

Coast Guard Cutter Procurement:
Background and Issues for Congress
Updated November 25, 2019
Congressional Research Service
https://crsreports.congress.gov
R42567
Coast Guard Cutter Procurement: Background and Issues for Congress
Summary
The Coast Guard’s program of record (POR) calls for procuring 8 National Security Cutters
(NSCs), 25 Offshore Patrol Cutters (OPCs), and 58 Fast Response Cutters (FRCs) as
replacements for 90 aging Coast Guard high-endurance cutters, medium-endurance cutters, and
patrol craft. The Coast Guard’s proposed FY2020 budget requests a total of $657 million in
procurement funding for the NSC, OPC, and FRC programs.
NSCs are the Coast Guard’s largest and most capable general-purpose cutters; they are intended
to replace the Coast Guard’s 12 aged Hamilton-class high-endurance cutters. NSCs have an
estimated average procurement cost of about $670 million per ship. Although the Coast Guard’s
POR calls for procuring a total of 8 NSCs to replace the 12 Hamilton-class cutters, Congress
through FY2019 has funded 11 NSCs, including the 10th and 11th in FY2018. Eight NSCs have
entered service; the seventh and eighth were commissioned into service on August 24, 2019. The
9th through 11th are under construction; the 9th is scheduled for delivery in 2021. The Coast
Guard’s proposed FY2020 budget requests $60 million in procurement funding for the NSC
program; this request does not include funding for a 12th NSC.
OPCs are to be less expensive and in some respects less capable than NSCs; they are intended to
replace the Coast Guard’s 29 aged medium-endurance cutters. Coast Guard officials describe the
OPC program as the service’s top acquisition priority. OPCs have an estimated average
procurement cost of about $421 million per ship. The first OPC was funded in FY2018. The
second OPC and long lead time materials (LLTM) for the third were funded in FY2019. The
Coast Guard’s proposed FY2020 budget requests $457 million in procurement funding for the
third OPC, LLTM for the fourth and fifth, and other program costs. On September 15, 2016,
following a competition among multiple shipyards, the Coast Guard awarded a contract with
options for building up to nine OPCs to Eastern Shipbuilding Group (ESG) of Panama City, FL.
Under this plan, the Coast Guard anticipated conducting, years from now, a follow-on
competition for ships 10 through 25 in the program.
On October 11, 2019, the Department of Homeland Security (DHS), of which the Coast Guard is
a part, announced that DHS had granted extraordinary contractual relief to ESG under P.L. 85-
804 as amended (50 U.S.C. 1431-1435), a law that authorizes certain federal agencies to provide
certain types of extraordinary relief to contractors who are encountering difficulties in the
performance of federal contracts or subcontracts relating to national defense. ESG reportedly
submitted a request for extraordinary relief on June 30, 2019, after ESG’s shipbuilding facilities
were damaged by Hurricane Michael, a hurricane that passed through the Florida panhandle on
October 10, 2018. The Coast Guard announced that the contractual relief is limited to the first
four hulls in the OPC program. DHS stated that the Coast Guard reportedly will immediately
transition to conducting a follow-on competition for subsequent in the OPC program. Under P.L.
85-804 as amended, Congress has 60 days of continuous session to review the announced
contractual relief, with the 60-day period in this case starting October 11.
FRCs are considerably smaller and less expensive than OPCs; they are intended to replace the
Coast Guard’s 49 aging Island-class patrol boats. FRCs have an estimated average procurement
cost of about $58 million per boat. A total of 56 have been funded through FY2019, including 6 in
FY2019. Four of the 56 are to be used by the Coast Guard in the Persian Gulf and are not counted
against the Coast Guard’s 58-ship POR for the program, which relates to domestic operations.
Excluding these 4 OPCs, a total of 52 FRCs for domestic operations have been funded through
FY2019. The 35th FRC was commissioned into service on October 26, 2019. The Coast Guard’s
proposed FY2020 budget requests $140 million in acquisition funding for the procurement of two
more FRCs for domestic operations.
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Contents
Introduction ..................................................................................................................................... 1
Background ..................................................................................................................................... 1
Older Ships to Be Replaced by NSCs, OPCs, and FRCs .......................................................... 1
Missions of NSCs, OPCs, and FRCs ........................................................................................ 2
NSC Program ............................................................................................................................ 3
OPC Program ............................................................................................................................ 4
Overview ............................................................................................................................. 4
Competition and September 2016 Contract Award ............................................................. 7
October 11, 2019, Announcement of Contractual Relief and Follow-on
Competition ..................................................................................................................... 8
October 18, 2019, Request for Information (RFI) Regarding Follow-On
Competition .................................................................................................................... 11
November 22, 2019, Update and Statement of Work (SOW) Regarding Follow-
On Competition ............................................................................................................. 14
FRC Program .......................................................................................................................... 16
Funding in FY2013-FY2020 Budget Submissions ................................................................. 17
Issues for Congress ........................................................................................................................ 18
Contractual Relief and Follow-on Competition for OPC Program ......................................... 18
Overall Course of Action .................................................................................................. 19
Contractual Relief ............................................................................................................. 19
Follow-On Competition .................................................................................................... 20
Notional Schedule ............................................................................................................. 21
FY2020 Funding for a 12th NSC ............................................................................................. 22
Whether to Procure Two FRCs or a Higher Number in FY2020 ............................................ 22
Risk of Procurement Cost Growth on OPCs ........................................................................... 22
Annual or Multiyear (Block Buy) Contracting for OPCs ....................................................... 23
Annual OPC Procurement Rate............................................................................................... 24
Planned NSC, OPC, and FRC Procurement Quantities .......................................................... 25
Legislative Activity in 2019 .......................................................................................................... 25
Summary of Appropriations Action on FY2020 Acquisition Funding Request ...................... 25
FY2020 DHS Appropriations Act (H.R. 3931/S. 2582) .......................................................... 25
House ................................................................................................................................ 25
Senate ................................................................................................................................ 26
Coast Guard Authorization Act of 2019 (S. 2297) .................................................................. 27
Senate ................................................................................................................................ 27
Restore Coast Guard Capabilities Act (S. 2319) ..................................................................... 29
Senate ................................................................................................................................ 29
Figures
