Order Code RL33753
Coast Guard Deepwater Acquisition Programs:
Background, Oversight Issues, and Options for
Congress
Updated June 5, 2008
Ronald O’Rourke
Specialist in Naval Affairs
Foreign Affairs, Defense, and Trade Division

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Coast Guard Deepwater Acquisition Programs:
Background, Oversight Issues, and Options for
Congress
Summary
The term Deepwater refers to a collection of more than a dozen Coast Guard
acquisition programs for replacing and modernizing the service’s aging fleet of
deepwater-capable ships and aircraft. Until April 2007, the Coast Guard had pursued
these programs as a single, integrated acquisition program that was known as the
Integrated Deepwater System (IDS) program or the Deepwater program for short.
The now-separated Deepwater acquisition programs include plans for, among other
things, 91 new cutters, 124 new small boats, and 247 new or modernized airplanes,
helicopters, and unmanned aerial vehicles (UAVs). The Coast Guard has requested
a total of $990.4 million in acquisition funding for FY2009 for Deepwater programs.
The year 2007 was a watershed year for Deepwater acquisition. The
management and execution of what was then the single, integrated Deepwater
program was strongly criticized in reports and testimony from the Department of
Homeland Security Inspector General (DHS IG), the Government Accountability
Office (GAO), the Defense Acquisition University (DAU), and other observers.
House and Senate committees held several oversight hearings on the program, at
which several Members of Congress strongly criticized the management and
execution of the program, particularly regarding problems in programs to acquire
new and modernized cutters and patrol boats. Bills were introduced to restructure or
reform the Deepwater program in various ways. Coast Guard and industry officials
acknowledged certain problems in the program’s management and execution and
defended the program’s management and execution in other respects. The Coast
Guard announced a number of reform actions that significantly altered the service’s
approach to Deepwater acquisition (and to acquisition in general), resulting, for
example, in the shift from a single, integrated Deepwater acquisition program to a
collection of individual Deepwater acquisition programs.
Bills and laws in the 110th Congress relating to Deepwater acquisition include
the following:
! H.R. 2830/S. 1892, the Coast Guard Authorization Act of 2008;
! H.R. 2638/S. 1644, the FY2008 Department of Homeland Security
appropriations act, which was incorporated into the FY2008
Consolidated Appropriations Act (H.R. 2764/P.L. 110-161 of
December 26, 2007);
! H.R. 2722/S. 924, the Integrated Deepwater Program Reform Act;
! S. 889, the Deepwater Accountability Act; and
! H.R. 2206/P.L. 110-28, the FY2007 emergency supplemental
appropriations act.
Potential oversight issues for Congress in 2008 include but are not necessarily
limited to the Coast Guard’s overall management of Deepwater acquisition, the status
of certain Deepwater acquisition programs, and the so-called revolving door issue.
This report will be updated as events warrant.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Deepwater Missions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Origin of Deepwater Acquisition Effort . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Structure Of Deepwater Acquisition Effort . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Structure Until 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Revised Structure Since 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Deepwater Assets Planned For Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2006 Acquisition Program Baseline . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2008 Alternatives Analysis (AA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Examples Of Deliveries Of Deepwater Assets . . . . . . . . . . . . . . . . . . . . . . . 7
Deepwater Acquisition Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Prior-Year Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Requested And Planned Funding for FY2009-FY2013 . . . . . . . . . . . . . 8
Criticism Of Deepwater Management In 2007 . . . . . . . . . . . . . . . . . . . . . . 10
Overall Management of Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
National Security Cutter (NSC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
110-Foot Patrol Boat Modernization . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Fast Response Cutter (NSC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Coast Guard Reform Actions In 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Actions Announced In April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Other Actions Announced In 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Justice Department Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Oversight Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Overall Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Coast Guard Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
GAO Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
National Security Cutter (NSC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Electronics/C4ISR Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
GAO Perspective On Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
110-Foot Patrol Boat Modernization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Fast Response Cutter (FRC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Revolving Door and Potential for Conflicts of Interest . . . . . . . . . . . . . . . . 35
Potential Options for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Legislative Activity in 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Congressional Action on FY2009 Funding Request . . . . . . . . . . . . . . . . . . 37
Bills and Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Statement of Administration Policy on H.R. 2830 . . . . . . . . . . . . . . . . . . . 37

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List of Tables
Table 1. Deepwater Assets Planned For Acquisition . . . . . . . . . . . . . . . . . . . . . . 5
Table 2. Prior-year Deepwater Acquisition Funding . . . . . . . . . . . . . . . . . . . . . . 8
Table 3. FY2008-FY2013 Deepwater Acquisition Funding . . . . . . . . . . . . . . . . . 9
Table 4. Congressional Action on FY2009 Acquisition Funding Request . . . . . 38

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Coast Guard Deepwater Acquisition
Programs: Background, Oversight Issues,
and Options for Congress
Introduction
The term Deepwater refers to a collection of more than a dozen Coast Guard
acquisition programs for replacing and modernizing the service’s aging fleet of
deepwater-capable ships and aircraft. Until April 2007, the Coast Guard had pursued
these programs as a single, integrated acquisition program that was known as the
Integrated Deepwater System (IDS) program or the Deepwater program for short.
The now-separated Deepwater acquisition programs include plans for, among other
things, 91 new cutters, 124 new small boats, and 247 new or modernized airplanes,
helicopters, and unmanned aerial vehicles (UAVs).
The Coast Guard has requested a total of $990.4 million in acquisition funding
for FY2009 for Deepwater programs, including $231.3 million for Deepwater air
assets, $540.7 for Deepwater surface assets, and $218.4 million for other Deepwater
programs.
The year 2007 was a watershed year for Deepwater acquisition. The
management and execution of what was then the single, integrated Deepwater
program was strongly criticized in reports and testimony from the Department of
Homeland Security Inspector General (DHS IG), the Government Accountability
Office (GAO), the Defense Acquisition University (DAU), and other observers.
House and Senate committees held several oversight hearings on the program, at
which several Members of Congress strongly criticized the management and
execution of the program, particularly regarding problems in programs to acquire
new and modernized cutters and patrol boats. Bills were introduced to restructure or
reform the Deepwater program in various ways. Coast Guard and industry officials
acknowledged certain problems in the program’s management and execution and
defended the program’s management and execution in other respects. The Coast
Guard announced a number of reform actions that significantly altered the service’s
approach to Deepwater acquisition (and to acquisition in general), resulting, for
example, in the shift from a single, integrated Deepwater acquisition program to a
collection of individual Deepwater acquisition programs.
Potential oversight issues for Congress in 2008 include but are not necessarily
limited to the Coast Guard’s overall management of Deepwater acquisition, the status
of certain Deepwater acquisition programs, and the so-called revolving door issue.

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CRS-2
Background
Deepwater Missions
The Coast Guard performs a variety of missions in the deepwater environment,
which generally refers to waters more than 50 miles from shore. These missions
include search and rescue, drug interdiction, alien migrant interdiction, fisheries
enforcement, marine pollution law enforcement, enforcement of lightering (i.e., at-
sea cargo-transfer) zones, the International Ice Patrol in northern waters, overseas
inspection of foreign vessels entering U.S. ports, overseas maritime intercept
(sanctions-enforcement) operations, overseas port security and defense, overseas
peacetime military engagement, and general defense operations in conjunction with
the Navy. Deepwater-capable assets are also used closer to shore for various
operations.
Origin of Deepwater Acquisition Effort
The Coast Guard initiated the Deepwater acquisition effort in the late 1990s,
following a determination by the Coast Guard that many of its existing (i.e.,
“legacy”) deepwater-capable legacy assets were projected to reach their retirement
ages within several years of one another. The Coast Guard’s legacy assets at the time
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.
Structure Of Deepwater Acquisition Effort
Structure Until 2007. Until 2007, the Coast Guard pursued Deepwater
acquisition through a single, performance-based, system-of-systems acquisition
program that used a private-sector lead system integrator (LSI):
! System-of-Systems Acquisition. Rather than replacing its
deepwater-capable legacy assets through a series of individual
acquisition programs, the Coast Guard initially decided to pursue the
Deepwater acquisition effort as an integrated, system-of-systems
acquisition, under which a combination of new and modernized
cutters, patrol boats, aircraft, along with associated C4ISR systems1
and logistics support, would be procured as a single, integrated
package (i.e., a system of systems). The Coast Guard believed that
a system-of-systems approach would permit Deepwater acquisition
to be optimized (i.e., made most cost effective) at the overall
Deepwater system-of-systems level, rather than suboptimized at the
level of individual Deepwater platforms and systems.
1 C4I stands for command, control, communications, computers, intelligence, surveillance,
and reconnaissance.

