cutter
The FRC — which was intended as a long-term replacement for the legacy
110-foot patrol boats — has experienced design problems that have operational
implications. As we recently reported, the Coast Guard suspended design work
on the FRC due to design risks such as excessive weight and horsepower
requirements. Specifically, beginning in January 2005, Coast Guard engineers
raised concerns about the viability of the FRC design (which involved building
the FRC’s hull, decks, and bulkheads out of composite materials rather than
steel). Then, in February 2006, the Coast Guard suspended FRC design work
after an independent design review by third-party consultants demonstrated,
among other things, that the FRC would be far heavier and less efficient than a
typical patrol boat of similar length, in part, because it would need four engines
to meet Coast Guard speed requirements.
To address the design problems and schedule delays that have occurred
with the FRC, the Coast Guard is proceeding with a “dual-path approach” for
acquiring new patrol boats. The first component of the dual-path approach is to
have the Deepwater systems integrator purchase a commercial off-the-shelf
patrol boat design that can be adapted for Coast Guard use. The purpose of
designing the first class of FRCs based on an adaptation of a patrol boat already
on the market is to expedite delivery. According to Coast Guard officials, unlike
the original plans, this FRC class is not expected to meet all performance
requirements originally specified, but is intended as a way to field an FRC more
quickly than would otherwise occur and that can, therefore, serve as an interim
replacement for the deteriorating fleet of 110-foot patrol boats.
The second component of the dual-path approach would be to completely
redesign an FRC to address the problems in the original FRC design plans.

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However, due to continuing questions about the feasibility of its planned
composite hull, the Coast Guard has delayed a decision about its development or
acquisition until it receives results from a business case analysis comparing the
use of composite versus steel hulls., as well as a study by DHS’s Science and
Technology Directorate on composite hull technology. Until recently, the Coast
Guard anticipated delivery of the redesigned FRC in 2010. However, the decision
to not request funding for this redesigned FRC in fiscal year 2008, and to await
the results of both studies before moving forward, will likely further delay
delivery of the redesigned FRC. In regard to the suspension of FRC design work,
as of our June 2006 report, Coast Guard officials had not yet determined how
changes in the design and delivery date for the FRC would affect the operations
of the overall system-of-systems approach.37
37 Government Accountability Office, Coast Guard[:] Status of Efforts to Improve
Deepwater Program Management and Address Operational Challenges, Statement of
Stephen L. Caldwell, Acting Director Homeland Security and Justice Issues, Testimony
Before the Subcommittee on Coast Guard and Maritime Transportation, Committee on
Transportation and Infrastructure, House of Representatives, GAO-07-575T, March 8,
2007. See also Government Accountability Office, Coast Guard[:] Coast Guard Efforts to
Improve Management and Address Operational Challenges in the Deepwater Program,
Statement of Stephen L. Caldwell, Acting Director Homeland Security and Justice Issues,
Testimony Before the Subcommittee on Oceans, Atmosphere, Fisheries, and Coast Guard,
Committee on Commerce, Science and Transportation, U.S. Senate, GAO-07-460T,
February 14, 2007.

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Appendix D. Coast Guard Testimony
May 17, 2007, Testimony
At a May 17, 2007, joint hearing before the Border, Maritime, and Global
Counterterrorism subcommittee and the Management, Investigations, and Oversight
subcommittee of the House Homeland Security Committee, the Coast Guard testified
in part:
Past as Prologue
Before I discuss the current state of Deepwater and the program’s way
ahead, I ask you to bear with me briefly to consider how we got here. By the mid
1990s, most of our ships and aircraft were approaching the end of their service
lives. Our cutter fleet was then, and remains, one of the oldest among the world’s
naval fleets. Some of our cutters are old enough to be eligible for Social
Security! In light of a looming aviation and surface fleet block obsolescence, it
wasn’t sensible to attempt piecemeal, one-for-one replacement of each class of
assets. We also didn’t have the capacity in the late 1990’s to manage that many
projects in parallel.
Because of these anticipated challenges, we knew an innovative approach
was required. And because maritime threats were evolving in the post-Cold War
environment in which Deepwater was conceived, we knew expectations for
maritime security were changing as well, so our asset mix would need to support
these dynamic requirements. We determined, therefore, that it would be most
cost effective and efficient to acquire a wholly-integrated system of ships,
aircraft, sensors and communications systems, or, as it is commonly called, a
“system of systems”. The idea is based on the concept that the whole is greater
than the sum of its parts; all elements combine to generate greater capabilities
across the entire system. Given that, our goal is not to replace ships, aircraft, and
sensors with more ships, aircraft, and sensors, but to provide the Coast Guard
with the functional capabilities required to safely achieve mission success.
This wholly-integrated acquisition strategy called for progressive
modernization, conversion and recapitalization using a mix of new and legacy
assets, replacing those that are obsolete, while upgrading existing ones until a
new fleet is acquired. This complex strategy, and the fact that the Coast Guard
had not built a ship the size of the National Security Cutter for more than three
decades, drove our decision to engage the services of a commercial systems
integrator with proven technical expertise in the acquisition of large systems.
Following a rigorous, multiple year selection process, the result was our contract
with Integrated Coast Guard Systems (ICGS), a joint venture of Lockheed Martin
and Northrop Grumman.
Adding to the program’s complexity was adoption of an innovative
performance-based acquisition strategy. Compared to more traditional methods,
performance-based acquisition is designed to promote innovation and spread risk
more evenly between government and industry.
Following nearly ten years of planning, beginning in 1993, the Coast Guard
moved toward contract award believing that we had addressed many of the
concerns likely to arise from this transformational acquisition strategy. However,