Figure 1. National Security Cutter ................................................................................................... 3
Figure 2. Offshore Patrol Cutter ...................................................................................................... 5
Figure 3. Offshore Patrol Cutter ...................................................................................................... 6
Figure 4. Offshore Patrol Cutter ...................................................................................................... 6
Figure 5. Offshore Patrol Cutter ...................................................................................................... 7
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Figure 6. Coast Guard Notional Schedule for Follow-On OPCs .................................................. 12
Figure 7. Fast Response Cutter ...................................................................................................... 17
Figure A-1. Projected Mission Demands vs. Projected Capability/Performance .......................... 33
Tables
Table 1. NSC, OPC, and FRC Funding in FY2013-FY2020 Budget Submissions ....................... 18
Table 2. Summary of Appropriations Action on FY2020 Acquisition Funding Request .............. 25
Table A-1. Program of Record Compared to Objective Fleet Mix ................................................ 31
Table A-2. POR Compared to FMAs 1 Through 4 ........................................................................ 31
Table A-3. Force Mixes and Mission Performance Gaps .............................................................. 32
Table A-4. POR Compared to Objective Mixes in FMA Phases 1 and 2 ...................................... 34
Table B-1. Funding in PC&I Account in FY2013-FY2020 Budgets ............................................. 37
Appendixes
Appendix A. Planned NSC, OPC, and FRC Procurement Quantities ........................................... 30
Appendix B. Funding Levels in PC&I Account ............................................................................ 37
Appendix C. Additional Information on Status and Execution of NSC, OPC, and FRC
Programs from May 2018 GAO Report ..................................................................................... 41
Appendix D. Some Considerations Relating to Warranties in Shipbuilding and Other
Acquisition Programs ................................................................................................................. 44
Appendix E. Impact of Hurricane Michael on OPC Program at Eastern Shipbuilding
Group (ESG) .............................................................................................................................. 46
Contacts
Author Information ........................................................................................................................ 52
Congressional Research Service
Coast Guard Cutter Procurement: Background and Issues for Congress
Introduction
This report provides background information and potential oversight issues for Congress on the
Coast Guard’s programs for procuring 8 National Security Cutters (NSCs), 25 Offshore Patrol
Cutters (OPCs), and 58 Fast Response Cutters (FRCs). The Coast Guard’s proposed FY2020
budget requests a total of $657 million in procurement funding for the NSC, OPC, and FRC
programs.
The issue for Congress is whether to approve, reject, or modify the Coast Guard’s funding
requests and acquisition strategies for the NSC, OPC, and FRC programs. Congress’s decisions
on these three programs could substantially affect Coast Guard capabilities and funding
requirements, and the U.S. shipbuilding industrial base.
The NSC, OPC, and FRC programs have been subjects of congressional oversight for several
years, and were previously covered in other CRS reports that are now archived.1 CRS testified on
the Coast Guard’s cutter acquisition programs most recently on November 29.2 The Coast
Guard’s plans for modernizing its fleet of polar icebreakers are covered in a separate CRS report.3
Background
Older Ships to Be Replaced by NSCs, OPCs, and FRCs
The 91 planned NSCs, OPCs, and FRCs are intended to replace 90 older Coast Guard ships—12
high-endurance cutters (WHECs), 29 medium-endurance cutters (WMECs), and 49 110-foot
patrol craft (WPBs).4 The Coast Guard’s 12 Hamilton (WHEC-715) class high-endurance cutters
entered service between 1967 and 1972.5 The Coast Guard’s 29 medium-endurance cutters
include 13 Famous (WMEC-901) class ships that entered service between 1983 and 1991,6 14
1 This CRS report was first published on June 13, 2012. The earlier CRS reports were Coast Guard Deepwater
Acquisition Programs: Background, Oversight Issues, and Options for Congress, by Ronald O’Rourke (first version
December 18, 2006, final [i.e., archived] version January 20, 2012); CRS Report RS21019, Coast Guard Deepwater
Program: Background and Issues for Congress, by Ronald O’Rourke (first version September 25, 2001, final [i.e.,
archived] version December 8, 2006); and CRS Report 98-830 F, Coast Guard Integrated Deepwater System:
Background and Issues for Congress, by Ronald O’Rourke (first version October 5, 1998, final [i.e., archived] version
June 1, 2001). From the late 1990s until 2007, the Coast Guard’s efforts to acquire NSCs, OPCs, and FRCs were parts
of a larger, integrated Coast Guard acquisition effort aimed at acquiring several new types of cutters and aircraft that
was called the Integrated Deepwater System (IDS) program, or Deepwater for short. In 2007, the Coast Guard broke up
the Deepwater effort into a series of individual cutter and aircraft acquisition programs, but continued to use the term
Deepwater as a shorthand way of referring collectively to these now-separated programs. In its FY2012 budget
submission, the Coast Guard stopped using the term Deepwater as a way of referring to these programs.
2 See CRS Testimony TE10030, Icebreaker Acquisition and the Need for a National Maritime Strategy, by Ronald
O'Rourke, November 29, 2018, which includes discussions of the NSC, OPC, and FRC programs in Appendix E. See
also CRS Testimony TE10029, Building the Fleets of the Future: Coast Guard and NOAA Fleet Recapitalization, by
Ronald O'Rourke, October 11, 2018.
3 CRS Report RL34391, Coast Guard Polar Security Cutter (Polar Icebreaker) Program: Background and Issues for
Congress, by Ronald O'Rourke.
4 In the designations WHEC, WMEC, and WPB, W means Coast Guard ship, HEC stands for high-endurance cutter,
MEC stands for medium-endurance cutter, and PB stands for patrol boat.
5 Hamilton-class cutters are 378 feet long and have a full load displacement of about 3,400 tons.
6 Famous-class cutters are 270 feet long and have a full load displacement of about 1,800 tons.
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Coast Guard Cutter Procurement: Background and Issues for Congress
Reliance (WMEC-615) class ships that entered service between 1964 and 1969,7 and 2 one-of-a-
kind cutters that originally entered service with the Navy in 1944 and 1971 and were later
transferred to the Coast Guard.8 The Coast Guard’s 49 110-foot Island (WPB-1301) class patrol
boats entered service between 1986 and 1992.9
Many of these 90 ships are manpower-intensive and increasingly expensive to maintain, and have
features that in some cases are not optimal for performing their assigned missions. Some of them
have already been removed from Coast Guard service: 8 of the Island-class patrol boats were
removed from service in 2007 following an unsuccessful effort to modernize and lengthen them
to 123 feet; additional Island-class patrol boats are being decommissioned as new FRCs enter
service; the one-of-a-kind medium-endurance cutter that originally entered service with the Navy
in 1944 was decommissioned in 2011; and Hamilton-class cutters are being decommissioned as
new NSCs enter service. A July 2012 Government Accountability Office (GAO) report discusses
the generally poor physical condition and declining operational capacity of the Coast Guard’s
older high-endurance cutters, medium-endurance cutters, and 110-foot patrol craft.10
Missions of NSCs, OPCs, and FRCs
NSCs, OPCs, and FRCs, like the ships they are intended to replace, are to be multimission ships
for routinely performing 7 of the Coast Guard’s 11 statutory missions, including
search and rescue (SAR);
drug interdiction;
migrant interdiction;
ports, waterways, and coastal security (PWCS);
protection of living marine resources;
other/general law enforcement; and
defense readiness operations.11
Smaller Coast Guard patrol craft and boats contribute to the performance of some of these seven
missions close to shore. NSCs, OPCs, and FRCs perform them both close to shore and in the
deepwater environment, which generally refers to waters more than 50 miles from shore.