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CRS-3
! Private-Sector 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 met the Coast Guard’s
projected deepwater operational requirements at the lowest possible
cost.2 The Coast Guard decided to use a private-sector LSI in part
because the size and complexity of the Deepwater program was
thought to be beyond the system-integration capabilities of the Coast
Guard’s relatively small in-house acquisition work force.
! Performance-Based Acquisition. The Coast Guard initially
pursued the Deepwater program as a performance-based acquisition,
meaning that the Coast Guard set performance requirements for the
program and permitted the private-sector LSI some latitude in
determining how the various elements of the Deepwater system
would meet those requirements.
The Coast Guard conducted a competition to select the private-sector LSI for
the Deepwater program. 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 included a five-year baseline term that ended
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 has been
extended to January 2011.
Revised Structure Since 2007. In 2007, as the Coast Guard’s management
and execution of the then-integrated Deepwater program was being strongly
criticized by various observers, the Coast Guard announced a number of reform
actions that significantly altered the service’s approach to Deepwater acquisition (and
to acquisition in general). As a result of these reforms, the Coast Guard, among other
things, stopped pursuing Deepwater acquisition through a single, performance-based,
system-of-systems acquisition program that used a private-sector LSI, and began
pursuing Deepwater acquisition as a collection of individual, defined-based
acquisition programs, with the Coast Guard assuming the lead role as systems
integrator for each:
! Individual Programs. Although Deepwater acquisition programs
still appear in the budget under the common heading IDS, the Coast
Guard is now pursuing Deepwater acquisition programs as
individual programs, rather than as elements of a single, integrated
2 For more on private-sector LSIs, 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-4
program. The Coast Guard states that it is still using a systems
approach to optimizing its acquisition programs, including the
Deepwater acquisition programs, but that the system being
optimized is now the Coast Guard as a whole, as opposed to the
Deepwater subset of programs.
! Coast Guard As System Integrator. The Coast Guard announced
in April 2007 that, among other things, it would assume the lead role
as systems integrator for all Coast Guard Deepwater assets (as well
as other major Coast Guard acquisitions as appropriate). The Coast
Guard is phasing out its reliance on ICGS as a private-sector LSI for
Deepwater acquisition, and shifting system-integration
responsibilities to itself. To support this shift, the Coast Guard is
increasing its in-house system-integration capabilities.
! Defined-Based Acquisition. The Coast Guard has decided to shift
from performance-based acquisition to the use of more-detailed
specifications of the capabilities that various Deepwater assets are
to have. The Coast Guard states that although this new approach
involves setting more-detailed performance specifications, it does
not represent a return to minutely-detailed specifications such as the
Military Specification (MilSpec) system once used in Department of
Defense (DOD) acquisition programs. The Coast Guard refers to its
new approach as defined-based acquisition.
The Coast Guard has stated that the 43-month award term with ICGS is being
used to complete Deepwater acquisition efforts already underway. Task orders
issued under the award term, the Coast guard has stated, are for performance periods
of not more than 18 months, with the aim of closing out these efforts. By July 1,
2007, the Coast Guard has stated, only three Deepwater contract line item numbers
(CLINs) remained with ICGS — those for the National Security Cutter (NSC), the
Maritime Patrol Aircraft (MPA), and C4ISR integration.
The Coast Guard states that as of late-April 2008, its in-house acquisition and
program-management staff included a total of 946 people. The Coast Guard’s goal
is to increase that figure to about 1,000. The Coast Guard states that as of late-April
2008, there were shortfalls within the Coast Guard’s acquisition and program-
management staff in the areas of contract officers and certain other specialities. The
Coast Guard stated that it is addressing these shortfalls through new hiring and
training, and that the effort to overcome these shortfalls might be complete within
about 24 months, depending on budgets and the hiring environment.
The Coast Guard states that it will continue to use the services of independent,
third-party sources of support, including the Navy. The Coast Guard states that
“government program management will be performed by uniformed or civilian Coast
Guard members, other government agencies[,] and support contractors (e.g., the
American Bureau of Shipping [ABS]). The support contractors working directly on

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CRS-5
government program management tasks as directed by the Cost Guard will be
selected in accordance with the Federal Acquisition Regulations.”3
Deepwater Assets Planned For Acquisition4
2006 Acquisition Program Baseline. Table 1 shows the Deepwater assets
planned for acquisition under the November 2006 Deepwater Acquisition Program
Baseline (APB), and the estimated acquisition cost of these assets in then-year
dollars. As shown in the table, the Coast Guard estimates the total acquisition cost
of these assets at $24.23 billion in then-year dollars. Acquisition funding for these
assets is scheduled to be completed in FY2025, and the buildout of the assets is
scheduled to be completed in 2027.
Table 1. Deepwater Assets Planned For Acquisition
(with acquisition costs in millions of then-year dollars)
Qty.
Item
Cost
Air assets
6
Missionized HC-130J Long Range Surveillance (LRS) aircraft (cost
11
of missionization)
16
Modernized and upgraded HC-130H LRS aircraft (cost of
610
modernization and upgrading)
36
New HC-144A Medium Range Surveillance (MRS) aircraft (also
1,706
called Maritime Patrol Aircraft, or MPA) based on the European
Aeronautic Defence and Space Company (EADS)/CASA CN-235
Persuader MPA aircraft design
42
Modernized and upgraded MH-60T Medium Range Recovery
451
(MRR) helicopters (cost of modernization and upgrading)
102
Modernized and upgraded HH-65C Multi-Mission Cutter
741
Helicopters (MCHs) (cost of modernization and upgrading)
45
New vertical take-off unmanned aerial vehicles (VUAVs), also
503
called unmanned aircraft systems (UASs)
Subtotal air assets
4,022
Surface assets
8
New National Security Cutters, or NSCs, displacing about 4,000
3,450
tons each (i.e., ships analogous to today's high-endurance cutters)
25
New Offshore Patrol Cutters, or OPCs, displacing about 3,200 tons
8,098
each (i.e., ships analogous to today's medium-endurance cutters)
3 Source for information in this paragraph and the preceding paragraph: Coast Guard
briefing to CRS on the Deepwater program, April 28, 2008. For additional information on
the Coast Guard’s plan for increasing its in-house acquisition and program-management
capabilities, see Department of Homeland Security, Untied States Coast Guard, Acquisition
Human Capital Strategic Plan, Washington, 2008.
4 Additional background information on Deepwater acquisition programs is available at the
Coast Guard’s acquisition website at [http://www.uscg.mil/acquisition/].

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CRS-6
46
New Fast Response Cutters – Class A (FRC-As) displacing roughly
2,613
200 tons each, to replace most of the Coast Guard's existing
110-foot Island-class patrol boats
12
New Fast Response Cutters – Class B (FRC-Bs) displacing roughly
593
200 tons each, to replace the rest of the Coast Guard's existing
110-foot Island-class patrol boats
27
Medium Endurance Cutters (MECs) upgraded with a Mission
317
Effectiveness Project (MEP) (cost of upgrading)
17
Patrol boats (PBs) upgraded with a MEP (cost of upgrading)
117
124
New small boats for Deepwater cutters, including 33 Long-Range
110
Interceptors (LRIs) and 91 Short-Range Prosecutors (SRPs)
8
110-foot Island-class PBs converted into 123-foot PBs (cost of
95
conversion; program not successful and halted after 8 boats)
Subtotal surface assets
15,393
C4ISR systems
--
Common operational picture
1,071
--
Shore systems
102
--
Cutter upgrades
180
Subtotal C4ISR systems
1,353
Integration and oversight
--
System engineering and oversight
1,118
--
Government program management
1,518
--
Technology obsolescence prevention
345
--
Logistics and infrastructure upgrades
481
Subtotal integration and oversight
3,462
TOTAL
24,230
Source: Deepwater Acquisition Program Baseline (APB) approved November 7, 2006.
Although Table 1 shows 12 FRCs and 46 FRC-Bs, the Coast Guard’s Request
for Proposals (RFP) for the FRC-B program includes options for building up to 34
FRC-Bs (which, if exercised, would reduce the number of FRC-As to as few as 24).
The Coast Guard has also stated that if the FRC-Bs fully meet the requirements for
the FRC, all 58 of the FRCs might be built to the FRC-B design.
2008 Alternatives Analysis (AA). Between September 2007 and February
2008, the Coast Guard conducted a reevaluation of the mix of assets to be procured
under the Deepwater program in a study called an Alternatives Analysis (AA). The
study examined alternative platforms for the NSC, OPC, FRC, MPA, and VUAV.
The study suggested that the Coast Guard consider a number of alternatives regarding
the Deepwater asset mix and concluded that, regardless of the asset mix, the Coast
Guard has infrastructure funding and scheduling shortfalls that need to be addressed.5
5 Michael Bruno, “Alternatives Analysis Spurs Coast Guard UAS Search,” Aerospace Daily
& Defense Report, February 12, 2008; Philip Ewing, “Report: CG May Need Fewer Big
Cutters,” NavyTimes.com, March 5, 2008; Bettina Chavanne and Michael Bruno, “Official
(continued...)

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CRS-7
The Coast Guard states that the study “generally confirms and reinforces the Coast
Guard’s approach to Deepwater asset procurement plans,” including the continuation
of the NSC and MPA as planned, and the need for the OPC and FRC.6 The study has
not resulted in changes in the planned mix of air and surface assets shown in Table
1.
Examples Of Deliveries Of Deepwater Assets
Examples of deliveries and other milestones for Deepwater assets include the
following:
! The first missionized HC-130J was accepted by the Coast Guard on
February 29, 2008, and a total of three were accepted as of May 12,
2008. All six aircraft are scheduled to be completed by the Fall of
2008.
! The first HC-144A was accepted by the Coast Guard on March 10,
2008, and a total of four were accepted as of May 8, 2008.
! The U.S. Coast Guard began converting its 42 legacy HH-60J
aircraft to MH-60Ts in January 2007. The first HH-60J conversion
to the MH-60T prototype was completed in June 2007.
! The first re-engined HH-65C entered service in October 2004, and
all 102 have been re-engined, upgraded, and converted to the HH-
65C configuration. This work is the first of three phases of work to
be performed on the helicopters. When all three phases are
complete, the helicopters will be designated as the MCH, denoting
their multi-mission capabilities.
! The Coast Guard conducted preliminary acceptance (i.e., delivery)
of the first NSC on May 8, 2008.
! As of late-April 2008, the LRI had completed factory acceptance
testing,7 and the fist eight SRPs has been delivered.
5 (...continued)
Study Notes Coast Guard Acquisition Shortfalls,” Aerospace Daily & Defense Report,
March 7, 2008; Geoff Fein, “Coast Guard Agrees With AA On Almost All
Recommendations,” Defense Daily, March 10, 2008; Zachary M. Peterson, “Re-Analysis
Validates Coast Guard’s Way Ahead With Deepwater,” Inside the Navy, March 10, 2008;
Bettina H. Chavanne, “USCG Will Not Rebaseline Deepwater Despite Alternatives
Analysis,” Aerospace Daily & Defense Report, March 12, 2008: 1-2.
6 Source: Coast Guard briefing to CRS on the Deepwater program, April 28, 2008.
7 For an article discussing the LRI, see Rebekah Gordon, “NSC’s Long Range Interceptor
Tough To Operate At High Speeds,” Inside the Navy, May 26, 2008.