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like most Americans, we never expected the larger challenge that lay ahead for
the Coast Guard and the nation in the wake of the terrorist attacks of September
11, 2001. Following the Service’s transfer to the Department of Homeland
Security in March 2003, we conducted a Performance Gap Analysis, drafted a
new Mission Needs Statement, and developed a revised, post-September 11th
Implementation Plan to ensure Deepwater capabilities would support new
mission sets assigned to the Coast Guard. All of these steps were carried out in
full consultation with the Administration and Congress. As Deepwater
requirements were expanded in the post-September 11th environment, the
program’s timeline expanded and its overall projected cost increased from $17
to $24 billion.
Where we are Today in Deepwater
Last month, I completed my first year at the helm of the largest acquisition
program in Coast Guard history. Five years into this 25 year acquisition we’ve
achieved many successes, but also faced daunting challenges – and indeed
learned some lessons the hard way – but I assure you that education has not been
wasted. As a result of those lessons learned and with the full support of the
Commandant and the Department of Homeland Security (DHS), we are taking
aggressive action every day to strengthen program management and execution
and to ensure past mistakes will not be repeated.
While acknowledging that we need to learn from past mistakes, we also
need to leverage off the positive experience of significant recent
accomplishments. Deepwater assets are in the fleet today, contributing to the
successful execution of an array of Coast Guard missions.
Phase 1 of our three-phase conversion of our workhorse helicopter, the
HH65, is on schedule. As of the end of March, all air stations with HH-65
Dolphin helicopters are now flying the “C” model with new Turbomeca Arriel
2C2 engines and upgraded gearboxes, installed as part of our legacy asset
modernization program. With a 40 percent power increase and greater reliability,
the HH-65C has re-established itself as the deployable mainstay of our helicopter
fleet and played an invaluable part during the Coast Guard’s response to
Hurricane Katrina. And, just last July, a hiker in the Olympic National Forest fell
down the side of a mountain and owes his life to a daring rescue by a
well-trained Coast Guard aircrew, flying a newly delivered HH-65C helicopter
— recently re-engined as part of the Deepwater program. That rescue would not
have been possible without Deepwater.
We have also recently marked crucial shore-based facility milestones.
During a ribbon cutting ceremony on March 14, a new Deepwater training
facility was dedicated at the Coast Guard’s training center in Petaluma, CA. The
facility houses high-tech shipboard operation simulators and state-of-the-art radar
and electronics systems and will provide critical command, control,
communications, computers, intelligence, surveillance, and reconnaissance
(C4ISR) training for Coast Guard and U.S. Navy crews. And, the Coast Guard
Communications Area Master Station Atlantic (CAMSLANT) in Chesapeake,
VA is being remodeled and upgraded to support Deepwater’s interoperable
systems. Specifically, the 22-year old building is being outfitted with High
Frequency Automatic Link Establishment (HF-ALE) systems, Automatic
Identification Systems (AIS), and a Global Positioning System/Differential
Global Positioning System (GPS/DGPS). This new Deepwater-funded equipment

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will allow CAMSLANT to execute its core mission to maintain and deploy
contingency communications and provide command and control support for
disaster recovery, special operations, and other emergencies.
Also in late March, the crew of CGC SHERMAN made use of
Deepwater-enhanced command and control capabilities while seizing more than
42,000 tons of cocaine from the Motor Vessel GATUN off the coast of Panama.
SHERMAN’s commanding officer noted that this largest bust in Coast Guard
history would not have been possible before the service's high- and
medium-endurance cutters were equipped with Deepwater-provided upgraded
tracking capabilities and the ability to communicate securely over great
distances, which was provided by Deepwater.
On April 26, 2007, the first 110-foot Island Class patrol boat to enter the
Deepwater-funded Mission Effectiveness Project (MEP) – CGC TYBEE – was
returned to the fleet following a very successful year-long MEP process. This
project includes refurbishing and replacing aging and obsolete equipment on the
ships and is improving operational effectiveness across the fleet. The goal of the
MEP is to maintain effective missions for legacy cutters and patrol boats until
those vessels can be replaced by new and more capable Deepwater assets such
as the Offshore Patrol Cutter (OPC) and the Fast Response Cutter (FRC).
This is an exciting time, with two National Security Cutters (NSC) under
construction in Mississippi and HC-144A maritime patrol aircraft Nos. 1 and 2—
the first new aviation assets acquired under Deepwater—being missionized at the
Aviation Repair & Supply Center in North Carolina. Aircraft No. 3 is expected
to be delivered for missionization later this year and Nos. 4 and 5 are already in
production. Aircraft Nos. 4 and 5 were contracted for in January 2007 at a cost
of approx. $34.89 million per aircraft. Earlier this month, we put aircraft Nos. 6
thru 8 on contract, at a price of approx. $33.99 million per aircraft. This is a cost
reduction of almost $900,000 per aircraft between Nos. 4 and 5 and Nos. 6 thru
8. These are but a few examples of the program’s progress and results.
These milestones and successes just begin to illustrate the tremendous need
for Deepwater. As Deepwater’s system of assets continue to be delivered, we’ll
meet or exceed not just capability requirements, but patrol and response capacity
needs as well....
Room for Reflection
As I indicated earlier, we are committed to benefiting from lessons learned.
Obviously, one area where we are very disappointed is the 123-foot patrol boats.
Based on initial budget constraints, the conversion of these cutters was planned
as a bridging strategy until we could deliver the more capable Fast Response
Cutter (FRC). The decision to proceed with these conversions was based on
consideration of limited resources, a growing gap in patrol boat hours, and
identified risk associated with the conversion design. At the time, the conversion
was seen as the lowest risk option given available resources and operational
requirements.
But, early hull deformation led the Coast Guard to re-examine the plan for
the 123-foot patrol boats and halt conversions in May 2005 at just eight hulls,
instead of 46 as originally planned. When repeated efforts to repair the hulls
proved unsuccessful and even more significant structural problems surfaced, last

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November Admiral Allen suspended operation of the cutters until a
comprehensive engineering solution was identified. When a feasible solution
couldn’t be found, the Commandant announced his decision last month that these
eight cutters will be permanently decommissioned. As the Program Executive
Officer for Deepwater, I have worked with the Commandant, DHS OIG, GAO,
and this Congress to ensure that adequate managerial and oversight changes have
been made in this acquisition program to prevent false starts, such as the 123-foot
patrol boat program, from being repeated.
I’d also like to take just a moment to discuss the National Security Cutter
(NSC). TheInspector General reported his findings earlier this year from an audit
of the NSC earlier this year. That report highlighted concerns with our approach
to potential fatigue structural integrity issues with the NSC hull. The issue here,
which we have communicated to the DHS OIG and which we have been actively
addressing for several years, is a question of fatigue life over the course of the
cutter’s 30-year service life.
I want to be very clear that there has never been a question of crew or ship
safety related to the ship’s structure, nor have we ever anticipated any
operational restrictions related to its design. As you are well aware, we drive our
ships hard, so service and fatigue life of new cutters is of critical concern to us.
An early Coast Guard review of the design of the NSC indicated that the ship
might experience fatigue-level stresses sooner than anticipated. Because we want
to ensure that all of our ships meet the service and fatigue life requirements our
missions demand, we are implementing changes and enhancements to the design
of the NSC.
Some have wondered why we didn’t suspend construction of the first NSC
when we learned of these concerns. The Coast Guard’s decision to continue
production of the NSC reflects more than simply the naval engineering
perspective. It also encompasses considerations of cost, schedule, and
performance. After extensive research and deliberation and with all of these
considerations in mind, the Coast Guard decided that the need for enhancements
to NSC No. 1 could be effectively addressed by later retrofits and did not justify
the schedule and cost risk associated with stopping the production line. These
kinds of issues are not unusual in production of a first-in-class vessel, and I
believe the decision to move forward was prudent. We will fix NSC No. 1 and
2 during post-delivery availabilities and design the fix into future hulls’
production. In fact, through ongoing meetings and negotiations between the
Coast Guard and CEOs from Northrop Grumman and Lockheed Martin, we’ve
recently reached agreement on the engineering solution to resolve all fatigue
concerns with NSCs No. 3-8.
Moving Beyond
As the Deepwater program has evolved, we have reinvigorated our
workforce planning process and continue the effort to increase staff to the
appropriate level to allow effective government oversight and ability of the
government to perform as the system integrator. I appreciate Congress acting to
authorize additional billets for this endeavor. As a direct result of these efforts,
the Coast Guard will have 52 full-time government personnel at our Gulf Coast
PMRO by the end of this fiscal year. The Navy’s Supervisor of Shipbuilding
Office (SUPSHIP) also assigned 12 people to our PMRO in Pascagoula, Miss.,
where they are supporting construction of the NSC at Northrop Grumman Ship