7 Reliance-class cutters are 210 feet long and have a full load displacement of about 1,100 tons.
8 These were the Acushnet (WMEC-167), which originally entered service with the Navy in 1944, and the Alex Haley
(WMEC-39), which originally entered service with the Navy in 1971. The Acushnet served in the Navy from until
1946, when it was transferred to the Coast Guard. The ship was about 214 feet long and had a displacement of about
1,700 tons. The Alex Haley served in the Navy until 1996. It was transferred to the Coast Guard in 1997, converted into
a cutter, and reentered service with the Coast Guard in 1999. It is 282 feet long and has a full load displacement of
about 2,900 tons.
9 Island-class boats are 110 feet long and have a full load displacement of about 135 to 170 tons.
10 Government Accountability Office, Coast Guard[:]Legacy Vessels’ Declining Conditions Reinforce Need for More
Realistic Operational Targets, GAO-12-741, July 2012, 71 pp.
11 The four statutory Coast Guard missions that are not to be routinely performed by NSCs, OPCs, and FRCs are
marine safety, aids to navigation, marine environmental protection, and ice operations. These missions are performed
primarily by other Coast Guard ships. The Coast Guard states, however, that “while [NSCs, OPCs, and FRCs] will not
routinely conduct [the] Aids to Navigation, Marine Safety, or Marine Environmental Protection missions, they may
periodically be called upon to support these missions (i.e., validate the position of an Aid to Navigation, transport
personnel or serve as a Command and Control platform for a Marine Safety or Marine Environmental Response
mission, etc.).” (Source: Coast Guard information paper provided to CRS on June 1, 2012.)
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Coast Guard Cutter Procurement: Background and Issues for Congress
NSC Program
National Security Cutters (Figure 1)—also known as Legend (WMSL-750)12 class cutters
because they are being named for legendary Coast Guard personnel13—are the Coast Guard’s
largest and most capable general-purpose cutters.14 They are larger and technologically more
advanced than Hamilton-class cutters, and are built by Huntington Ingalls Industries’ Ingalls
Shipbuilding of Pascagoula, MS (HII/Ingalls).
Figure 1. National Security Cutter
Source: U.S. Coast Guard photo accessed May 2, 2012, at http://www.flickr.com/photos/coast_guard/
5617034780/sizes/l/in/set-72157629650794895/.
12 In the designation WMSL, W means Coast Guard ship and MSL stands for maritime security cutter, large.
13 For a Coast Guard news release that mentions the naming rule for the class, see U.S. Coast Guard, “Acquisition
Update: Keel Authenticated for the Fifth National Security Cutter,” May 17, 2013.
14 The NSC design is 418 feet long and has a full load displacement of about 4,500 tons. The displacement of the NSC
design is about equal to that of Navy’s now-retired Oliver Hazard Perry (FFG-7) class frigates, which were 453 feet
long and had a full load displacement of about 4,200 tons. The Coast Guard’s three polar icebreakers are much larger
than NSCs, but are designed for a more specialized role of operations in polar waters. The Coast Guard states that
The largest and most technologically advanced of the Coast Guard’s newest classes of cutters, the
NSCs replace the aging 378-foot high endurance cutters, which have been in service since the
1960s. Compared to legacy cutters, the NSCs’ design provides better sea-keeping and higher
sustained transit speeds, greater endurance and range, and the ability to launch and recover small
boats from astern, as well as aviation support facilities and a flight deck for helicopters and
unmanned aerial vehicles.
(“National Security Cutter,” accessed April 19, 2018, at https://www.dcms.uscg.mil/Our-
Organization/Assistant-Commandant-for-Acquisitions-CG-9/Programs/Surface-Programs/National-
Security-Cutter/.)
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The Coast Guard’s acquisition program of record (POR)—the service’s list, established in 2004,
of planned procurement quantities for various new types of ships and aircraft—calls for procuring
8 NSCs as replacements for the service’s 12 Hamilton-class high-endurance cutters. The Coast
Guard’s FY2019 budget submission estimated the total acquisition cost of a nine-ship NSC
program at $6.030 billion, or an average of about $670 million per ship.15
Although the Coast Guard’s POR calls for procuring a total of 8 NSCs to replace the 12
Hamilton-class cutters, Congress through FY2018 has funded 11 NSCs, including the 10th and
11th in FY2018. Eight NSCs have entered service; the seventh and eighth were commissioned into
service on August 24, 2019. The 9th through 11th are under construction; the 9th is scheduled for
delivery in 2021. The Coast Guard’s proposed FY2020 budget requests $60 million in
procurement funding for the NSC program; this request does not include funding for a 12th NSC.
For additional information on the status and execution of the NSC program from a May 2018
GAO report, see Appendix C.
OPC Program
Overview
Coast Guard officials describe the Offshore Patrol Cutter program as the service’s top acquisition
priority. The Coast Guard’s POR calls for procuring 25 OPCs as replacements for the service’s 29
medium-endurance cutters. The initial ships in the OPC program are being built by Eastern
Shipbuilding Group (ESG) of Panama City, FL.
OPCs (Figure 2, Figure 3, Figure 4, and Figure 5)—also known as Heritage (WMSM-915)16
class cutters because they are being named for past cutters that played a significant role in the
history of the Coast Guard and the Coast Guard’s predecessor organizations17—are to be less
expensive and in some respects less capable than NSCs.18 OPCs are to have a length of 360 feet,
which will make them about 86% as long as NSCs, which have a length of 418 feet. OPCs were
earlier estimated to have a full load displacement of 3,500 tons to 3,730 tons, which would have
15 Source: Coast Guard Five-Year (FY2019-FY2023) Capital Investment Plan (CIP) funding table for the Procurement,
Construction and Improvements (PC&I) account.