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CRS-8
Deepwater Acquisition Funding
Prior-Year Funding. Table 2 below shows prior-year acquisition funding for
Deepwater acquisition programs. As can be seen in the table, the programs have
received a net total of about $5.1 billion through FY2008, including a net total of
$650.8 million in FY2008.
Table 2. Prior-year Deepwater Acquisition Funding
(in millions of dollars, rounded to nearest tenth)
Priora FY02 FY03 FY04
FY05
FY06
FY07
FY08
FY09
Request
n/a 320.2 500.0
500.0
678
966.0
934.4
836.9
990.4
Appropriation
n/a 320.2 478.0
668.2
724.0
933.1 1,065.9
783.3
Rescissions
n/a
3.1
57.6
38.9
98.7
132.4
Transfers
n/a
49.7
77.8
78.7
Supplemental
n/a
124.2
appropriations
Totalb
117.0 320.2 474.9
610.6
734.8 1,036.4 1,144.6
650.8
Cumulative
117.0 437.2 912.1 1,522.7 2,257.5 3,293.9 4,438.5 5089.3
totalb
Source: Prepared by CRS using Coast Guard data provided on January 29, 2007 (FY2007 and prior
years), and FY2008 Consolidated Appropriations Act (FY2008). Totals may not add due to rounding.
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.
Requested And Planned Funding for FY2009-FY2013. Table 3 shows
acquisition funding requested for Deepwater programs in FY2009, and planned for
Deepwater programs for FY2010-FY2013.
As shown in the table, the Coast Guard has requested a total of $990.4 million
in acquisition funding for FY2009 for Deepwater programs, including $231.3 million
for Deepwater air assets, $540.7 for Deepwater surface assets, and $218.4 million for
other Deepwater programs.
The funding requested in FY2009 for air assets would fund the delivery of two
HC-144As; engine sustainment and upgrades to avionics, wiring, and sensors for
eight HH-60 helicopters; modernization work on 22 HH-65 helicopters; and project
analysis for the VUAV.
The funding requested in FY2009 for surface assets would fund the completion
of the fourth NSC; the production of three FRCs; the operational enhancement of five
Medium Endurance Cutters; the operational enhancement of three 110-foot patrol
boats; analysis of requirements for the OPC; and development and production of a
cutter small boat.

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CRS-9
Table 3. FY2008-FY2013 Deepwater Acquisition Funding
(in millions of dollars, rounded to nearest tenth)
FY08
FY09
FY10
FY11
FY12
FY13
enacted requested planned planned planned planned
Air assets
Maritime Patrol Aircraft
170.0
86.6
175.2
119.4
61.1
47.0
HH-60 Conversion
57.3
52.7
52.4
21.4
12.8
31.9
HH-65 Conv./Sust.a
50.8
64.5
72.8
73.1
69.9
30.0
HC-130H Conv./Sust.a
18.9
24.5
55.3
89.2
93.3
96.5
HC-130J Fleet Intro.a
5.8
0
0
0
0
0
Armed Helo Equip.a
24.6
0
0
0
0
0
UASa
0
3.0
0
0
0
0
Subtotal aircraft
327.4
231.3
355.7
303.1
237.1
205.4
Surface assets
NSC
165.7
353.7
142.9
501.3
506.4
511.3
OPC
0
3.0
0
0
25.0
70.0
FRC-B
0
115.3
243.0
73.0
0
0
Deepwater small boats
2.7
2.4
2.9
3.0
3.1
3.6
WMEC sustainmenta
34.5
35.5
36.6
37.7
41.8
36.9
Patrol boats sustainment
40.5
30.8
17.5
7.5
0.5
0
FRC-A
0
0
0
5.0
50.0
5.0
Subtotal surface ships
243.4
540.7
442.9
627.5
626.8
626.8
Other
Govt. program mgt.
50.5
58.0
50.0
53.0
52.0
53.0
Systems eng. and int.a
35.1
33.1
35.0
36.0
37.0
37.7
C4ISR
89.6
88.1
45.0
60.6
45.0
40.0
Deepwater logistics
36.5
37.7
38.6
38.6
37.6
36.6
Tech. Obsol. Prev.a
0.7
1.5
1.9
1.8
1.8
4.6
Subtotal other
212.5
218.4
170.5
190.0
173.4
171.9
TOTAL FY2008
783.3
990.4
969.1
1120.6
1037.3
1004.0
Rescissions of prior-year funding
OPC
98.6
0
0
0
0
0
VUAV
33.8
0
0
0
0
0
Subtotal rescissions
132.4
0
0
0
0
0
NET TOTAL
650.8
990.4
969.1
1120.6
1037.3
1004.0
Source: U.S. Coast Guard Posture Statement With [FY] 2009 Budget in Brief, p. 49 (Table 4). Totals
may not add due to rounding.
a. Conv./Sust. is Conversion/Sustainment Projects; Fleet Intro. is Fleet Introduction; Armed Helo.
Equip. is Armed Helicopter Equipment (Airborne Use of Force); UAS is Unmanned Aircraft System;
WMEC is medium-endurance cutter; eng. and int. is engineering and integration; Tech. Obsol. Prev.
is Technology Obsolescence Prevention.

---

CRS-10
Criticism Of Deepwater Management In 2007
The management and execution of the then-integrated Deepwater program was
strongly criticized in 2007 by the DHS IG,8 GAO,9 the DAU (whose analysis was
requested by the Coast Guard),10 several Members of Congress from committees and
subcommittees that oversee the Coast Guard, and other observers. House and Senate
committees held several oversight hearings on the program, at which several
Members of Congress strongly criticized the management and execution of the
program. Criticism focused on overall management of the program, and on problems
in three cutter acquisition efforts — the NSC, the modernization of the 110-foot
patrol boats, and the FRC.
Overall Management of Program. Many observers in 2007 believed the
problems experienced in the three Deepwater cutter acquisition efforts were the
product of broader problems in the Coast Guard’s overall management of the
Deepwater program. Reports and testimony in 2007 and prior years from the DHS
IG and GAO, as well as a February 2007 DAU “quick look study” requested by the
8 See, for example, Statement of Richard L. Skinner, Inspector General, U.S. Department
of Homeland Security, Before the Committee on Transportation and Infrastructure,
Subcommittee on Coast Guard and Maritime Transportation, U.S. House of Representatives,
“Deepwater: 120-Day Update,” June 12, 2007; as well as Department of Homeland Security,
Office of Inspector General, Acquisition of the National Security Cutter, OIG -07-23,
January 2007 (available online at
[http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_07-23_Jan07.pdf]);
Department of Homeland Security, Office of Inspector General, 110’/123’ Maritime Patrol
Boat Modernization Project, OIG -07-27, January 2007 (available online at
[http://www.dhs.gov/xoig/assets/mgmtrpts/OIG_07-27_Feb07.pdf]);
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); and 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).
9 See, for example, Government Accountability Office, Coast Guard[:] Challenges
Affecting Deepwater Asset Deployment and Management and Efforts to Address Them,
GAO-07-874, June 2007; 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; and 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.
10 Defense Acquisition University, Quick Look Study, United States Coast Guard Deepwater
Program, February 2007.

---

CRS-11
Coast Guard11 expressed serious concerns about the Coast Guard’s overall
management of the Deepwater program.
Some observers expressed the view that using a private-sector 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 GAO and the DAU, expressed the view that
using a private-sector LSI is a basically valid approach, but that the contract the Coast
Guard 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.
Observers raised various issues about the Deepwater contract. Among other
things, they expressed concern that the contract was an indefinite delivery, indefinite
quantity (ID/IQ) contract, which, they said, can be an inappropriate kind of contract
for a program like the Deepwater program. Observers also expressed concern that
the contract:
! transferred too much authority to the private-sector LSI for defining
performance specifications, for subsequently modifying them, and
for making technical judgements;
! permitted the private-sector 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
private-sector LSI for resolving technical disputes between the Coast
Guard and the private-sector 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 private-sector 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, and consequently to rely too much on their own
products, as opposed to products available from other
manufacturers;
11 Defense Acquisition University, Quick Look Study, United States Coast Guard Deepwater
Program, February 2007.

---

CRS-12
! permitted the private-sector 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 private-sector LSI on the basis of “attitude and effort” rather than
successful outcomes; and
! lacked sufficient penalties and exit clauses.
Observers also expressed concern that the Coast Guard did 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 expressed concern that the
Coast Guard, in implementing the Deepwater program, placed a higher priority on
meeting a schedule as opposed to ensuring performance.
In response to criticisms of the management and execution of the Deepwater
program, Coast Guard and industry officials acknowledged certain problems in the
program’s management and execution and defended the program’s management
execution in other respects.12
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 design flaws involved, among other things, areas in the hull
with insufficient fatigue life — that is, with insufficient strength to withstand the
12 For examples of Coast Guard testimony, see Department of Homeland Security, U.S.
Coast Guard, Statement of Admiral Thad W. Allen, Commandant, on Deepwater: 120-Days
Later, Before the Subcommittee on Coast Guad & Maritime Transportation, Committee on
Transportation & Infrastructure, U.S. House of Representatives, June 12, 2007; and
Department of 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.
For examples of industry testimony, see 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; and 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.

---

CRS-13
stresses of at-sea operations for a full 30-year service life. The DHS IG report also
noted considerable growth in the cost to build the first two NSCs, and other issues.13
Observers in 2007 stated that the Coast Guard 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 appeared 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.
110-Foot Patrol Boat Modernization. The Coast Guard originally planned
to modernize and lengthen 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 FRCs starting in 2018. The work lengthened the boats to 123 feet.
The program consequently is referred to as the 110-foot or 123-foot or 110/123
modernization program.
Eight of the boats were modernized at a total cost of about $96 million. The
first of the eight modernized boats 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.14
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.15
On November 30, 2006, the Coast Guard announced that it was suspending
operations of the eight modernized boats (which were assigned to Coast Guard Sector
Key West, FL) because of 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
13 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].
14 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].
15 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].