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Systems. During a trip to Pascagoula last month, I had a chance to visit with
many of these acquisition and technical professionals and I am confident their
active oversight of contractor performance during NSC construction will pay
dividends.
Obtaining more appropriate staffing levels also means the Coast Guard is
able to better respond to contractor requests for deviation and waivers. These
requests demand intense scrutiny from the government prior to any action being
taken; to facilitate this, we’ve developed a new Class I Engineering Change
Proposal (ECP)/Request for Deviation (RFD)/Request for Waiver (RFW) review
process, a recommendation of our DHS OIG. This process requires that, prior to
implementation; each ECP/RFD/RFW is reviewed in detail by a board of
technical experts and contracting officers, based on pre-determined guidelines.
It also mandates thorough documentation of each contractor request, the formal
review process, and decision of the Coast Guard in regard to each request. This
will facilitate timely and consistent handling of each ECP/RFD/RFW.
The Coast Guard will use the American Bureau of Shipping (ABS) to
certify Deepwater equipment and vessels according to High Speed Naval Craft
(HSNC) and Naval Vessel rules as appropriate. Specifically, the Coast Guard is
working with industry to maximize the use of HSNC standards for our patrol
boats and smaller surface assets and Naval Vessel rules for the National Security
Cutter and Offshore Patrol Cutter. By implementing this certification
expectation, we can ensure that equipment and assets meet requirements and that
standards are enforced consistently. There is a growing market today for external
rules and standards bodies, and we’ll use those rules and bodies to assist with
certification in the future. But, the government needs to be the final arbiter of
those standards.
Leading Change
The lessons we have are being applied across the program. In fact, these
lessons are improving acquisition management throughout the Coast Guard.
The role of the Coast Guard’s technical authority has been reaffirmed and
the dynamic relationship between the technical authority and acquisition
programs has been strengthened. This means that for all vessel designs and
design changes, the Coast Guard will not proceed with contract award or contract
changes without agreement from the technical authority. Fatigue enhancements
to the National Security Cutter are an illustration of this constructive
relationship. While contractors follow direction from program and contracting
officers, those officers don’t give direction until first consulting and reaching
agreement with the Coast Guard technical authority.
We are also improving the effectiveness of our Integrated Product Teams
(IPTs). These teams can serve a useful function by enabling regular oversight of
the contractor and by providing an avenue for resolution of non-major technical
concerns or, where concerns persist, an avenue for them to be raised to program
managers and contracting officers. Our IPTs were previously chaired by
Integrated Coast Guard Systems (ICGS) and haven’t always functioned as
envisioned. That needed to change. So, based on direction to all program
managers, each IPT is now led by a government employee and IPT charters are
being examined to determine if/where additional changes should be made.

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The complexity of the Deepwater program and the diverse missions of
planned assets makes design review a crucial element of the successful execution
of this program. To ensure that designs and assets will meet Coast Guard needs,
we have increased our use of independent, third-party review and analysis for all
new starts or substantial design changes. Inherent in this initiative is a renewed
commitment to utilize full business case analyses for all new acquisition
decisions to instill confidence that we are building and buying the right tools for
our Coast Guard men and women and at best value for taxpayers.
Of particular note, we recently contracted with the Defense Acquisition
University (DAU) to conduct a “quick-look” review of Deepwater to examine the
program’s key management and technical processes, performance-based
acquisition strategy, organizational structure and our contract with ICGS. The
Coast Guard’s Research and Development Center has also completed a study of
the planned Deepwater Vertical-Launch Unmanned Aerial Vehicle; in he study’s
second phase, we are re-examining the way ahead for unmanned vehicles based
on recommendations from that analysis. And, we’ve initiated an independent
review of workload and workforce management issues. Based on findings and
recommendations from these and other independent reviews, we will make
“course corrections” where needed in order to guarantee successful execution of
the Deepwater program.
Our ongoing and positive relationship with the Naval Sea and Air Systems
Commands have provided the Coast Guard with valuable third party assessments.
It is the preference of the Coast Guard that future third party assessments be kept
within the government whenever possible. Specifically, NAVSEA’s Carderock
Surface Warfare Center has provided us with valuable design reviews and
recommendations. As funding allows, we will continue this exchange to the
maximum extent possible.
Our partnerships and cooperative relationships with the U.S. Navy and
others extend beyond third party assessments. The Coast Guard is leveraging
sound principles of systems engineering and integration to derive high levels of
sub-system and component commonality, improve interoperability with the U.S.
Navy and other agencies, and achieve significant cost avoidances and savings.
This approach conforms with and directly supports the National Fleet Policy.
As the Program Executive Officer of Deepwater, I have a formalized
collaborative partnership with my Navy counterparts in order to identify common
systems, technologies and processes for improved interoperability. By
incorporating common and interoperable Navy systems into Deepwater assets,
the Coast Guard has also avoided paying unnecessary costs.
As examples, the National Security Cutter (NSC) and Off-Shore Patrol
Cutter (OPC) will use 75 percent of the Navy’s AEGIS Command and Decision
System. Deepwater assets also will incorporate Navy Type/Navy Owned
systems, including the 57mm deck gun, selected for major Deepwater cutters and
the Navy’s Littoral Combat Ship and DD(X) programs. The Operation Center
Consoles on the NSC use 70 percent of the design of the Navy’s Display Systems
(AN/UYQ-70). And, by using more than 23,000 lines of software code from the
Navy’s Antisubmarine Warfare Improvement Program (AIP) in the CASA
Maritime Patrol Aircraft’s command and control systems, we are maximizing the
use of mission systems that are installed on more than 95 percent of the world’s
maritime surveillance aircraft. The CASA Maritime Patrol Aircraft will utilize