16 In the designation WMSM, W means Coast Guard ship and MSM stands for maritime security cutter, medium.
17 For the naming rule for the class and a list of the names of the first 11 OPCs, see U.S. Coast Guard, “The Offshore
Patrol Cutter (OPC) Is The Coast Guard’s Highest Investment Priority and Will Play A Critical Role in the Service’s
Future,” undated, accessed August 15, 2017, at http://www.dcms.uscg.mil/Our-Organization/Assistant-Commandant-
for-Acquisitions-CG-9/Newsroom/OPC_Day/. See also Sam LaGrone, “Coast Guard Celebrates Birthday by Naming
11 Planned Offshore Patrol Cutters,” USNI News, August 4, 2017 (updated August 5, 2017).
18 The service states that OPCs
The OPCs will provide the majority of offshore presence for the Coast Guard’s cutter fleet,
bridging the capabilities of the 418-foot national security cutters, which patrol the open ocean, and
the 154-foot fast response cutters, which serve closer to shore. The OPCs will conduct missions
including law enforcement, drug and migrant interdiction, search and rescue, and other homeland
security and defense operations. Each OPC will be capable of deploying independently or as part of
task groups and serving as a mobile command and control platform for surge operations such as
hurricane response, mass migration incidents and other events. The cutters will also support Arctic
objectives by helping regulate and protect emerging commerce and energy exploration in Alaska.
(“Offshore Patrol Cutter,” accessed April 20, 2018, https://www.dcms.uscg.mil/Our-Organization/
Assistant-Commandant-for-Acquisitions-CG-9/Programs/Surface-Programs/Offshore-Patrol-
Cutter/Offshore-Patrol-Cutter-Program-Profile/.)
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made them about 80% as large in terms of full load displacement as NSCs, which have a full load
displacement of about 4,500 tons 19 As the OPC design has matured, however, its estimated
displacement has grown to about 4,500 tons, making it essentially as large as the NSC in terms of
full load displacement.20
Figure 2. Offshore Patrol Cutter
Artist’s rendering
Source: Photograph accompanying Kirk Moore, “Coast Guard’s Birthday Present: Naming the Next Cutters,”
WorkBoat, August 4, 2017. A caption to the rendering credits the rendering to Eastern Shipbuilding Group.
The Coast Guard’s FY2019 budget submission estimated the total acquisition cost of the 25 ships
at $10.523 billion, or an average of about $421 million per ship.21 The first OPC was funded in
FY2018. The second OPC and long lead time materials (LLTM) for the third were funded in
FY2019. The Coast Guard’s proposed FY2020 budget requests $457 million in procurement
funding for the third OPC, LLTM for the fourth and fifth, and other program costs.
The Coast Guard’s Request for Proposal (RFP) for the OPC program, released on September 25,
2012, established an affordability requirement for the program of an average unit price of $310
million per ship, or less, in then-year dollars (i.e., dollars that are not adjusted for inflation) for
19 As of May 26, 2017, the OPC’s light ship displacement (i.e., its “empty” displacement, without fuel, water, ballast,
stores, and crew) was preliminarily estimated at about 2,640 to 2,800 tons, and its full load displacement was
preliminarily estimated at about 3,500 to 3,730 tons. (Source: Figures provided to CRS by Cost Guard liaison office,
May 26, 2017.) In terms of full load displacement, this would have made OPCs roughly 80% as large as NSCs.
20 Source: Email from Coast Guard liaison office to CRS, November 25, 2019.
21 Source: Coast Guard Five-Year (FY2019-FY2023) Capital Investment Plan (CIP) funding table for the Procurement,
Construction and Improvements (PC&I) account.
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ships 4 through 9 in the program.22 This figure represents the shipbuilder’s portion of the total
cost of the ship; it does not include the cost of government-furnished equipment (GFE) on the
ship,23 or other program costs—such as those for program management, system integration, and
logistics—that contribute to the above-cited figure of $421 million per ship.24
Figure 3. Offshore Patrol Cutter
Artist’s rendering
Source: “Offshore Patrol Cutter Notional Design Characteristics and Performance,” accessed September 16,
2016, at https://www.dcms.uscg.mil/Portals/10/CG-9/Surface/OPC/OPC%20Placemat%2036x24.pdf?ver=2018-10-
02-134225-297.
Figure 4. Offshore Patrol Cutter
Artist’s rendering
Source: Eastern Shipbuilding Group (http://www.easternshipbuilding.com/), accessed September 9, 2019.
22 Source: Section C.5 of the RFP, accessed October 31, 2012, at http://www.uscg.mil/ACQUISITION/newsroom/
updates/opc092512.asp.
23 GFE is equipment that the government procures and then delivers to the shipyard for installation on the ship.
24 Source: Coast Guard emails to CRS dated June 25, 2013.
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Coast Guard Cutter Procurement: Background and Issues for Congress
Figure 5. Offshore Patrol Cutter
Artist’s rendering
Source: Image received from Coast Guard liaison office, May 25, 2017.
Competition and September 2016 Contract Award
In response to the September 25, 2012, RFP, at least eight shipyards expressed interest in the OPC
program.25 On February 11, 2014, the Coast Guard announced that it had awarded Preliminary
and Contract Design (P&CD) contracts to three of those eight firms—Bollinger Shipyards of
Lockport, LA; Eastern Shipbuilding Group (ESG) of Panama City, FL; and General Dynamics’
Bath Iron Works (GD/BIW) of Bath, ME.26 On September 15, 2016, the Coast Guard announced
25 The firms were the following: Bollinger Shipyards of Lockport, LA; Eastern Shipbuilding Group of Panama City,
FL; General Dynamics Bath Iron Works (GD/BIW) of Bath, ME; Huntington Ingalls Industries (HII) of Pascagoula,
MS; Marinette Marine Corporation of Marinette, WS; General Dynamics National Steel and Shipbuilding Company
(GD/NASSCO) of San Diego, CA; Vigor Shipyards of Seattle, WA; and VT Halter Marine of Pascagoula, MS.
(Source: U. S. Coast Guard Offshore Patrol Cutter (OPC) List of Interested Contractors Updated July 2012, accessed
online October 23, 2012, at http://www.uscg.mil/ACQUISITION/opc/pdf/companiesinterested.pdf; and Kevin
Brancato and Anne Laurent, Coast Guard’s $12 Billion Cutter Competition Spurs Eight Shipyards to Dive In,
Bloomberg Government Study, November 8, 2012, 6 pp. The Coast Guard document states that these firms “expressed
interest in the Offshore Patrol Cutter acquisition and have agreed to their names provided on the Coast Guard website.”