---

CRS-14
said it was exploring options for addressing operational gaps resulting from the
decision.16
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.17 The Coast Guard
acknowledged in 2007 that the program was a failure.
Fast Response Cutter (NSC). 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. The Coast Guard suspended work on the design in February 2006, and then
divided the FRC effort into two classes — the FRC-Bs, which are to be procured in
the near term, using an existing patrol boat design (which the Coast Guard calls a
“parent craft” design), and the subsequent FRC-As, which are to be based on a fixed
version of the new FRC design.
As mentioned earlier, although the November 2006 Deepwater APB calls for
12 FRCs and 46 FRC-Bs, the Coast Guard’s Request for Proposals (RFP) for the
FRC-B program includes options for building up to 34 FRC-Bs (which, if exercised,
would reduce the number of FRC-As to as few as 24). The Coast Guard has also
stated that if the FRC-Bs fully meet the requirements for the FRC, all 58 of the FRCs
might be built to the FRC-B design.
Coast Guard Reform Actions In 2007
In 2007, as the Coast Guard’s management and execution of the then-integrated
Deepwater program was being strongly criticized by various observers, the Coast
Guard announced a number of reform actions that significantly altered the service’s
approach to Deepwater acquisition (and to acquisition in general).
Actions Announced In April 2007. On April 17, 2007, the Coast Guard
announced six changes intended to reform management of the Deepwater program.
In announcing the actions, Admiral Thad Allen, the Commandant of the Coast
Guard, stated in part:
16 “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.
17 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.” See also 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.

---

CRS-15
Working together with industry, the Coast Guard will make the following
six [6] fundamental changes in the management of our Deepwater program:
[1] 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....
[2] 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.
[3] 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.
[4] 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.
[5] 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.
[6] 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....
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

---

CRS-16
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....
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

---

CRS-17
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.18
Other Actions Announced In 2007. The Coast Guard in 2007 also did the
following:
! announced a reorganization of certain Coast Guard commands —
including the creation of a unified Coast Guard acquisition office —
that is intended in part to strengthen the Coast Guard’s ability to
manage acquisition projects, including the Deepwater program;
! stated that would alter the terms of the Deepwater contract for the
43-month award term that commenced in June 2007 so as to address
concerns raised about the current Deepwater contract;
! announced that it intended to procure the 12 FRC-B cutters directly
from the manufacturer, rather than through ICGS;
! stated that it was 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;
! stated that it concurred with many of the recommendations made in
the DHS IG reports, and was moving to implement them;
! stated that it was weighing the recommendations of the DAU quick
look study; and
! stated that it had also implemented many recommendations
regarding Deepwater program management that have been made by
GAO.
18 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.”

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CRS-18
Justice Department Investigation
On April 18, 2007, it was reported that the Justice Department is conducting an
investigation of the Deepwater program. Press reports at the time stated that
investigation centered on communications systems, the conversion of the Coast
Guard’s 110-foot patrol boats, and the National Security Cutter (NSC). The Justice
Department 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.19
Oversight Issues for Congress
Potential oversight issues for Congress in 2008 include but are not necessarily
limited to the Coast Guard’s overall management of Deepwater acquisition, the status
of certain Deepwater acquisition programs, and the so-called revolving door issue.
Overall Management
Coast Guard Perspective. In addition to implementing the 2007 Deepwater
reform actions outlined in the “Background” section of this report, the Coast Guard
states that as of late-April 2008, the service had implemented 54 of 102 actions
recommended in its Blueprint for Acquisition Reform, the document that sets forth
the Coast Guard’s plan for reforming its acquisition activities.20 The remaining
actions currently in the plan, the Coast Guard states, are to be completed by July
2009. The Coast Guard states that the document is to be updated in July 2008 to
include additional goals to be completed by July 2010 and perhaps also July 2009.
The Coast Guard also states that it has implemented most of the recommendations
made by GAO for reforming management of Deepwater acquisition, and is working
on implementing the remainder. (See discussion below on GAO perspective.)
The Coast Guard notes that although problems occurred with the cutter
acquisition programs and the VUAV program, many other elements of the Deepwater
program are being successfully implemented. The Coast Guard states that funding
spent on the 110/123 patrol boat conversion program ($96 million), the initial design
effort for the FRC ($33 million), and the initial portion of the VUAV effort (roughly
$115 million) together constitute only a small fraction of the total funding spent on
19 Ana Radelat, “Justice Investigating Deepwater Contractors,” NavyTimes.com, April 18,
2007; Chris Strohm, “Deepwater Contractors Face Justice Probe” GovExec.com, April 19,
2007; Patricia Kime, “Justice Investigating Deepwater Contract,” NavyTimes.com, April 20,
2007.
20 United States Coast Guard, Acquisition Directorate, Blueprint For Acquisition Reform.
Washington, 2007. 61 pp. (This citation is for Version 2.0 of the document, which is dated
July 13, 2007 and is available at [http://www.uscg.mil/acquisition/newsroom/pdf/
blueprintforacquisitionreform.pdf].)

---

CRS-19
various Deepwater acquisition programs, and that funding spent elsewhere in the
program has achieved numerous results in terms of newly delivered capabilities.21
GAO Perspective. Regarding overall management of Deepwater acquisition,
GAO reported in March 2008 that:
The Coast Guard has changed how decisions are made about purchasing
Deepwater assets. It is moving from a “system-of-systems” acquisition model —
with the contractor, ICGS, as the system integrator — to a more traditional
acquisition strategy in which the Coast Guard will take a more direct role and
manage the acquisition of each asset separately....
We have closed two of the five open recommendations from our previous
report, pertaining to the Coast Guard’s use of models and metrics to measure the
contractor’s progress toward improving operational effectiveness and
establishing criteria for when to adjust the total ownership cost baseline. The
Coast Guard has taken actions on the three recommendations that remain open,
such as designating Coast Guard officials as the lead on integrated product
teams, developing a draft maintenance and logistics plan for the Deepwater
assets, and potentially eliminating the award term provision from the ICGS
contract. However, at this time, the actions are not sufficient to allow us to close
them.22
The same GAO report also stated:
The Coast Guard is moving away from the ICGS contract and the system-
of-systems model, with the contractor as system integrator, to a more traditional
acquisition strategy, where the Coast Guard will manage the acquisition of each
asset separately. In a series of reports since 2001, we have noted the risks
inherent in the systems integrator approach to the Deepwater program and have
made a number of recommendations intended to improve the Coast Guard’s
management and oversight. We specifically focused on the need to improve
program management, contractor accountability, and cost control. We, as well
as the DHS Inspector General and others, have also noted problems in specific
acquisition efforts, notably the National Security Cutter (NSC) and the 110-Foot
Patrol Boat Modernization, which was permanently halted due to operational and
safety concerns.
The Coast Guard has recognized that it needs to increase government
oversight and has begun to transfer system integration and program management
responsibilities back to the Coast Guard. It has begun taking formal steps to
reclaim authority over decision making and to more closely monitor program
outcomes.
The Coast Guard has also
• begun to competitively purchase one asset (the Fast Response Cutter-B)
and plans to competitively purchase other assets outside of the ICGS contract;
21 Source for information in this paragraph and the preceding paragraph: Coast Guard
briefing to CRS on the Deepwater program, April 28, 2008.
22 Government Accountability Office, Status of Selected Aspects of the Coast Guard’s
Deepwater Program, GAO-08-270R, March 11, 2008, pp. 2-3.

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CRS-20
• expanded the role of third parties, including the U.S. Navy, to perform
independent cost assessments and program technical analyses; and
• reorganized and consolidated the acquisition function to strengthen its
ability to manage projects.
Additionally, because the IDIQ contract minimum was met during the
5-year base term, the government is under no further obligation to use the
contract. Coast Guard officials said that they are currently evaluating whether to
continue to use the ICGS contract for efforts that are already under way, such as
the NSC, versus contracting directly with the subcontractors. Further, they may
continue to use the ICGS contract for certain efforts, such as logistics.23
Regarding a GAO recommendation to take steps to make integrated product
teams (IPTs) effective, the same GAO report states:
Current Status: Partially Implemented
The Coast Guard is in the process of restructuring the IPTs, which remain
a key program management tool. Coast Guard program managers, rather than
ICGS representatives, now chair the IPTs. The IPTs’ current role is to discuss
options for problem solving related to cost, schedule, and performance
objectives, but the program manager is ultimately responsible for making
decisions. In addition to evaluating and rechartering some existing IPTs, the
Coast Guard has organized two new ones and is in the process of establishing
several others.
Since the Coast Guard will now chair IPTs, the chartering of sub-IPTs to
clarify roles and responsibilities is no longer an issue. Coast Guard officials plan
to use working groups established under the authority of the IPTs to address
specific issues. Working groups are more informal and can come together and
disband on an as-needed basis.
Finally, the electronic information system, built and managed by ICGS, is
still used as a tool used to share information among geographically dispersed IPT
members — specifically, ICGS and the Coast Guard. However, with the
decreasing reliance on ICGS as the system integrator, this particular
contractor-led electronic information-sharing system may become less integral
to effective management of the Deepwater program.
Due to the ongoing chartering, restructuring, and re-evaluation of the roles
and responsibilities of the IPTs within the new construct of the Deepwater
program, this recommendation remains open as partially implemented.24
Regarding a GAO recommendation to provide information on maintenance and
logistics responsibilities, the same GAO report stated:
Current Status: Partially Implemented
23 Ibid, Objective #1 (page 2).
24 Ibid, Objective #4 (page 8).