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more than 50 percent of the functionality of the Navy’s P-3 Aircraft
Improvement Program system. For example, the U.S. Navy and Coast Guard
personnel routinely train side-by-side at the Coast Guard’s training facility in
Petaluma, California.
A Consolidated Coast Guard Acquisition Directorate
One of the most significant changes we are making in the Coast Guard’s
acquisition community is bringing together all acquisition-related
activities–traditional programs as well as system-of-system, policy, and research
and development–under one organization. Consolidating our acquisition efforts
will provide immediate benefits, including better allocation of human capital
assets (such as contracting officers and acquisition professionals) along with an
integrated “product line” approach to our management of acquisitions, thereby
allowing projects to be handled by knowledgeable and experienced personnel
with the same linkages to the technical authorities.
Defense Acquisition University’s (DAU) Quick Look study report of the
Deepwater program concluded that our recently developed Blueprint for
Acquisition Reform plan, which outlines many of the change management efforts
related here, “is comprehensive and responsive to the human capital,
organization, process and governance related findings and recommendations.”
Along with our analysis to right-size staffing levels, we have reinvigorated
our acquisition training and certification process to ensure that technical and
support staff, program managers and contracting officers have the requisite skills
and education needed to manage complex acquisitions. Our desired end state is
to become the model for mid-sized federal agency acquisition and procurement,
in full alignment with the Department of Homeland Security acquisition
objectives.
Other Insights
Some insights gained over the past year and during the program’s first five
years, may not be as intuitive as the need to increase staffing or refine oversight
processes. In that vein—and this has particular relevance to the 123-foot patrol
boats—we must consider the ever-present tension between the trend in
government agencies to seek to purchase Commercial Off-the-Shelf (COTS)
equipment and the sometimes conflicting requirement to certify that equipment
to federal agency standards. Often, these competing desires cannot be reconciled
without making trade-offs from one or the other. The fact is, while COTS
equipment is often less expensive, easier to buy and more available, it seldom
meets the sometimes very long list of federal agency performance requirements.
The practical impact is that contracting officers and program managers are left
trying to balance affordability, schedule and risk in meeting contract
requirements.
The requirement on the 123-foot patrol boats for low-smoke cabling is one
example of this challenge. When this safety-related requirement is pitted against
the competing requirement to use COTS equipment in onboard systems, program
and contracting officers must consider trade-offs. If COTS equipment contains
pre-fabricated circuitry that utilizes non-low smoke cables, the cost to modify
that equipment can be very steep– not to mention schedule impacts from such
modifications. Often, COTS equipment may even have components that meet

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certification standards but that lack manufacturer testing data to the needed level
of specificity. Program and contracting officers must thus seek to balance
performance, cost, and schedule factors and make decisions based on perceived
risk. The federal government needs to balance using COTS equipment and
certifying that equipment to all federal agency standards, in order to best serve
the public.
We’ve also learned a great deal about performance-based contracts,
especially as they relate to complex acquisitions like a Coast Guard cutter. When
Deepwater was developed it was envisioned as a purely performance-based
acquisition. The thought was that we’d simply lay out performance requirements
of our assets and then allow industry the freedom to design and build assets that
met those requirements. What we’ve found is that this approach doesn’t work in
our complex system acquisition.
While there may be some elements of performance-based acquisition that
we would wish to retain, we have concluded that our Deepwater ship contracts
should be much more specification-based. That means the government has a
responsibility to establish specifications, including certification requirements,
and to not change them mid-stream without good cause. Requirements are
dynamic and the need for detailed specification and constant collaboration and
oversight from the government is intense. Based on this realization, we’re
working with industry to redefine future procedures and contract development
to ensure more adequate, detailed specification and oversight. In fact, Admiral
Allen recently signed a joint letter of strategic intent with the CEOs of Lockheed
Martin and Northrop Grumman to encourage further alignment as we move
toward the new award term.
This leads me to a final, critical point–one which perhaps seems obvious
on the face of it, but which has been brought home to me in more ways over the
last 12 months than I can enumerate. The contract is the key to a successful
acquisition. It’s while the contract is being developed and negotiated that the
government maintains the greatest influence in the acquisition process. Granted,
the government must always be heavily involved in contractor oversight to
ensure that assets are designed, constructed and delivered to meet requirements.
But, those requirements and specifications must be clearly established within the
contract document. In fact, while the contract is the key to a successful
acquisition – stable requirements are a key to a successful contract. It is
absolutely essential that the contract be precise. Specifications must be clear.
Requirements must be documented. Construction parameters must be defined.
Expectations must be understood. And swift and appropriate action must be
taken to enforce contracts when contractor performance falls short of our
expectations.
In Summary
All of the program management changes I have described are positioning
the Coast Guard to take on more responsibility as the system integrator for the
Deepwater program, and to be sound and effective stewards, regardless of who
the integrator is. In conclusion, I want to assure you we are listening to concerns
of the Inspector General, the Government Accountability Office, Congress, and
this committee, and are benefiting from their recommendations. We’ve learned
from our past and are making changes to successfully step out into the future.
Open and honest dialogue between the Coast Guard and our stakeholders is

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essential and we’ll continue to advise you of challenges and successes, and to
make additional changes where needed.
This is an exciting time for the Coast Guard and for Deepwater. Our past
challenges have made us stronger today. All one has to do is look at the
operational capabilities already being provided to the fleet to see the tremendous
impact Deepwater is making. From the Coast Guard’s record drug seizure in
March to the enhanced rescue and response capabilities demonstrated in Olympic
National Forest and during our response to Hurricane Katrina,
Deepwater-upgraded assets are contributing to overall mission success.
Deepwater is helping to build a 21st Century Coast Guard. The capabilities and
capacity we are delivering will better enable the service to push out and secure
our maritime borders and protect Americans all along our shores.
Together, we’re going to deliver those capabilities. We are making the
changes necessary to propel the program to ultimate success and provide the
critical cutters, aircraft and sensors needed to meet our dynamic mission
requirements. We are all anxious for positive results. We are on the path to
change and I am confident that it is the correct path.38
38 Departmentof Homeland Security, U.S. Coast Guard, Statement of Rear Admiral Gary T.
Blore and Captain Steven Baynes on Deepwater: Charting a Course For Safer Waters,
Before the Committee on Homeland Security, U.S. House of Representatives,
Subcommittees on Management, Investigations, and Oversight and Border, Maritime and
Global Counterterrorism, May 17, 2007, pp. 2-11.