See also Stew Magnuson, “New Coast Guard Cutter Sparks Fierce Competition Among Shipbuilders,” National
Defense (www.nationaldefensemagazine.org), April 2013, accessed March 26, 2013, at
http://www.nationaldefensemagazine.org/articles/2013/4/1/2013april-new-coast-guard-cutter-sparks-fierce-
competition-among-shipbuilders.)
26 “Acquisition Update: U.S. Coast Guard Awards Three Contracts for Offshore Patrol Cutter Preliminary and Contract
Design,” February 11, 2014, accessed February 14, 2014, at https://www.dcms.uscg.mil/Portals/10/CG-9/Newsroom/
In%20The%20News%20Archives/2014/opc021114.pdf?ver=2017-05-23-145011-727. HII and VT Halter Marine
reportedly filed protests of the Coast Guard’s award decision on February 24 and 25, respectively. The Coast Guard
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that it had awarded the detail design and construction (DD&C) contract to ESG. The contract
covers detail design and production of up to 9 OPCs and has a potential value of $2.38 billion if
all options are exercised.27
October 11, 2019, Announcement of Contractual Relief and Follow-on
Competition
Overview
On October 11, 2019, the Department of Homeland Security (DHS), of which the Coast Guard is
a part, announced that DHS had granted extraordinary contractual relief to ESG under P.L. 85-
804 as amended (50 U.S.C. 1431-1435), a law originally enacted in 1958 that authorizes certain
federal agencies to provide certain types of extraordinary relief to contractors who are
encountering difficulties in the performance of federal contracts or subcontracts relating to
national defense.28 50 U.S.C. 1431 states in part:
The President may authorize any department or agency of the Government which exercises
functions in connection with the national defense, acting in accordance with regulations
prescribed by the President for the protection of the Government, to enter into contracts or
into amendments or modifications of contracts heretofore or hereafter made and to make
issued stop work orders to Bollinger, Eastern, and GD/BIW pending GAO’s rulings on the protests. (Calvin Biesecker,
“Coast Guard Issues Stop Work Orders On OPC Following Protests,” Defense Daily, February 28, 2014: 2-3. See also
Christopher P. Cavas, “Ingalls Protesting US Coast Guard Cutter Contract,” DefenseNews.com, February 26, 2014.) On
June 5, 2014, it was reported that GAO had rejected the protests, and that the Coast Guard had directed Bollinger,
Eastern, and GD/BIW to resume their work. (Calvin Biesecker, “Coast Guard Directs Design Work Continue On OPC
After GAO Denies Protests,” Defense Daily, June 5, 2014: 1; Christopher P. Cavas, “US Coast Guard Cutter Award
Upheld,” Defense News (http://www.defensenews.com), June 5, 2014. For the text of the decision, see Government
Accountability Office, Decision in the Matter of Huntington Ingalls Industries, Inc.; VT Halter Marine, Inc., June 2,
2014.)
27 “Acquisition Update: Coast Guard Selects Offshore Patrol Cutter Design,” September 15, 2016, accessed September
16, 2016, at https://www.dcms.uscg.mil/Portals/10/CG-9/Newsroom/In%20The%20News%20Archives/2016/
opc091516.pdf?ver=2017-05-23-124855-680. An October 7, 2016, press report states that “after no protests were filed
by the losing bidders to build the Coast Guard’s new class of medium-endurance cutters, the service this week directed
Eastern Shipbuilding Group to proceed with detail design and construction of the Offshore Patrol Cutter (OPC).... The
period for the losing bidders to file a protest ended at close of business on Monday [October 3].” (Calvin Biesecker,
“Coast Guard Directs Eastern Shipbuilding To Move Forward With Offshore Patrol Cutter,” Defense Daily, October 7,
2016, p. 3. See also “Acquisition Update: Coast Guard Moves Forward To Next Phase Of OPC Acquisition,” October
5, 2016, accessed march 20, 2016, at https://www.dcms.uscg.mil/Portals/10/CG-9/Newsroom/
In%20The%20News%20Archives/2016/opc100516.pdf?ver=2017-05-23-153912-247.)
On September 7, 2017, the Coast Guard exercised a fixed-price option to its contract with Eastern Shipbuilding to
procure long lead time materials (LLTM) for the first OPC; the total value of the option is $41.68 million. (“Coast
Guard Exercises Long Lead Time Materials Option For First Offshore Patrol Cutter,” September 7, 2017, accessed
October 25, 2017, at http://www.dcms.uscg.mil/Our-Organization/Assistant-Commandant-for-Acquisitions-CG-9/
Newsroom/OPC090717/.)
28 For more on P.L. 85-804 as amended, see CRS Report 76-261, Extraordinary Contractual Relief Under Public Law
85-804, April 28, 1976, by Andrew C. Mayer. The report was prepared at the request of the House Armed Services
Committee and converted by the committee into a committee print (70-905 O), dated May 10, 1976, that can be viewed
at https://ufdc.ufl.edu/AA00022546/00001/1j . See also David H. Peirez, “Public Law 85-804: Contractual Relief for
the Government Contractor,” Administrative Law Review, Vol. 16 (Summer 1964): 248-264, accessed October 11,
2019, at https://www.jstor.org/stable/40708469; and “Presidential Power: Public Law 85-804 (50 U.S.C. §§ 1431-35),”
Brennan Center for Justice, undated, accessed October 11, 2019, at
https://www.brennancenter.org/sites/default/files/analysis/50%20USC%201431-1435.pdf. (Although it is undated, it
appears to have been written no earlier than 2014, as it includes three references to the year 2014, including one that
states, “As of 2014….”) The text of P.L. 85-804 as originally enacted is posted at https://www.govinfo.gov/content/
pkg/STATUTE-72/pdf/STATUTE-72-Pg972.pdf.
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advance payments thereon, without regard to other provisions of law relating to the making,
performance, amendment, or modification of contracts, whenever he deems that such
action would facilitate the national defense. The authority conferred by this section shall
not be utilized to obligate the United States in an amount in excess of $50,000 without
approval by an official at or above the level of an Assistant Secretary or his Deputy, or an
assistant head or his deputy, of such department or agency, or by a Contract Adjustment
Board established therein.
ESG reportedly submitted a request for extraordinary relief on June 30, 2019, after ESG’s
shipbuilding facilities were damaged by Hurricane Michael, a hurricane that passed through the
Florida panhandle on October 10, 2018. The Coast Guard announced that the contractual relief is
limited to the first four hulls in the OPC program. DHS stated that the Coast Guard would
immediately transition to conducting a follow-on competition for subsequent ships in the OPC
program.