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CRS-21
In June 2007, we reported that the Coast Guard announced it was assuming
the role of the default provider of maintenance and logistics, supplemented by
contractors as necessary. The Coast Guard is still formalizing its assumption of
maintenance and logistics responsibilities. The Coast Guard technical authority
is developing a commandant instruction that outlines policies, processes, roles,
and responsibilities for maintenance and logistics support for Deepwater assets.
The Coast Guard plans for Deepwater assets to follow the same maintenance
program — already familiar to Coast Guard maintenance personnel — as its
other assets. However, the Coast Guard expects that some areas, such as
command, control, communications, and computer electronics, will require
contractor support until Coast Guard personnel can be trained or new personnel
can be hired to fill these roles.
Because the Coast Guard has not yet issued the final commandant
instruction that assigns maintenance and logistics responsibilities to Coast Guard
personnel instead of ICGS, we are leaving this recommendation open as partially
implemented. Once the instruction that addresses our recommendation is issued,
we plan to close this recommendation as implemented.25
Regarding a GAO recommendation to hold the system integrator accountable
for competition among subcontractors in make-or-buy decisions for the Deepwater
program, the same GAO report stated:
Current Status: Partially Implemented
The Coast Guard has taken steps to increase its insight into make-or-buy
decisions for Deepwater assets under the ICGS contract. In 2005, the Coast
Guard asked ICGS to notify the government of make-or-buy decisions of $10
million or more. However, in December 2006, the Coast Guard reported that
contractor data were inadequate to determine the level of competition achieved.
Subsequently, the June 2007 award term modification incorporated a formal
requirement for reporting make-or-buy decisions. ICGS must submit a
make-or-buy plan that outlines rationale and justification for each DTO proposal
that contains work items or work efforts priced at more than $5 million and/or
that would typically require company management review because of
complexity, cost, need for large quantities, or requirement for additional
production facilities. The rationale should consider overall benefit to the
government, including:
(1) long-term and/or near-term cost benefit;
(2) adequacy of considerations made in the make-or-buy determination;
(3) impacts on product performance;
(4) present and future supportability, maintenance and/or upgrade potential;
and
(5) proprietary data or other restrictions that could limit pursuit of future
cost-effective alternatives.
The Coast Guard is putting less emphasis on the subcontractor competition
issue due to the move away from using the ICGS contract and more toward full
and open competition. In fact, Coast Guard officials told us that because of
potential legislation that would prohibit them from using ICGS as the system
25 Ibid, Objective #3 (page 9).

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CRS-22
integrator, they are considering eliminating award term provisions from the
contract.
In addition, the Coast Guard no longer uses award fees under the ICGS
contract. However, it has incorporated an incentive fee for the NSC.
We are leaving this recommendation open as partially implemented pending
Coast Guard documentation regarding the award term provision.26
GAO also commented at length on the Coast Guard’s management of the
Deepwater program in March 5, 2008, testimony before the Homeland Security
subcommittee of the House Appropriations Committee,27 and March 6, 2008
testimony before the Oceans, Atmosphere, Fisheries, and Coast Guard subcommittee
of the Senate Commerce, Science, and Transportation Committee.28
National Security Cutter (NSC)
In General. On August 8, 2007, the Coast Guard announced that it had
reached agreement with ICGS to settle design and contractual issues regarding the
first three National Security Cutters.29 An August 13, 2007, press report provided
additional information on the settlement.30 Changes to the NSC’s design intended
to improve the ship’s estimated fatigue life will be backfitted onto the first two NSCs
and incorporated into the original construction of the third and subsequent NSCs.
The Coast Guard states:
Not atypically for a first-in-class ship, during the Coast Guard’s review of
the NSC’s design from 2002 to 2004, concerns were raised about certain aspects
of the ship’s structure that could prevent it from achieving its required 30-year
service life. Specifically, Coast Guard and independent technical experts
questioned whether some of the cutter’s structural components would experience
fatigue damage prior to the service-life objective, a critical consideration given
the extended, high-tempo operations expected of the NSC. After thorough
review, the Coast Guard determined that it is in the U.S. Government’s interest
26 Ibid, Objective #4 (page 12).
27 Government Accountability Office, Testimony Before the Subcommittee on Homeland
Security, Committee on Appropriations, House of Representatives, [on] Coast Guard[:]
Deepwater Program Management Initiatives and Key Homeland Security Missions,
Statement of John P. Hutton, Director Acquisition and Sourcing Management and Stephen
L. Caldwell, Director Homeland Security and Justice, GAO-08-531T.
28 Government Accountability office, Testimony Before the Subcommittee on Oceans,
Atmosphere, Fisheries, and Coast Guard, Committee on Commerce, Science, and
Transportation, U.S. Senate, [on] Coast Guard[:] Observations on the Fiscal Year 2009
Budget, Recent Performance, and Related Challenges Statement of Stephen L. Caldwell,
Director Homeland Security and Justice Issues, GAO-08-494T.
29 Coast Guard Press Release, August 8, 2007, entitled “Coast Guard Awards Contract For
Third National Security Cutter,” accessed on August 23, 2007, at
[https://www.piersystem.com/go/doc/786/167626/]
30 Christopher P. Cavas, “USCG, Contractors Agree on New Cutters,” Defense News,
August 13, 2007.

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CRS-23
to increase the fatigue tolerance of the NSC to ensure that the ship’s basic
structures will meet its projected 30-year service life. Engineering changes to
address the desired structural enhancements were developed in collaboration
with the U.S. Navy and other naval engineering experts for approval by the
Deepwater Program’s technical authority, the Engineering and Logistics
Directorate at U.S. Coast Guard Headquarters in Washington, D.C.
In the end, Coast Guard officials say, the NSC will be designed to achieve
a 30-year fatigue life and built to deliver 21st Century capabilities to the Coast
Guard in a way that will enhance the safety of its crew and allow the Coast
Guard to execute its central missions more effectively, efficiently, and safely.31
The Coast Guard conducted preliminary acceptance (i.e., delivery) of the first
NSC on May 8, 2008. The Coast Guard’s press release on the event stated in part:
Today's delivery is a major milestone in BERTHOLF's transition to full
operational status in the Coast Guard's fleet and represents preliminary
acceptance of the cutter, as documented in the Material Inspection and Receiving
Report (DD250). The DD250 formally documents inspection, delivery by the
ship builder, and receipt by the government This marks first major multi-mission
cutter to be built and delivered to the Coast Guard in more than 20 years.
Following recommendations from the cutter's prospective commanding
officer, Coast Guard technical authorities, the operational community, and
acquisition professionals, the Coast Guard Agency Acquisition Executive, Vice
Adm. Vivien Crea, gave the go-ahead for preliminary acceptance of
BERTHOLF....
Today's preliminary acceptance allows the Coast Guard's crew to move
aboard BERTHOLF and place the cutter “In Commission Special” status. This
status indicates that the vessel is entering a post-delivery period of approximately
22-24 months during which it will undergo crew training, operational evaluation
and certification, and Post Delivery and Post Shakedown availabilities to ensure
it meets all performance and operational requirements....
During the recently completed Acceptance Trials of BERTHOLF, the U.S.
Navy's Board of Inspection and Survey (INSURV) designated eight “starred”
trial cards as a subset of the approximately 2,800 cards it identified. The
government uses trial cards to document technical and performance discrepancies
that require correction before the ship becomes operational. The INSURV Board
recommended that the Coast Guard accept the BERTHOLF after appropriately
addressing the eight starred cards. The Coast Guard has overseen the successful
resolution of two starred cards. The remaining starred cards will continue to be
addressed by the Coast Guard, with some pending final at-sea testing. Those
cards, along with all other outstanding trial cards, are listed as exceptions on the
DD250 and will be closely tracked until they are completely resolved.
In addition to addressing those trial cards, the Coast Guard continues its
information assurance work to achieve certification of all information technology
systems onboard BERTHOLF. Those efforts include TEMPEST (Information
31 Source: Coast Guard discussion of NSC program on the Internet at
[http://www.uscg.mil/acquisition/nsc/projectdescription.asp].

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CRS-24
Assurance) testing and software scans by the U.S. Navy's Space and Naval
Warfare Systems Command (SPAWAR). Work will continue to ensure that all
systems receive proper certification prior to the cutter's first operational
deployment. Anticipating that some installed classified communications systems
may not be certified and accredited prior to a mid-June “sail-away” date,
temporary “stand-alone” systems, as necessary, will be made available to the ship
for the voyage to homeport. No classified communications will occur over any
system that has not met stringent Information Assurance standards (including
TEMPEST certification).
In approximately one year, and following successful completion of these
efforts, resolution of all trial cards and contract liens, and completion of the
warranty period, the Coast Guard will execute final acceptance of the cutter.32
Electronics/C4ISR Systems. In February and March 2008, press reports
stated that there were problems with the electronic systems on the first NSC, and that
the ship’s entry into service might consequently delayed.33 Coast Guard officials
questioned the accuracy of facts reported in some of the news accounts, and
expressed confidence that the ship would be delivered without further delay.34
The first NSC’s C4ISR systems, including its information assurance [IA]
capability — the ability of its various electronic systems to protect classified data –
were again discussed in press reports in early-May 2008. One such report stated:
The InSurv report provides one of the most detailed looks yet at the state
of the $641 million Bertholf, the first in a class of eight ships that are to take over
for the Coast Guard’s current fleet of a dozen 40-year-old Hamilton-class
high-endurance cutters.
“In general, builder fit, finish and cleanliness on the main deck and above
were very good and in many areas met or exceeded new construction trial
expectations,” the report said, although the ship was not as squared-away below
32 Coast Guard press release dated May 8, 2008, entitled “First National Security Cutter
Delivered to Coast Guard,” available online at [http://www.piersystem.com/go/doc
/786/201676/]. See also the additional Coast Guard information on the ship’s preliminary
acceptance posted online at [http://www.uscg.mil/acquisition/newsroom/pdf/30_May
_AT_whitepaper_starred_cards_update_hck.pdf], [http://www.uscg.mil/acquisition
/newsroom/pdf/nscacceptancecongressionalbrief.pdf], and [http://www.piersystem.com
/go/doc/786/199176/]. See also: Rebekah Gordon, “Coast Guard Accepts Delivery of First
National Security Cutter,” Inside the Navy, May 12, 2008.
33 Philip Ewing, “C4ISR Problems Could Delay Cutter Construction,” NavyTimes.com,
February 27, 2008; Geoff Fein, “Coast Guard Working To Assure Information Won’t Leak
From Bertholf,” Defense Daily, March 6, 2008; David Axe, “Coast Guard Delays Cutter
Over Radios,” Washington Times, March 11, 2008; Dan Caterinicchia, “Coast Guard Delays
First Ships for New Fleet,” Washington Post, March 12, 2008: D3.
34 Philip Ewing, “CG: Contrary to Report, No Delay for Bertholf,” NavyTimes.com, March
11, 2008; Bettina H. Chavanne, “USCG Confident About NSC; GAO Less So,” Aerospace
Daily & Defense Report, March 14, 2008: 3; Zachary M. Peterson, “Coast Guard Admirals
Confident NSC Will Be Delivered By End of May,” Inside the Navy, March 17, 2008; John
M. Doyle, “Coast Guard To Deploy New Cutter in 2010,” Aviation Week, April 11, 2008.