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Appendix E. NGSS Testimony
May 17, 2007, Testimony
At a May 17, 2007, joint hearing before the Border, Maritime, and Global
Counterterrorism subcommittee and the Management, Investigations, and Oversight
subcommittee of the House Homeland Security Committee, Northrop Grumman Ship
Systems (NGSS), one of the two firms involved in the joint venture that is the LSI
for the Deepwater program, testified in part:
The Coast Guard's current 110 foot patrol boats were built in the 1980s and
early 1990s by Bollinger Shipyards, Inc. These boats have seen extensive duty
in support of the Coast Guard mission to save lives, interdict aliens and seize
drugs. ICGS and its teammate, Halter Bollinger Joint Venture (HBJV), proposed
to convert the 110 foot boats to 123 foot boats as an interim measure to improve
the capability of this vessel until its FRC replacement entered operation in 2018.
ICGS proposed the conversion concept as a means to provide the Coast
Guard with the capability to continue to meet its mission objectives while
remaining within the confines of program funding requirements. Deepwater
competitors were required to propose a “system of systems” solution that did not
exceed the funding limitation of $500 million per year. With new assets such as
the National Security Cutter (NSC), Maritime Patrol Aircraft (MPA) and the
Vertical Unmanned Air Vehicle (VUAV) being developed early in the program,
it was not possible to design, develop and construct new patrol boats at program
inception while keeping within annual funding limitations.
Bollinger had designed and built the original 110 foot boats and was very
familiar with their construction. Bollinger was awarded a contract for 16 110’
Island class boats in August 1984 and another contract for 33 more boats in 1986.
The design of the 110’ Island class was approximately 20 years old and was
based on an existing patrol boat developed by a British firm, Vosper Thornycroft
(UK) Ltd. The 110’ Island Class boats were commissioned between November
1985 and 1992. Notably, after the first boats came into service, it was discovered
that the 110s suffered from hull problems when operated in heavy seas. As a
correctional measure, heavier bow plating was added to hulls 17 through 49
during construction and additional stiffeners were retrofitted to earlier hulls.
Under the proposed Deepwater conversion plan, HBJV added a 13 foot
extension to the 110’, which was similar to the 9 foot extension they had
successfully added to the Cyclone patrol boats starting in 2000. This extension
accommodated a stern ramp for the launch and recovery of a small boat, used
primarily to support boarding and rescue operations. In addition, the conversion
installed an improved pilot house, enhanced C4ISR capabilities, and extensively
improved habitability and maintenance. During the conversion process HBJV
identified and renewed hull plating in areas where an ultrasonic thickness
inspection indicated that the existing plating was deteriorated.
At the time the proposal was submitted, some general knowledge about the
condition of the 110s was available, and ICGS believed that replacement of the
hull plating would adequately address and offset their deteriorated condition.
This is consistent with the findings of the Coast Guard’s 110’ WPB Service Life
Extension Board, published in March 2002, which recommended a program of

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systematic hull repairs, predominantly in documented problem areas, to address
the hull deterioration problems that were impacting the operational availability
of the 110s.
As is typical of ship construction projects, periodic reviews of the 123’
conversion design were held. Prior to each review, the contractors submitted
numerous design documents, including engineering data, calculations and model
test results, to the Coast Guard for its review and comment. Coast Guard
comments were received in conjunction with each of the three primary design
reviews, all of which included Coast Guard, NGSS, ICGS and HBJV
representatives.
The first such review was the Preliminary Design Review (PDR). The
Preliminary Design Review was not a contract requirement, but was conducted
by ICGS as part of the 110’ to 123’ design process. As part of the PDR process,
approximately 43 contract-required data items (CDRLs), including 23 drawings
and 14 analyses were delivered to the Coast Guard for consideration and review.
During PDR, the Coast Guard was provided with an overview of procurement,
model testing procedures and schedule, as well as the planned hull/structure
inspection process, which included blasting the hull to the main deck, ultrasonic
and visual inspection, as well as bulkhead Ultra Sonic Testing allowance. The
Coast Guard represented 23 of the 46 attendees at PDR.
The next phase was the Critical Design Review (CDR). In connection with
CDR, the Coast Guard reviewed 47 design deliverables. In addition to 123’
conversion design information and drawings, CDR presentations included design
tests such as model basin testing for bare hull resistance, propeller and open
water cavitation, self propulsion, planar motion maneuvering and course keeping,
numerical simulations of turning circle and course keeping, and sea keeping. The
Coast Guard represented 34 of the 75 in attendance at CDR.
CDR was followed by a Production Readiness Review (PRR). During the
PRR, the production process, procedures and state of the design to convert the
110’ vessel into a 123’ were presented. Following the PRR, ICGS received
notification from the Coast Guard that “ICGS had presented a comprehensive
assessment of the state of the design development and readiness for production.”
The Coast Guard did not identify any risks associated with hull deformation or
buckling. Four days later the USCG delivered Matagorda to Bollinger at
Lockport, Louisiana for conversion.
In addition to these various reviews with the Coast Guard, during the
conversion of the first vessel, the Matagorda, the American Bureau of Shipping
(ABS) examined the design of the hull extension and new deckhouse and
monitored key elements of the work being performed. The Coast Guard had a
Program Management Resident Office on site at Bollinger to oversee the 123’
conversions. At the completion of each conversion and as part of the acceptance
process, the Coast Guard established an INSURV board to examine the
performance of the converted cutter and make a formal recommendation of
acceptance. At the conclusion of the Matagorda work, ABS issued a letter of
approval for the conversion work and expressed no reservations with the
feasibility of the conversion. Based on all of these reviews and actions, the Coast
Guard accepted delivery of the Matagorda. This same process was applied to
each of the other seven patrol boats delivered to and accepted by the Coast
Guard.

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The Performance Specification requirement calls for the 123’ to be capable
of unrestricted operation up through sea state 3, or seas averaging approximately
four feet or less. Coast Guard operation restrictions are imposed beginning at sea
state four, or seas less than eight feet, where the boats are to be able to sustain
limited operations, altering course or reducing speed as required to maintain a
ride which does not damage the boat or its machinery or overly fatigue the crew.
The Performance Specification requires the 123’ to be able to survive sea state
5, or seas averaging between eight and 13 feet, maneuvering as necessary to
minimize damage or injury to the crew, and then be capable of returning to port
under its own power once the seas have subsided.
In September of 2004, after all 8 hulls had entered the conversion program
and the first 4 hulls had been delivered, the Matagorda was forced to conduct a
high speed transit to avoid Hurricane Ivan. This operational necessity forced the
Coast Guard to transit in a sea state and speed where the cutter was operating
near or above the design limits of the 123’ conversion. Upon arrival at their
destination, the crew discovered buckling of the side shell and main deck on the
starboard side near midship. An engineering tiger team was formed consisting of
Coast Guard and NGSSpersonnel. This team was dispatched to investigate the
problem where it was discovered that the Matagorda had an inherent
workmanship issue in the baseline 110’ that existed prior to the conversion and
contributed to the hull buckling. Specifically, a hidden, unwelded aluminum deck
stringer was discovered immediately beneath the area where the failure occurred.
Other boats were examined, and this unwelded stringer was also found on one
additional hull undergoing conversion. When modeled using finite element
analysis, the stresses in the panels which failed on Matagorda were significantly
higher than the stresses shown when the model was run with this stringer intact.
Based on this finding, the team believed this to be the primary cause of the
buckling on Matagorda, and repairs were made accordingly.
In addition, a reconstruction of the engineering analysis of the 123’
structure was conducted. Based on this, it was also discovered that an early
calculation overstated the strength margin for the boat. A revised calculation
using a common, agreed to set of assumptions by a Coast Guard, Northrop
Grumman and Bollinger engineering team showed the 123’ would still meet the
required operations defined in the Performance Specification.
In an effort to further improve the structural integrity on the 123s, three
stiffener bands were installed; one at the upper edge of the side shell, one below
this one and another on the edge of the main deck to increase the overall
structural strength. While the finite element analysis and conventional
calculations both agreed that the original hull, with the stringer under the deck
intact, should be sufficient throughout the operating range of the 123’, these
additional stiffeners were considered to provide an added margin of strength.
By March, 2005, 6 of the 123s had received the structural upgrade and had
been delivered. Certain operational restrictions imposed on these boats by the
Coast Guard following repairs to the Matagorda had been lifted. Then, during a
transit from Key West to Savannah, Georgia, the Nunivak experienced hull
deformation in an area aft of the new reinforcing straps. This deformation
occurred in a different area from that of the Matagorda. Further, this was not an
area which had indicated potential for high stresses under any conditions
modeled in the earlier finite element analysis.