60-Day Congressional Review Period That Started on October 11, 2019
Under P.L. 85-804 as amended, Congress has 60 days of continuous session to review the
announced contractual relief, with the 60-day period in this case starting October 11. 50 U.S.C.
1431 states in part:
The authority conferred by this section may not be utilized to obligate the United States in
any amount in excess of $25,000,000 unless the Committees on Armed Services of the
Senate and the House of Representatives have been notified in writing of such proposed
obligation and 60 days of continuous session of Congress have expired following the date
on which such notice was transmitted to such Committees. For purposes of this section, the
continuity of a session of Congress is broken only by an adjournment of the Congress sine
die at the end of a Congress, and the days on which either House is not in session because
of an adjournment of more than 3 days to a day certain, or because of an adjournment sine
die other than at the end of a Congress, are excluded in the computation of such 60-day
period.
October 11, 2019, News Releases and Press Report
An October 11, 2019, DHS news release stated:
The Department of Homeland Security, after extensive analysis by the U.S. Coast Guard
and further review by a Contract Adjustment Board chaired by the Department’s Deputy
Under Secretary for Management, has granted limited extraordinary contract relief to
Eastern Shipbuilding Group (ESG) for the Offshore Patrol Cutter (OPC) contract under the
authority of Public Law (P.L.) 85-804.
ESG submitted a request in June 2019, for extraordinary contract relief after their
shipbuilding facilities sustained significant damage resulting from Hurricane Michael, a
Category 5 storm, in October 2018.
After review of the request for relief, Acting Secretary of Homeland Security Kevin K.
McAleenan made the decision to grant extraordinary contract relief limited to the first four
hulls on the basis that ESG’s performance on the OPC contract is vital to the national
defense.
P.L. 85-804 was enacted in 1958 and extended to DHS through Presidential Executive
Order in 2003. Under this law, an existing contract may be amended or modified when
such actions are necessary to facilitate the national defense. The Coast Guard will
immediately transition to a follow-on competitive contract for the remaining OPC program
of record.
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The OPC program remains one of the Department’s highest acquisition priorities. This
decision will ensure critical capabilities for our national and homeland security, and
delivery for service to the American public as expeditiously and responsibly as possible.29
An October 11, 2019, Coast Guard news release states:
Following a determination by the Acting Secretary of Homeland Security that
extraordinary relief is necessary to maintain the national defense and is in the best interest
of the government, the Coast Guard is moving forward with an adjustment to the Offshore
Patrol Cutter (OPC) detail design and construction contract with Eastern Shipbuilding
Group (ESG) for up to the first four hulls. The Coast Guard will work with ESG to establish
new cost and schedule targets under the contract and continue OPC production at ESG’s
facilities in Panama City, Florida. Additionally, the Coast Guard will release a Request for
Information to gauge industry interest in re-competing the remainder of the OPC program
of record. This information will inform the acquisition strategy for the follow-on
procurement.
The Coast Guard and Department of Homeland Security, with support from the Navy and
independent third party experts, completed a comprehensive evaluation of ESG’s request
for extraordinary contract relief as a result of Hurricane Michael. This evaluation focused
on cost, schedule, and performance factors and determined that ESG’s continued
performance on the OPC contract is essential to the national defense.
The request was made by ESG under the authority of Public Law 85-804 after Hurricane
Michael—a Category 5 storm—made landfall in Panama City on October 10, 2018.
Hurricane Michael caused widespread damage to ESG facilities as well as homes and
businesses in the area.
ESG began reconstitution efforts immediately following the storm and remains actively
engaged in post‐hurricane recovery activities. However, impacts are likely to be felt across
the community for the better part of the next decade. As a result of property damage
incurred, a significant impact to ESG’s workforce, and overall regional impacts to
infrastructure, ESG requested extraordinary cost and schedule relief from the Coast Guard
to support continued performance on the OPC contract.
Production on the first OPC commenced in January 2019 and new post-hurricane build
strategy is being implemented. Long lead-time material to support construction of the
second OPC are on order.
The OPC is the Coast Guard’s highest acquisition priority and will provide a capability
bridge between the National Security Cutter, which patrols the open ocean in the most
demanding maritime environments, and the Fast Response Cutter, which serves closer to
shore. The OPC will feature state-of-the-market technology and will replace the service’s
270-foot and 210-foot Medium Endurance Cutters, which are becoming increasingly
expensive to maintain and operate.
The Coast Guard remains committed to acquiring the OPC to address the Nation’s security
needs, while maintaining public trust and stewardship of the American taxpayers’ dollars.30
An October 11, 2019, press report states:
The Department of Homeland Security, in close coordination with the U.S. Coast Guard,
granted extraordinary relief to the Eastern Shipbuilding Group (ESG) for the Offshore
Patrol Cutter (OPC) under the authority of Public Law (P.L.) 85-804.
29 Department of Homeland Security, “DHS Extends Contract Relief for Offshore Patrol Cutter,” October 11, 2019.
30 U.S. Coast Guard, “Department of Homeland Security Approves Limited Extraordinary Relief for Offshore Patrol
Cutter Contract,” October 11, 2019.
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ESG submitted a request June 30, 2019, for extraordinary relief after their shipbuilding
facilities sustained significant damages from Hurricane Michael, a Category 5 storm, in
October 2018.
Acting Secretary of Homeland Security Kevin K. McAleenan made the decision to grant
extraordinary contract relief limited to the first four hulls on the basis that ESG’s
performance on the OPC contract is vital to the national defense. The Coast Guard will
immediately transition to a follow-on competitive contract for the remaining OPC program
of record.
P.L. 85-804 was enacted in 1958 and extended to DHS through Presidential Executive
Order in 2003. Under this law, an existing contract may be amended or modified when
such actions are necessary to facilitate the national defense.
The Coast Guard, supported by DHS and the Navy, conducted an extensive analysis of
ESG’s request guided by law and Federal Acquisition Regulation. This review included an
assessment of the cost, schedule, and performance impacts on the existing contract. The
review was overseen by a Contract Adjustment Board chaired by the DHS Deputy Under
Secretary for Management.
“Eastern Shipbuilding’s request for extraordinary relief was carefully considered,” said
Coast Guard Vice Commandant, Admiral Charles W. Ray. “This review validated the
essential contributions the OPC will provide to our national security and determined that
limited relief, in parallel with immediate recompete, is the best option in this exceptional
situation. Doing so is consistent with the law, fiscally responsible, and the most expeditious
means to deliver this essential national capability.”