---

CRS-25
decks. And the InSurv said that 1,360 trial cards were carried over from previous
machinery trials, “a testament to the superb quality assurance oversight provided
during ship construction and testing by the USCG project manager’s
representative office and the Navy supervisor of shipbuilding.”
But one key detail went unresolved — an assessment of the Bertholf’s
command, control, communications, computers, intelligence, surveillance and
reconnaissance suite, commonly known as C4ISR. Much of the information
systems gear was not yet installed when InSurv came onboard, according to the
report, nor did Navy inspectors conduct full tests on the ship’s radios, although
overall the communications section of the InSurv gave the highest grade,
“satisfactory.”
Coast Guard systems officials said in a March blog post that “issues” with
the Bertholf’s C4ISR information security posed “some risk” of a delay in the
ship’s delivery schedule, although Coast Guard and industry officials have
continued to insist that the ship is adhering to its revised timetable.35
Another early-May 2008 press report stated that:
The U.S. Coast Guard may still face issues with communications systems
aboard its new National Security Cutter (NSC) if it tinkers with precertified
command, control and communications systems after it accepts the ship.
An Inspection and Survery (Insurv) report issued recently gave a 98 percent
rating to the communications system aboard the new NSC, the Bertholf. The
U.S. Navy, which runs the Insurv, determined the Lockheed Martin-built
communications suite was ready for acceptance.
However, additional communications and control equipment to be installed
after the ship is accepted has the potential to conflict with the work Lockheed
Martin has already performed, the company says. “We want to help the Coast
Guard avoid any potential impacts to system performance or our ability to
provide support under warranty as they integrate additional systems following
acceptance,” Lockheed Martin Coast Guard Systems technical director Jack
Ryan told Aerospace DAILY in a May 6 e-mail.
Coast Guard spokesperson Laura Williams said, “There’s no difference
after we accept the ship. We do have a warranty period.” Whatever work is not
complete up until the Cost Guard accepts the ship will be listed on a certification
documents known as DD 250, which is anticipated later this week, according to
Williams.
The Coast Guard will continue to “ensure all work will receive the proper
certification by deployment,” Williams added. “To my knowledge, [Coast
Guard] work will not void the warranties.”
35 Philip Ewing, “National Security Cutter ‘Capable,’ InSurv Finds,” NavyTimes.com, May
1, 2008. See also Michael DeKort, “National Security Cutter Blunder?”, May 2, 2008,
available online at [http://equalcivilrights.blogspot.com/2008/05/national
-security-cutter-blunder.html]

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CRS-26
But when the Coast Guard begins integrating additional communications
components on the Bertholf, the concern is whether there will be an impact on
existing equipment, and whether work performed by the Coast Guard will affect
Lockheed Martin’s ability to provide maintenance and service. Rayan said
Lockheed will transition to a “support role” after the ship is accepted. “We are
happy to provide support if asked, but we are not currently involved with any
additional system installations planned after acceptance of the ship.”36
In late-May 2008, it was reported that:
The Coast Guard’s new national security cutter, the Bertholf, is steadily
whittling down its number of outstanding technical problems now that its crew
has moved aboard and the ship is taking regular trips to sea, senior Coast Guard
officials said Tuesday.
Rear Adm. Gary Blore, the service’s head of acquisitions, said in a
conference call with reporters that the presence of the crew onboard had enabled
Coast Guardsman and shipyard engineers to resolve five of the eight systems
“starred” in an April report by the Navy Board of Inspection and Survey. By the
time the cutter sails from its Gulf Coast shipyard in mid-June, Blore expected all
eight problems to be resolved....
A Navy inspection identified 2,816 points, noted as “trial cards,” plus the
eight “starred” systems, that were incomplete or needed work aboard the
418-foot, $641 million Bertholf. Those points were carried over May 8 when the
Coast Guard signed the paperwork to accept the ship in a “special commission”
status, prompting a few members of Congress to criticize the Coast Guard for
taking ownership of what critics fear is at best an unfinished ship, and at worst
a lemon.
Still, officials said Tuesday the cutter has used its first-of-its-kind stern
ramp about 60 times to launch the new small boats it carries — the Long Range
Interceptor and the Short-Range Prosecutor — and that its flight deck is ready to
accept the first landings by Coast Guard helicopters.
Top Coast Guardsmen also said they were confident that work was
progressing on the Bertholf’s command and communications gear, known by the
acronym C4ISR, which had generated about 650 trial cards in its first inspection
in June 2007. By the time of the most recent inspection, when a team from the
Navy’s Space and Warfare Command came aboard in April, there were 122
remaining C4ISR trial cards, officials said.
The ship is to undergo its next major C4ISR inspection in the middle of
August, Blore said, when it arrives in its new homeport of Alameda, Calif. 37
On the issue of the fist NSC’s information assurance capability, the Coast Guard
states:
36 Bettina H. Chavanne, “USCG May Still Face Comms Issues After Accepting NSC
Bertholf,” Aerospace Daily & Defense Report, May 8, 2008: 3.
37 Philip Ewing, “CG: Work On Bertholf Proceeding Apace,” NavyTimes.com, May 28,
2008.

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CRS-27
Before the BERTHOLF [the first NSC] becomes part of the Coast Guard’s
fleet it must go through a standardized Information Assurance (IA) process based
on Federal and Department of Defense (DOD) policies, wherein delivered
equipment and installation procedures are certified for compliance by the Coast
Guard.
The Coast Guard’s C4&IT Technical Authority, CG-6, anticipates that
BERTHOLF will initially be granted a limited authority to operate some of its
systems to facilitate the vessel’s transit to its new homeport in Alameda, CA. In
fact, an ATO [Authority to Operate] was granted on 30 April 2008 for a
stand-alone classified messaging system; and on 09 May 2008, an Interim
Authority to Operate (IATO) was approved for limited network connectivity of
the unclassified local area network and general support system. No classified
information is permitted to be loaded on any IT system until certification and
accreditation is completed and approved by the Coast Guard’s Designated
Accrediting Authority (DAA)....
The IA process includes a large number of activities, one of which is known
as TEMPEST testing. TEMPEST testing is comprised of visual and instrumented
inspections to ensure compliance with emission security requirements....
The Coast Guard adheres closely to the Department of Homeland Security,
Department of Defense and the National Security Agency rules, regulations, and
protocols for TEMPEST testing and certification. As stated previously, no
classified information is permitted to be loaded on any system that does not meet
these stringent requirements....
The Coast Guard recognized early-on that since the BERTHOLF was “first
in class,” close attention needed to be paid to IA, since the contract emphasized
commercial equipment and software use where possible. To mitigate this risk, the
Coast Guard began testing and evaluating the systems as early as possible, often
before installations were complete. This effort provided excellent data to the
Coast Guard and contractor for focusing efforts. This preliminary testing
revealed several areas within the BERTHOLF’s C4ISR suite that required
attention.
To date, the testing regimen has included the following informal and formal
tests:
— Mini Instrumented TEMPEST Survey: May 31-June 3, 2007 — Various
discrepancies were noted to the contractor for corrective actions.
— Visual TEMPEST Inspection: July 2007 — The inspection generated
approximately 650 trial cards. These cards were given to the contractor for
corrective actions.
— Mini Instrumented TEMPEST Survey: January 11-14, 2008 — During
this inspection, issues were identified and discrepancies were noted to the
contractor for corrective actions.
— Mini Instrumented TEMPEST Survey of the NSC mock-up at Coast
Guard Training Center Petaluma: February 25-29, 2008 — During this
inspection, issues were identified and discrepancies were noted to the contractor
for corrective actions.

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CRS-28
— A formal Visual TEMPEST Inspection and partial Instrumented Test
Survey performed by USN SPAWAR was conducted in April 2008. The formal
visual TEMPEST inspection revealed significant progress toward TEMPEST
compliance, in that only 122 visual discrepancies remained from the original 650
trial cards. Due to time constraints resulting from ongoing shipyard work and
other Information Assurance activities conducted by SPAWAR (software scans),
the full Instrumented Test Survey is not yet complete. The full ITS will be
completed following BERTHOLF’s arrival to her new homeport in Alameda,
CA. All outstanding discrepancies are documented on the DD250. The remaining
TEMPEST discrepancies will be corrected prior to final certification and
accreditation. The instrumented TEMPEST survey results are CLASSIFIED.
In April 2008, the Navy Board of Inspection and Survey (INSURV)
inspectors verbally commented that the internal C4ISR cabling and wiring
installation was of high quality. While there are some discrepancies, the C4ISR
equipment functioned as designed for four separate underway trials.
BERTHOLF’s C4ISR equipment configuration has remained unchanged
throughout all trials and during TEMPEST testing. New capability is scheduled
to be added during post shakedown availability after final acceptance. Additional
equipment and improvements will be incorporated as necessary (test-fix-retest
methodology) to ensure systems are adequately shielded, bonded, and/or
separated to eliminate any compromising emanations. The Coast Guard, over the
coming months, will work with SPAWAR to improve the Information Assurance
posture of BERTHOLF until all systems are certified and accredited.38
GAO Perspective On Program. In March 2008, GAO reported the
following regarding the status of the NSC program:
Changes to the NSC have had cost, schedule, and performance
ramifications.
The estimated costs for the first three ships have generally doubled from the
initial projected costs due to a number of contributing factors, including
requirements changes as a result of September 11, Hurricane Katrina damages,
and some program management actions by the Coast Guard.
Delivery of the ship could be delayed. An aggressive trial schedule leaves
little time for dealing with the unexpected, and most certifications have yet to be
completed.
Coast Guard officials expect the ship to meet all performance parameters,
but will not know for certain until the ship undergoes trials. Further, Coast Guard
engineers have concerns that most of the ship’s available weight margin has been
consumed during construction, meaning that subsequent changes to the ship will
require additional redesign and engineering to offset the additional weight.39
38 Coast Guard fact sheet on information assurance, available online at
[http://www.uscg.mil/acquisition/newsroom/pdf/12MAY08_NSC_IA_Fact_Sheet_
CG93_final.pdf].
39 Government Accountability Office, Status of Selected Aspects of the Coast Guard’s
Deepwater Program, GAO-08-270R, March 11, 2008, pp. 2-3.