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An outside engineering firm, Designers and Planners, was engaged by the
Coast Guard to perform a more detailed finite element analysis of the 123’ hull,
which showed that the overall hull structure design was adequate under all
expected operating conditions up to the worst operating condition modeled. The
analyses were not able to replicate the deformation seen on Nunivak. A more
detailed look at specific regions on the hull showed an area with high potential
for localized buckling in a section of the side shell where the original 110’ hull
had been constructed of exceptionally thin four-pound plate. Despite this finding,
no actual failures had ever been experienced in this area on 110’ or 123’ patrol
boats. As a precaution, this thin plate was replaced with heavier plating on those
cutters undergoing the Post Delivery Maintenance Availability, with plans to
eventually upgrade all the boats. Lastly, a metallurgical analysis of the deck
material determined that the particular grade of aluminum used on the 110s is
prone to corrosion and cracking in elevated heat and marine conditions. We
provided that information as input to the testing and analysis that was being
conducted by the USCG.
In July 2005, then Coast Guard Commandant Admiral Collins’ written
testimony before Congress outlined the twofold reason for stopping the
conversion process as follows: “As the first eight 110’ to 123’ conversions were
conducted, the Coast Guard found that the 110’ WPB hulls were in much worse
condition than anticipated. This extended the conversion timeline and would
have increased projected costs for conversions after the first eight (the first eight
were negotiated under a firm-fixed-price contract). An operational analysis of the
123’ WPBs also identified high risks in meeting mission needs, particularly in
the post-9/11 environment.” Based on the deteriorated condition of the 110’ hulls
and post 9/11 requirements, the Coast Guard accelerated FRC design and
construction by ten years to meet the shortfall in patrol boat hours.
On April 13, 2007, Admiral Allen decided to decommission the eight 123
patrol boats converted under the Deepwater Program. To date the problems
associated with the 123’ conversion include buckling or hull deformation and
shaft alignment problems. In addition to the actions previously described,
additional and substantial work has been (and continues to be) done to determine
cause or causes. In addition to the repairs and reviews of structural calculations,
the review process has continued by conducting two independent finite element
analyses, modeling both the original and the upgraded hull, and completing
metallurgical testing that revealed an issue in the main deck which exists on both
the 123s and across the legacy 110 fleet. Extensive strain gage testing has been
conducted on a 123’ hull to validate the finite element model and to identify
potential problem areas which the model may not show. The parent craft
designer, Vosper Thornycroft, was engaged by the Coast Guard to evaluate the
123’ hull and provide recommendations. Data has been collected on shaft
alignment and maintenance procedures both during the conversion and since, so
that the procedures for checking and correcting alignment can be validated for
both the 110’ and the 123’. Elements of the 123’ design, including the propellers
and the SRP stern-launch system are being reexamined and validated.
We are committed and determined to identify the root cause of the
structural problems. Reviews and analyses of available data on the 110’ and 123’
patrol boats continue in an effort to better understand the cause or causes of both
hull buckling and shaft alignment problems. Until these efforts are complete, it
is premature to speculate on the final cause.

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I want to assure the Subcommittees that Northrop Grumman will continue
to work with the Coast Guard to address its mission requirements throughout the
life of the Deepwater Program.39
39 Statement for the Record, Mr. James E. Anton, Vice President Deepwater Program,
Northrop Grumman Ship Systems (NGSS), Testimony Before: The House Maritime and
Global Counter-Terrorism Subcommittee And The House Management, Investigations and
Oversight Subcommittee, May 17, 2007, pp. 2-5.

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Appendix F. Lockheed Martin Testimony
May 17, 2007, Testimony
At a May 17, 2007, joint hearing before the Border, Maritime, and Global
Counterterrorism subcommittee and the Management, Investigations, and Oversight
subcommittee of the House Homeland Security Committee, Lockheed Martin, one
of the two firms involved in the joint venture that is the LSI for the Deepwater
program, testified in part:
The Deepwater Program
The Deepwater program began in 1997 as competing teams were
established to develop proposed solutions for bidding the program. In fact,
proposals were submitted to the government less than two weeks after 9/11.
Since then, the Deepwater program has successfully accomplished a number of
changes. Most significant were those resulting from the dramatically increased
Coast Guard operating tempo and new capability requirements in the post-9/11
environment. An excellent example is the HH-65 helicopters as legacy equipment
began to wear out far more rapidly than had been projected. While the plan
always included re-engining of this equipment, the original plan was to be
accomplished over a longer time period. Nevertheless, the team was able to
process the urgent requirement for re-engining and most of the fleet has already
been upgraded and returned to service. It is this inherent flexibility that will
facilitate our working with the new acquisition organization planned by the Coast
Guard.
Lockheed Martin is primarily responsible for four Deepwater domains:
system engineering & integration, C4ISR (the command and control network),
logistics and aviation (refurbishment of existing assets and production of new
assets). Implementation of the Deepwater system-wide command and control
network, C4ISR (command and control, computers, communications,
intelligence, surveillance and reconnaissance), is important as this is the network
‘glue’ that permits various assets including ships, aircraft and shore stations to
work together to more effectively and efficiently achieve a common purpose. Use
and reuse of commercial-off-the-shelf, government-off-the-shelf and fielded
maritime systems are being maximized for commonality and interoperability. The
application of off-the-shelf software permits the Deepwater program to take
advantage of the rapid changes in the commercial marketplace and the
investments which commercial firms make in their ‘best of class’ technologies.
This will facilitate Coast Guard interoperability with civil and international
systems, a key consideration given their mission mix. The National Security
Cutter is using 75 percent of the U.S. Navy’s open architecture command and
decision system. The command and control system for the maritime patrol
aircraft employs more than 50 percent of the functionality of the Navy’s P-3
Anti-Surface Warfare Improvement Program. The operations center consoles on
the National Security Cutter utilize more than 70 percent of the design of the
Navy’s UYQ-70 display systems. Use and reuse of available software and
systems is the key to commonality. In addition, this approach takes advantage of
the work undertaken with the Navy to establish the best human system interface
including workspace ergonomics, viewing characteristics, input devices and
overall system architecture.