The Coast Guard intends to release a Request for Information to gauge industry interest in
re-competing the remainder of the OPC program of record. This information will inform
the acquisition strategy for the follow-on procurement.31
October 18, 2019, Request for Information (RFI) Regarding Follow-On
Competition
Overview
On October 18, 2019, the Coast Guard released a Request for Information (RFI) for its intended
follow-on competition in the OPC program. Responses to the RFI were due by November 6,
2019.
The RFI posting includes an attached notional schedule for the follow-on effort, a detail of which
is shown in Figure 6. As shown in Figure 6, the notional schedule calls for awarding one or more
contracts for industry studies, for releasing the Request for Proposals (RFP) for the detail design
and construction (DD&C) contract for the follow-on OPCs at the start of the second quarter of
FY2021, for evaluating the proposals during FY2022, and for awarding the DD&C contract near
the end of FY2022.
Under the Coast Guard’s notional schedule, the first follow-on OPC (i.e., ship 5 in the OPC
program) is to begin construction near the end of FY2023 and be delivered near the end of
FY2026. Ships 5 through 25 (a total of 21 ships) are to be procured in annual quantities of 1-1-1-
2-2-2-2-2-2-2-2-2 (i.e., one per year for three years, followed by two per year for the next nine
31 “DHS, Coast Guard Extend Limited Contract Relief for Offshore Patrol Cutter,” Coast Guard News
(coastguardnews.com), October 11, 2019.
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Coast Guard Cutter Procurement: Background and Issues for Congress
years), with the final two OPCs (i.e., ships 24 and 25) beginning construction in late FY2034 and
being delivered in late FY2037.
Figure 6. Coast Guard Notional Schedule for Follow-On OPCs
Detail showing earlier years of the notional schedule
Source: Attachment to “U.S. Coast Guard Offshore Patrol Cutter (OPC) Request for Information,” October
18, 2019, accessed October 21, 2019, at
https://www.fbo.gov/index?s=opportunity&mode=form&id=06e63ce117c181b05b75c92fe6e87fee&tab=core&_cvi
ew=0.
The October 18, 2019, RFI states that “it is assumed that Shipbuilders would utilize the mature
parts of the existing OPC functional design—to the maximum extent possible—and mature any
incomplete aspects of the [OPC] detail design.” This suggests that the Coast Guard envisions that
the fifth and subsequent OPCs would be built to a design that is largely similar to that of ESG’s
design for the first four OPCs.
Excerpts from the RFI
The RFI states in part that
multiple Government-funded Industry Studies contracts may be awarded to assist in the
refinement and completion of the existing OPC Detail Design and the development of a
Detail Design and Construction (DD&C) solicitation to facilitate delivery of affordable
OPCs to the fleet as quickly as possible, while reducing program risk over the course of
the Program of Record. Under this approach, it is anticipated that upon completion of
Industry Studies, the USCG would award one or more competitive contract(s) for
completing the Detail Design and Construction (DD&C) of OPCs in a continued effort to
fulfill the USCG's Program of Record requirements for 25 OPCs.
In order to meet the OPC Program's operational fleet needs, it is assumed that Shipbuilders
would utilize the mature parts of the existing OPC functional design—to the maximum
extent possible—and mature any incomplete aspects of the detail design. The existing
functional design, including selected 2D design drawings, calculations, and diagrams, will
be made available for Industry Studies contract awardees and will not be warranted by the
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Government. While schedule is a major driver, program affordability must remain a
constant consideration….
Industry Studies Contracts: In early FY20, the USCG intends to release a solicitation for
multiple-award, Government-funded Industry Studies to prospective prime Shipbuilders
for an OPC Detail Design and Construction (DD&C) contract. It is anticipated that the
Government will award Industry Studies contracts to Shipbuilders able to build (i.e., with
a certified launch facility), design (i.e., Shipbuilders with in-house design capability or a
designer as a team member), and have the capacity to deliver (i.e., within the shipyard's
current build schedule) OPCs featuring Command and Control, Navigation, Aviation, and
Navy-furnished Combat systems no later than the dates included in the notional schedule
below. As part of the Industry Studies solicitation, the Government may provide a draft
OPC System Specification, technical data package, and draft DD&C Statement of Work.
This data describes a basic OPC functional design, which has completed a Critical Design
Review. Shipbuilders may be required to use this non-warranted data as the basis for
completing an affordable Detail Design of the OPC on an accelerated delivery timeline.
An overview (placemat) of this functional design will also be provided to Industry Study
awardees. As part of Industry Studies, the Government is interested in understanding how
the 2D functional design will be transitioned and incorporated into a final 3D production
design for OPC construction at each Shipbuilder's facility. It is anticipated that each
Shipbuilder will conduct several cost, schedule, capability and technical studies to support
validation and refinement of its proposed OPC Detail Design and transition to a production
design. The results of the Industry Studies will further inform a Government RFP for an
OPC DD&C contract.
Detail Design and Construction (DD&C) Contract(s): The Program intends to release
an RFP, through separate full and open competition, leading to award of Long Lead Time
Material (LLTM) and DD&C for OPCs in an effort to complete the OPC Program of
Record of 25 hulls.
The OPC Program seeks industry feedback on the notional program schedule… as well as
industry feedback on how construction of OPCs could be further accelerated and how
acceleration would affect program risk and cost.
Requested Information from Industry
Acquisition Strategy Feedback
1. Given the publicly-available information and description provided above on the status
of the OPC program, please provide a recommended contracting approach for the USCG
to obtain Long Lead Time Material (LLTM), Detail Design, and Construction of OPCs in
an effort to complete its Program of Record of 25 hulls. Describe perceived risks,
impediments to competition, and opportunities available to the USCG to incentivize robust
industry interest and competition and maintain program affordability. Examples of other
input being sought includes, but is not limited to, contract type, Industry Studies scope of
work, performance incentives, evaluation criteria, source selection approach, etc.
2. Identify risks with the notional approach described in this RFI, suggest measures to
mitigate risk, and identify potential opportunities to accelerate the notional schedule, while
maintaining program affordability.
3. Provide a notional plan of action and milestones for how your company would meet or
accelerate the delivery dates depicted in the notional schedule provided in this RFI, while
maintaining program affordability.
4. Identify how your company would approach using a Government-provided, non-
warranted functional design to construct one or more OPCs. Discuss any potential technical
risks associated with refining/completing an existing design from industry's perspective.
Describe your company's preferred approach to completing an OPC production design,
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based on the notional schedule outlined in this request, and how your company views a
requirement to utilize a non-warranted functional design data package.