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CRS-29
The GAO report also stated:
The NSC’s projected costs have increased compared to the initial baseline,
as shown in [GAO Report] Table [No.] 1.
[GAO Report] Table [No.] 1: Cost Growth for NSC 1 - 3 (Dollars in millions)
NSC 1
NSC 2
NSC 3
Design
$67.7
—
—
Build
264.4
$200.7
$189.2
Govt. Furnished equipment (GFE)
52.8
50.0
40.0
Initial projected costs (2002)
$384.9
$250.7
$229.2
Requirements changes
75.9
60.0
60.0
Hurricane Katrina
40.0
44.4
38.7
Economic changes
58.3
69.9
86.8
Structural enhancements
40.0
30.0
16.0
Other GFE
41.5
40.7
73.9
Current projected costs (2008)
$640.7
$495.7
$504.6
Source: Coast Guard.
Note: Economic changes include, for example, escalation of material/labor and
some costs associated with settling the REA. Other GFE includes certifications,
tests, and training. For NSC 3, other GFE also includes additional government
oversight.
Requirements changes to address post-9/11 needs are one of the main
reasons for the cost increases. The new requirements include
• expanded interoperability with the Department of Defense, DHS, and
local first responders;
• increased self-defense and survivability, including chemical, biological,
and radiological measures;
• increased flight capability via longer and enhanced flight deck;
• upgraded weapon systems; and
• improved classified communication capabilities.
Another contributing factor was Hurricane Katrina, which not only caused
considerable damage to the shipyard, including tooling, equipment, shops, and
other facilities, but also caused an exodus of the experienced workforce. The
overall number of shipworkers declined significantly, causing the contractor to
use more overtime hours. The loss of workers, in turn, considerably disrupted the
ship’s learning curve, which normally results in greater efficiencies in production
of subsequent ships.
However, some of the increase can be attributed to Coast Guard actions.
For example, the contractor used the Coast Guard’s failure to precisely execute
the contract according to the implementation plan as basis for requesting an
equitable adjustment. Furthermore, even though the Coast Guard’s own technical
staff raised fatigue life concerns — later confirmed by a U.S. Navy study —

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CRS-30
during the design phase, the decision was made to proceed with production of the
first two NSCs and enhance the structure later.40
With regard to the delivery schedule for NSC-1, the same GAO report stated:
The first NSC was initially projected for delivery in 2006, but slipped to
August 2007 after the 9/11 requirements changes. However, delivery was again
delayed until April 2008. It is uncertain at this time whether the new delivery
date will be met due to several factors involving testing, certifications, and other
areas of technical risk.
Machinery trials occurred in early December and builder’s trials occurred
February 8 - 11, 2008. The current schedule leaves little margin for delay.
Acceptance trials are scheduled to begin April 7, 2008. The contract requires 30
days between acceptance trials and ship delivery, but the scheduled dates for
these events are about 3 weeks apart. The Coast Guard and the contractor are
aware of the discrepancy; however, no decision has been made on how to resolve
this issue. The Coast Guard will have to either extend the delivery date of the
ship to meet the requirement or waive it. Our prior work has shown that
event-driven rather than schedule-driven decisions are preferable, thus it may be
in the best interest of the Coast Guard to delay acceptance of the first NSC until
a number of these issues are resolved.
Of the 987 certification standards, ICGS was to submit documentation on
892 for review and acceptance by the Coast Guard Technical Authority. Almost
all remain outstanding. In addition, the Coast Guard and contractor differed in
their understanding of the number of certifications for which ABS was
responsible. Northrop Grumman had contracted with ABS to certify 60
standards; however, the Coast Guard believed ABS was responsible for 84.
According to Coast Guard officials, the issue has been resolved and ABS will
now be responsible for 86 certifications. Further, for NSC 3 and later ships, ABS
will be responsible for about 200 certifications. Other third parties will certify
11 of the standards.
The Coast Guard has identified 13 issues pertaining to C4ISR and Hull,
Mechanical, and Electrical as risk areas, 8 of which have moderate to high risk
of occurrence or impact if not resolved. One of these relates to the results of the
July 2007 visual TEMPEST inspection, conducted by a team of Coast Guard
officials. The team reported hundreds of discrepancies, over 40 percent of which
pertain to cable grounding and separation, such as cables intended for classified
information not being adequately separated from those intended for nonclassified
information. Coast Guard officials told us that they requested the test be done
earlier than usual so that issues could be identified and corrected sooner.
Coast Guard and Navy personnel noted that having open issues with a ship
— particularly for the first in class — at the time of delivery is normal. After
acceptance, the Coast Guard plans to conduct operational testing at sea for
approximately 2 years, during which time open issues can be resolved. The ship
40 Ibid, Objective #3 (page 4).

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CRS-31
will officially become operational thereafter, which, based on the current
schedule, will be March 2010.41
With regard to performance parameters for the NSC, the same GAO report
stated:
Key performance parameters for the NSC were first defined in the
Acquisition Program Baseline submitted for DHS approval in November 2006.
Coast Guard officials explained that the key performance parameters were
derived from performance specification requirements that had been in place
before contract award....
The key performance parameters have not been changed due to post-9/11
mission requirements. Coast Guard officials expect the NSC to meet the current
threshold parameters, but they will not know for certain until the ship undergoes
sea trials.
However, the Coast Guard’s Engineering Logistics Center officials
expressed concern about the ship’s weight margin. Ship designs typically include
a margin for additional weight to accommodate service enhancements during the
ship’s service life. The officials noted that most of the available weight margin
has already been consumed during construction — not including the fatigue life
structural enhancements. The officials further noted that subsequent changes to
the ship will cost more than they would have otherwise due to additional
redesign and engineering that may be necessary to offset the additional weight.
Coast Guard officials noted, however, that a mitigation strategy is in place and
adjustments are being made that will increase the service life weight margin.42
110-Foot Patrol Boat Modernization
On May 17, 2007, the Coast Guard 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.43
On January 7 and 8, 2008, it was reported that the Coast Guard was seeking a
repayment of $96.1 million from ICGS for the patrol boats and had sent a letter to
ICGS on December 28, 2007, inviting ICGS to a negotiation for a settlement of the
41 Ibid, Objective #3 (page 5).
42 Ibid, Objective #3 (page 6).
43 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.

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CRS-32
issue.44 Some observers questioned the strength of the government’s legal case, and
thus its prospects for recovering the $96.1 million or some figure close to that.45
In early-June 2008, it was reported that:
At the behest of the Justice Department [DOJ], the Coast Guard said it will
temporarily stop pursuing contractual remedies against Integrated Coast Guard
Systems, the makers of the service’s eight decommissioned 123-foot patrol boats.
In January, the Coast Guard sought a $96 million refund from ICGS, a
partnership between Northrop Grumman and Lockheed Martin, for the faulty
converted hulls. It has since been preparing for alternative dispute resolution,
said Rear Adm. Gary Blore, the Coast Guard’s assistant commandant for
acquisition and chief acquisition officer.
But in an apparent shift of strategy, those efforts have recently been put
aside pending the outcome of a DOJ investigation into the matter.
“In light of the Department of Justice’s lead on the investigation, we are
taking a step back from our contractual actions, because we don’t want those two
-- our administrative process and Department of Justice’s process -- to interfere
with each other,” Blore said at May 27 briefing. “We may re-pursue the
contractual remedies depending on what happens with the Department of Justice,
but for right now, in agreement with the Department of Justice, we’re basically
throwing our staff support behind them as they do their discovery and facts
analysis.”
Blore said the Coast Guard will provide DOJ and the Department of
Homeland Security’s inspector [g]eneral, which is a partner in the investigation,
with documentation and technical support. They will also provide staff expertise
in contracting and acquisitions processes.
Data will also be provided to DOJ as we “continue our own vigorous naval
engineering analysis of the hull,” Blore said....
It is not clear when DOJ stepped up its investigation into the 123-foot patrol
boats, nor when such an investigation might be completed. Calls to DOJ and the
DHS IG were not returned....
“I do not know how long the Department of Justice process will take, but
I suppose it’s inferred that the government sat down and discussed this,” Blore
44 See Andrea Shalal-Esa, “Lockheed, Northrop Asked To Pay $96 Mln For Bad Boats,”
Reuters, January 7, 2008; Geoff Fein, “Coast Guard Invites ICGS To Negotiate A
Settlement Over 123-Foot Boat Issue,” Defense Daily, January 8, 2008; Dan Caterinicchia,
“Gov’t Wants $96M Refund For Faulty Ships,” Business Week, January 8, 2008. See also
Emelie Rutherford, “Coast Guard Wants $96 Million From Deepwater Team For Bad
Ships,” Inside the Navy, January 14, 2008.
45 See, for example, Geoff Fein, “Coast Guard Invites ICGS To Negotiate A Settlement Over
123-Foot Boat Issue,” Defense Daily, January 8, 2008. See also Geoff Fein, “Rep. Taylor
Chides Coast Guard Over Effort To Recoup Cutter Conversion Funds,” Defense Daily,
February 27, 2008.