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The common architecture deployed across multiple types of assets allows
for commonality of equipment and software systems and supportability of the
entire Deepwater system. In general, the Deepwater C4ISR architecture ensures
an ‘open systems’ approach for design and implementation, providing a true
web-enabled infrastructure. The Deepwater architecture adapts to technology
insertion and enables the progression to future Coast Guard-wide C4ISR
architectures. In ports and coastal areas, one of Deepwater’s most significant
capability enhancements will be its robust C4ISR system. This fundamental
building block will improve the Coast Guard’s ability to maintain maritime
domain awareness focused on meeting the needs of decision makers engaged in
operations at sea, ashore, and in the air. The network-wide system will ensure the
Coast Guard possesses and maintains seamless interoperability with the forces
and agencies of the Department of Homeland Security, the Department of
Defense, and other federal and regional agencies—a true force multiplier in the
fullest sense.
I would like to specifically address concerns about competition as
Deepwater continues to perform well in this area. The Federal Acquisition
Regulations stipulate that a contractor is responsible for awarding and managing
subcontracts as well as determining whether to make or buy particular items to
ensure the lowest overall cost and technical risk to the government. The
applicable regulations also require competition to be assessed regularly via
formal government-conducted purchasing system reviews. These government
audits evaluate the degree of price competition obtained and the treatment of
affiliates.
Lockheed Martin is currently subcontracting with nearly 350 suppliers in
28 states. More than 200 of these are small or small disadvantaged businesses.
In the period from September 2003 through December 2006, Lockheed Martin
placed more than $606 million of orders with these suppliers. Competitive
procurements in accordance with our government-approved procurement system
total 43 percent of the subcontracts awarded. To assure price reasonableness to
the government, the Competition in Contracting Act of 1984 excepts from the
otherwise applicable requirement for competition follow-on procurements for
continued development, production or highly specialized services, unique
supplies or services available from only one source, or an unusual and
compelling urgency that precludes full and open competition. When these are
appropriately applied to each subcontract, the qualified percentage is raised to
94 percent of the subcontracts awarded.
In fact, of every $100 of Deepwater funding obligated to the prime contract:
• $27 is used by Lockheed Martin for engineering and program management
• $37 is subcontracted by Lockheed Martin to third-party suppliers for
goods and services
• $36 is used by other Deepwater partners (ICGS, Northrop Grumman and
Northrop Grumman’s third-party suppliers)
We continually search for the most appropriate products, services and
technology to assure best value to the Coast Guard customer. We have
participated in six Innovation & Industry Days across the country and have more
than 3,000 prospective supplier-product applications in our purchasing database.

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Lockheed Martin Deepwater Program Progress
Working with our Coast Guard customer, Lockheed Martin has enabled
deployment of more than 80 upgraded HH-65 helicopters featuring more
powerful engines; delivered two new HC-144A maritime patrol aircraft with six
more in various stages of contracting and construction; progressed through
developmental test and evaluation of the HC-144A electronic mission system;
commenced mission system and sensor installation on all six J-model HC-130
long range search aircraft; and sustained service of the eight MH-68A armed
helicopters comprising the Coast Guard’s helicopter interdiction squadron.
We have upgraded command and control systems aboard all of the Coast
Guard’s 39 medium- and high-endurance cutters resulting in significant increases
of illicit drug seizures. An important program milestone was recently achieved.
The Coast Guard issued full authority to operate the Deepwater command and
control system at its district command center in Miami. This system provides
enhanced mission planning tools and facilitates rapid exchange of information
through a common operating picture among Coast Guard commands, cutters and
aircraft. The system is now being installed in San Juan, Puerto Rico, soon to be
followed at major Coast Guard commands in Massachusetts, Virginia, Alaska,
Washington, Hawaii, California and Louisiana.
The Deepwater program is delivering and is making a real difference —
impacting drug seizures, migrant interdictions and lives saved. In Washington,
earlier this year, the Coast Guard performed a rescue utilizing an HH-65C
helicopter under conditions that would have been impossible for the aircraft it
replaced. This month, the cutter Sherman utilized its Deepwater-installed
electronics to passively track a ship of interest, to board her without alerting her,
and to coordinate the seizure of a record 21 tons of cocaine, with a street value
of $300M, via secure satellite communications.
Recent customer statements show how well the upgrades, equipment and
new capabilities are being received:
• HH-65 Helicopter Re-Engining - "Restoring this kind of reliability and stability
to our HH-65 fleet is a crucial milestone in improving readiness. The fact that it’s
being accomplished ahead of schedule reflects a true team effort by industry and
our engineers, acquirers and operators." Coast Guard Chief of Aviation Forces
• Legacy Cutter C4ISR Upgrades – “The Deepwater Upgrade provides vastly
improved communications and interoperability. In the past year this ship has
operated from above the Arctic Circle to well below the equator. We have
enjoyed 24/7 real time links to operational commanders and data base
management regardless of our physical location. The upgrades have proven to be
tough, dependable, and easily maintained." Commanding Officer of the USCGC
Morgenthau
• National Security Cutter C4ISR Training Center - “The contrast between our
tools of 1983, and the tools of the future ships like the BERTHOLF is
significant. I remember analog radar, message traffic by teletype, paper charts
and maneuvering boards, Polaroid cameras, and slow criminal history checks by
EPIC. No cell phones, no email – imagine that. I remember a true sense of
independent operations. We were proud, but probably not as effective as we
might have been if we had the tools of today. By contrast, our new National

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Security cutters will train … on computerized digital sensors, radar and charts,
live sharable digital video, message traffic by PC, voice communications with
anyone, clear or secure, and real time criminal histories and intelligence checks.
They will benefit from a sense of connectedness and systemic information
sharing making their days at sea safer and more efficient. The Coast Guard will
have increased Maritime Domain Awareness to identify threats, and a Common
Operating Picture to act when necessary – all to protect our coastlines and our
citizens.” Commanding Officer Coast Guard Training Center
• Maritime Patrol Aircraft - “Today’s delivery of the first MRS MPA is a critical
milestone in our ongoing efforts to acquire and deliver more capable and
interoperable assets and systems to our Coast Guard crews. When this aircraft
and others like it enter operational service, they will help to narrow our existing
gaps in maritime surveillance in many important ways.” Deepwater Program
Executive Officer
Deepwater C4ISR is the enabler for the integrated system and is the major
contributor to improved performance. It permits the Coast Guard to operate
effectively with DoD, DHS, state and local government agencies. C4ISR
provides coordinated tactics, multi-agency interoperability and common
situational awareness necessary to achieve mission success. These capabilities
are needed for all Deepwater assets including ships, aircraft, and shore site
command centers.
Commitment to Congress and the Coast Guard
We have deep respect for Congressional oversight and are committed to
achieving our very best for our nation and the Coast Guard. We have continually
sought to improve on this program. In particular, we are attentive to the concerns
that have been raised by the DHS Inspector General, the Government
Accountability Office and Members of this and other Committees with Coast
Guard oversight responsibilities. As such, we are continuing to improve
engineering and program management processes to better meet the needs of the
Coast Guard customer.
I would like to take this opportunity to address the concerns raised by the
DHS Inspector General. We have carefully reviewed each of the findings, and,
where appropriate, have made improvements to Deepwater program processes
to avoid past mistakes being repeated. I address each of the issues raised by the
DHS Inspector General.
Low Smoke Cables
During a Lockheed Martin review of 123-foot Patrol Boat C4ISR
specifications, it was determined that 85 out of approximately 490 cables per
ship could not be confirmed as having low-smoke properties. Many of these 85
“cables” are not large electrical cables. They are small cables such as those
linking personal computers to printers. Others were small cables located inside
commercial equipment, purchased as a result of the mandate to use as much
commercial product as possible. The remainder of the 85 cables extend outside
onto the mast or deck, and pose no threat to the boat or its personnel. Consistent
with other military programs, a collaborative analysis of the non-low smoke
cables determined that their use did not pose an undue safety risk. During the
process of certifying the 123-foot patrol boat C4ISR design to the cutter

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CRS-79
certification matrix, the Coast Guard recommended submission of a ‘request for
relief’ from the low smoke requirement for specific cables. The program
proceeded to make progress with a reasonable expectation that the request for
waiver would be approved. As the Inspector General determined, approval of the
request for waiver was secured after four 123-foot patrol boats had been
delivered. Collaboratively, with our Coast Guard customer, we have established
additional process controls to help avoid a future recurrence of such a
documentation issue.
C4ISR Environmental Requirements
A Lockheed Martin engineering review in mid-2005 identified a potential
issue regarding C4ISR environmental requirements. We immediately informed
the Coast Guard of this issue, and a joint Coast Guard and Lockheed Martin
working group was established to resolve this issue. Rather than embark on a
costly and continuous certification test process, Lockheed Martin engineers
evaluated each of the components and the associated environmental performance
information. Where possible, Lockheed Martin obtained ruggedized components,
such as a de-icing capability for the FLIR sensor. After the joint working group’s
consideration of the mission criticality of each component, its specification
compliance, and its function aboard the boat, a request for waiver was jointly
determined the best choice given customer imperatives and objectives. This
approach permitted reconciliation of the program’s acquisition strategy to
maximize the use of ruggedized off-the-shelf commercial and government
equipment with a multitude of military standards incorporated into the
requirements. By submission of a contractor requested waiver, the Coast Guard
was afforded the ultimate decision as to a course of action. Much like the
findings regarding low-smoke cabling, the Inspector General recommended that
the Coast Guard develop and implement a plan to improve the process for
reviewing and adjudicating contractor requests for deviations and waivers to
ensure that all requests are resolved and fully documented prior to
implementation. We are actively supporting implementation of this and other
Coast Guard program oversight process improvements.
TEMPEST
Next, in response to concerns regarding C4ISR TEMPEST capabilities, we
note that the government determined that the installed C4ISR system is not a
security vulnerability. In fact, an independent third-party, the U.S. Navy Space
and Naval Warfare Systems Center (SPAWAR), performed a visual inspection
and instrumented testing. All identified discrepancies were resolved to the
customer’s satisfaction and the 123-foot patrol boat C4ISR system was
subsequently approved by the Coast Guard to operate in a classified
environment. Lockheed Martin engineers chose a particular type of cable that
was fully shielded and securely mounted to preclude compromising emissions as
well as potential shielding degradation over time. Furthermore, SPAWAR
determined that the system did not have compromising emissions and it was
approved by the Coast Guard to operate in a classified environment. Based on
input from the Coast Guard, the C4ISR system on the 123-foot patrol boat
operated effectively and securely during the time the patrol boats were
operational and was highly regarded by their crews. The capabilities provided by
the C4ISR system enabled the crews to develop new and highly-effective
operational techniques for intercepting drug traffickers and illegal immigrants.

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Before the February 2007 report of the Inspector General, we improved the
C4ISR design process for the National Security Cutter. Electronic equipment
cabinets have been designed with improved electro-magnetic interference,
cryptographic system configuration and cable shielding. Classified network
designs were provided to the certified TEMPEST test authority prior to customer
design reviews to facilitate risk mitigation early in the design. Representatives
of industry, the customer and an independent reviewer, Craig Ocean Systems,
participated in a number of technical interchange meetings to review current
designs and make changes prior to equipment production efforts. During cabinet
production, integration and test, periodic technical interchange meetings were
conducted with the customer to review all emergent TEMPEST issues and
correct the associated documentation. Prior to system testing, the customer
conducted a final design review with government experts to identify potential
issues and make any necessary design changes. We believe the approach of
mitigating potential problems before customer visual and instrumented testing
is essential. Close customer involvement, including early reviews of the design
documentation and delivery schedules will continue to assure that Congressional
and customer interests are best served.
Surveillance Cameras
Finally, as the Inspector General found, the camera system on the 123-foot
patrol boats fully complies with the video surveillance system requirements. It
was designed as part of an overlapping series of measures, including sentries and
an intruder detection system. Lockheed Martin did not consider it prudent to
unilaterally increase costs by providing functionality that the customer did not
want or need.
The Way Ahead
We agree with the Coast Guard that the oversight has provided important
recommendations for improvements to the Deepwater program. We are working
with the Coast Guard as they have already begun to take the necessary steps to
ensure successful execution of the Deepwater program. Our goal is to provide
more capability to the Coast Guard sooner. We are dedicated to analyzing and
recommending approaches for maximizing the value delivered to the Coast
Guard, in accordance with the customer’s view of value, not that of industry.
This requires the best talent from each corporation. Lockheed Martin will
continue to work closely with Coast Guard personnel to assure constant
communications and improved working relationships. The strategic policy
changes that have occurred since 9/11 must be factored into problem solving.
The Coast Guard and the Department of Homeland Security have needs that can
be satisfied by the Deepwater program and its approach to value delivery. The
way forward will be challenging, but given the capabilities of the participants
and the strategic imperative to better outfit our Coast Guard so the safety and
security of our nation is improved, the Deepwater program is eminently
achievable.40
crsphpgw
40 Testimony of Fred P. Moosally, President, Lockheed Martin Maritime Systems and
Sensors, to The House Committee on Homeland Security Subcommittee on Border,
Maritime and Global Counterterrorism, May 17, 2007, pp. 1-6.

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