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CRS-33
said. “We feel the government’s equities are best represented by letting the
Department of Justice take the lead on this.”46
Fast Response Cutter (FRC)
On March 14, 2007, the Coast Guard announced that it intended to procure the
12 FRC-B cutters directly from the manufacturer, rather than through ICGS.47 On
June 22, 2007, the Coast Guard issued a Request for Proposals (RFP) for the FRC-B,
with submissions from industry due November 19, 2007. The Coast Guard stated on
May 1, 2008 that:
The FRC-B acquisition strategy includes procuring patrol boats based on
an existing, proven design (Parent Craft). The Parent Craft is required to have
been previously operated as a patrol craft in unrestricted service for a minimum
of two years, or six years if only a single Parent Craft exists. Utilizing a proven
design will reduce the time and cost required to design and develop the cutter.
To meet the current urgent need for patrol boat capability, the Coast Guard
has established a required delivery of the first cutter no later than 2010. The
remainder of the first 12 cutters will be delivered by 2012. The Request for
Proposals has options that allow for the acquisition of up to 34 cutters.48
In February 2008, it was reported that the contract to be awarded by the Coast
Guard could be valued at up to $1.7 billion for 34 FRC-Bs, if all options are
executed.49
The Coast Guard stated on May 22, 2008, that “Proposals are currently being
evaluated and the contract is expected to be awarded in the third quarter of Fiscal
Year 2008.”50 In early-June 2008, it was reported that the Coast Guard plans to
award the contract in July 2008. The report stated:
46 Rebekah Gordon, “Coast Guard Defers To Justice Department In Patrol Boat Inquiry,”
Inside the Navy, June 2, 2008. See also Philip Ewing, “CG Patrol Boat Talks Paused For
DOJ Probe,” NavyTimes.com, May 28, 2008.
47 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.
4 8 Coast Guard discussion of FRC-B program on the Internet at
[http://www.uscg.mil/acquisition/frcb/projectdescription.asp].
49 Andrea Shalal-Esa, “US Cost Guard Sees Patrol Boat Award in May or June,” Reuters,
February 11, 2008. See also Stew Magnuson, “Not So Fast on Fast Response Cutters, Coast
Guard Says,” National Defense Magazine, February 2008.
50 Source: Coast Guard discussion of FRC-B program on the Internet at
[http://www.uscg.mil/acquisition/frcb/default.asp].

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CRS-34
“The Coast Guard has recently made a competitive range decision on the
FRC-B,” Rear Adm. Gary Blore, the Coast Guard’s acquisition chief, said. “The
competitive range includes offers with the most highly-rated proposals.”...
“What we are waiting for is for the contract award for FRC-B, and to get
a little more evaluation information once we go into low-rate initial production
on that patrol boat. We think there’s a reasonable chance that it may meet all the
original requirements of the FRC. If it does, then, that may be the solution,”
Blore said. “Right now, we’re not actively pursuing composites [i.e., composite
materials for use in the hull for the FRC-A] and we’ll see where the FRC-B leads
us.”51
In March 2008, GAO reported that:
The Coast Guard obligated approximately $35 million on the ICGS design
for the FRC, but concerns prompted officials to put the acquisition on hold. To
fill its urgent need for patrol boats, the Coast Guard plans to award a contract for
a commercially available design of the FRC. Coast Guard officials said this
approach will help ensure competition and meet their tight time frames. The new
requirements for this design of the FRC have some differences. These include a
top speed that is 2 knots slower — 28 instead of 30 knots — and allowance of
a manual small-boat launch and recovery system that Coast Guard officials said
is not as safe and requires more crew to operate than the preferred stern ramp
system.52
The same GAO report also stated:
FRC-A Design Efforts Remain Suspended
Since the FRC-A acquisition effort began, the Coast Guard obligated
approximately $35 million to ICGS for the design of this asset, but a viable
design has not been produced. Coast Guard officials told us that at this time
design efforts remain suspended; they do not expect to incur any additional costs
related to the FRC-A. The original estimate for the fleet of 58 FRC-As was
approximately $3.2 billion.
Due to high risk and uncertain cost savings, Coast Guard officials
recommended to the Commandant that the Coast Guard not pursue acquisition
of an FRC-A design that includes unproven composite hull technology. The
officials told us this recommendation was largely based on a third-party analysis
that found the composite technology unlikely to meet the desired 35-year service
life under the Coast Guard’s operational conditions. Therefore, officials believe
that the use of the proposed composite materials would not offset high initial
acquisition costs, as ICGS had initially proposed.
Cost, Schedule, and Performance of FRC-B
51 Rebekah Gordon, “Coast Guard To Award Contract In July For Fast Response Cutter B,”
Inside the Navy, June 2, 2008.
52 Government Accountability Office, Status of Selected Aspects of the Coast Guard’s
Deepwater Program, GAO-08-270R, March 11, 2008, p. 2.

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CRS-35
In June 2007, the Coast Guard issued an RFP for the design, construction,
and delivery of a modified commercially available patrol boat for the FRC-B.
The Coast Guard estimated, in late 2006, that the total acquisition cost for 12
FRC-Bs would be $593 million. Coast Guard officials do not plan to update cost
estimates for the FRC-B until after the contract is awarded. The Coast Guard is
currently evaluating proposals and expects to award the FRC-B contract in the
third quarter of fiscal year 2008, with the lead cutter to be delivered in 2010.
Coast Guard officials stated that their goal is still to acquire 12 FRC-Bs by 2012.
The contract will include a 2-year base period for the design and production of
the lead cutter and six 1-year option periods. The first option period includes 3
low-rate initial production cutters, and the subsequent five option periods include
an option of 4 or 6 cutters each. The Coast Guard intends to award a fixed price
contract for design and construction of the FRC-B, with the potential to acquire
a total of 34 cutters.
Regarding performance, there are some key differences in the FRC-B, as
outlined in the RFP, compared with the requirements for the FRC-A. One
difference is speed — the Coast Guard lowered the minimum requirement for
sprint speed from 30 knots for the FRC-A to 28 for the FRC-B. Another pertains
to onboard small boat launch-and-recovery mechanisms: the initial design for the
FRC-A included a stern ramp launch. This capability is not required on the
FRC-B. However, Coast Guard officials expressed a preference for the stern
ramp launch-and-recovery system because it would be safer and require fewer
crew to operate than a manual alternative. Coast Guard officials said that
eliminating these design requirements would ensure more competition on the
open market and meet their urgent need for patrol boats.53
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
53 Ibid, Objective #2 (page 3).

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CRS-36
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.
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.”54
Potential Options for Congress
In addition to approving or modifying the Coast Guard’s requests for FY2009
acquisition funding Deepwater programs, potential options for Congress regarding
the Deepwater program include but are not limited to the following:
! continue to track the Coast Guard’s management and execution of
Deepwater acquisition, including implementation of reform actions
announced by the Coast Guard itself or recommended by GAO;
! modify reporting requirements for the Deepwater program;
! prohibit the obligation or expenditure of some or all FY2009
funding for Deepwater acquisition programs until the Coast Guard
or DHS takes certain actions or makes certain certifications
regarding the Deepwater program; and
! pass legislation to codify Deepwater acquisition reforms that the
Coast Guard has already announced, or to change Deepwater
acquisition in other ways.
54 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-37
Legislative Activity in 110th Congress
Congressional Action on FY2009 Funding Request
Table 4 shows Congressional action on the FY2009 funding request for
Deepwater acquisition programs.
Bills and Laws
Bills and laws in the 110th Congress relating to Deepwater acquisition include
the following:
! H.R. 2830/S. 1892, the Coast Guard Authorization Act of 2008;
! H.R. 2638/S. 1644, the FY2008 Department of Homeland Security
appropriations act, which was incorporated into the FY2008
Consolidated Appropriations Act (H.R. 2764/P.L. 110-161 of
December 26, 2007);
! H.R. 2722/S. 924, the Integrated Deepwater Program Reform Act;
! S. 889, the Deepwater Accountability Act; and
! H.R. 2206/P.L. 110-28, the FY2007 emergency supplemental
appropriations act.
Statement of Administration Policy on H.R. 2830
An April 23, 2008, statement of Administration policy opposing passage of H.R.
2830 stated in part:
As well, the Administration urges the House to delete those provisions of
the bill that would adversely affect Coast Guard missions. Specifically, the
Administration urges the House to delete those provisions that would:... (4)
prescribe contracting and acquisition practices for the Deepwater program, as
these practices would increase the costs of, and add delay to, the Deepwater
acquisition process and circumvent review and approval authority of Coast
Guard technical authorities.55
55 Executive Office of the President, Office of Management and Budget, Statement of
Administration Policy, H.R. 2830 — Coast Guard Authorization Act of 2008, April 23, 2008,
available online at [http://www.whitehouse.gov/omb/legislative/sap/110-2/saphr2830-h.pdf]

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CRS-38
Table 4. Congressional Action on FY2009 Acquisition Funding
Request
(in millions of dollars, rounded to nearest tenth)
Appropriation
Confer-
House
Senate Confer-
House
Senate
ence
Request
change
change
ence
(H.R.
(S.
change
from
from
(H.R.
XXXX)
XXXX)
from
request
request XXXX) request
Air assets
Maritime Patrol Aircraft
86.6
HH-60 Conversion
52.7
HH-65 Conv./Sust.a
64.5
HC-130H Conv./Sust.a
24.5
HC-130J Fleet Intro.a
0
Armed Helo Equip.a
0
UASa
3.0
Subtotal aircraft
231.3
Surface assets
NSC
353.7
OPC
3.0
FRC-B
115.3
Deepwater small boats
2.4
WMEC sustainmenta
35.5
Patrol boats sustainment
30.8
FRC-A
0
Subtotal surface ships
540.7
Other
Govt. program mgt.
58.0
Systems eng. and int.a
33.1
C4ISR
88.1
Deepwater logistics
37.7
Tech. Obsol. Prev.a
1.5
Subtotal other
218.4
TOTAL FY2008
990.4
Rescissions of prior-year funding
[none]
0
Subtotal rescissions
0
NET TOTAL
990.4
Source: U.S. Coast Guard Posture Statement With [FY] 2009 Budget in Brief, p. 49 (Table 4). Totals
may not add due to rounding.
a. Conv./Sust. is Conversion/Sustainment Projects; Fleet Intro. is Fleet Introduction; Armed Helo.
Equip. is Armed Helicopter Equipment (Airborne Use of Force); UAS is Unmanned Aircraft System;
WMEC is medium-endurance cutter; eng. and int. is engineering and integration; Tech. Obsol. Prev.
is Technology Obsolescence Prevention.

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