5. Provide input on the potential use of a block buy contracting approach during the course
of the program and recommendations for incorporation of such an approach if your
company deems that block buy contracting is feasible. Also, if your company deems that
block buy contracting is not feasible, explain the rationale against using this approach.
6. Indicate if constructing two hulls per year is feasible and provide your company's
expected shipbuilding capacity with respect to constructing multiple hulls per year. Any
recommendations or input on the overall production schedule are encouraged.
Respondent Company Information…
9. Provide one recent example of your company's experience in delivering ships featuring
C5ISR, Navigation, Aviation, and Combat Systems, and identify major subcontractors
used to manage development, construction, and/or integration of those systems.
10. Provide a yard-loading schedule that demonstrates your company's expected
shipbuilding capacity to support the OPC program and its planned serial, multiple-hull
build approach….32
For additional background information on the impact of Hurricane Michael on the OPC program
at ESG, see Appendix E. For additional general information on the status and execution of the
OPC program from a May 2018 GAO report, see Appendix C.
November 22, 2019, Update and Statement of Work (SOW) Regarding Follow-
On Competition
On November 22, 2019, the Coast Guard posted an update to its RFI regarding its intended
follow-on competition for the OPC program. The posting revised the response date from
November 6, 2019, to December 6, 2019, and issued a draft statement of work (SOW) for the
competition. The draft SOW states that the competition is for a contract to complete the detail
design work on the OPC and build one ship, with options for the construction of 10 additional
ships. If the first ship built under this contract is the fifth ship in the program, then the 10
additional options would encompass ships 6 through 15 in the program, leaving the builder of the
final 10 ships in the program (i.e., ships 16 through 25) to be determined at some point in the
future. The Coast Guard’s November 22, 2019, posting states that
An amendment is to this RFI is issued to provide a draft copy of the Offshore Patrol Cutter
(OPC) Industry Studies Statement of Work (SOW). All potential offerors are encouraged
to provide comments and feedback to the draft SOW….
On October 10, 2019, the U.S. Department of Homeland Security approved and granted
extraordinary relief to Eastern Shipbuilding Group, Inc., on its OPC contract, for up to four
hulls as a result of the impact of Hurricane Michael….
The USCG is now working to further develop and finalize its acquisition strategy for
completing the OPC Program of Record of 25 hulls. The purpose of this RFI is to obtain
feedback on a notional OPC acquisition approach and schedule for completing the OPC
Program of Record as soon as possible….
32 “U.S. Coast Guard Offshore Patrol Cutter (OPC) Request for Information,” October 18, 2019, accessed October 21,
2019, at
https://www.fbo.gov/index?s=opportunity&mode=form&id=06e63ce117c181b05b75c92fe6e87fee&tab=core&_cview
=0.
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[The effort’s notional schedule] outlines a high-level acquisition approach where multiple
Government-funded Industry Studies contracts may be awarded to assist in the refinement
and completion of the existing OPC Detail Design and the development of a Detail Design
and Construction (DD&C) solicitation to facilitate delivery of affordable OPCs to the fleet
as quickly as possible, while reducing program risk over the course of the Program of
Record. Under this approach, it is anticipated that upon completion of Industry Studies, the
USCG would award one or more competitive contract(s) for completing the Detail Design
and Construction (DD&C) of OPCs in a continued effort to fulfill the USCG's Program of
Record requirements for 25 OPCs.
In order to meet the OPC Program's operational fleet needs, it is assumed that Shipbuilders
would utilize the mature parts of the existing OPC functional design - to the maximum
extent possible - and mature any incomplete aspects of the detail design. The existing
functional design, including selected 2D design drawings, calculations, and diagrams, will
be made available for Industry Studies contract awardees and will not be warranted by the
Government. While schedule is a major driver, program affordability must remain a
constant consideration….
In early FY20, the USCG intends to release a solicitation for multiple-award, Government-
funded Industry Studies to prospective prime Shipbuilders for an OPC Detail Design and
Construction (DD&C) contract….
The OPC Program seeks industry feedback on the notional program schedule… as well as
industry feedback on how construction of OPCs could be further accelerated and how
acceleration would affect program risk and cost.
Requested Information from Industry…
5. Provide input on the potential use of a block buy contracting approach during the course
of the program and recommendations for incorporation of such an approach if your
company deems that block buy contracting is feasible. Also, if your company deems that
block buy contracting is not feasible, explain the rationale against using this approach.33
The draft SOW included in the November 22, 2019, update states that
The re-competed contract scope will be to complete the OPC Detail Design and to construct
an initial OPC using that Detail Design, with options for constructing up to 10 additional
OPCs. Future contracts may be awarded to complete the OPC program of record which is
for “up to 25 OPCs.” The Government intends to provide hull form licenses for each OPC
built under the DD&C contract in standardizing the hull design for the OPC class. The full
extent of design standardization has yet to be determined.
The OPC as designed is approximately 360ft LOA [length overall] and 4500LT [long tons
in terms of full load displacement]…
[Section] 2.2.2. Cost and Schedule Studies - The Contractor shall identify the expected cost
and schedule to complete OPC Detail Design and construct an initial OPC based on
Contractor’s Detail Design, and to accept options to construct 10 additional OPCs as part
of the USCG effort to complete the OPC program of record….
[Section] 2.2.2.2. Cost and Schedule for OPC Construction – The Contractor shall provide
the following cost and schedule estimates….
The Contractor shall identify possible affordability initiatives for managing
construction costs as well as overall life cycle cost, and document potential impact of
33 “U.S. Coast Guard Offshore Patrol Cutter (OPC) Request for Information,” accessed November 25, 2019, at
https://beta.sam.gov/opp/e73a98302d8f43dbbd2d0ea9cc657e75/view.
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those initiatives on both cost and schedule. The impact of block buys of OPCs as a
cost reduction strategy shall be addressed in this section.
[Section] 2.2.2.3. Cost and Schedule Risks - The Contractor shall provide the following
risk assessments.–
The Contractor shall provide a risk assessment of achieving the OPC Program’s
previously established affordability target for production OPCs. That previous target
was an average unit price of $310 million in FY-22 dollars and it assumed that OPCs
-4 and -5 would be awarded in FY21, OPCs -6 and -7 would be awarded in FY22, and
OPCs -8 and -9 would be awarded in FY23.34
FRC Program
Fast Response Cutters (Figure 7)—also called Sentinel (WPC-1101)35 class patrol boats because
they are being named for enlisted leaders, trailblazers, and heroes of the Coast Guard and its
predecessor services of the U.S. Revenue Cutter Service, U.S. Lifesaving Service, and U.S.
Lighthouse Service36—are considerably smaller and less expensive than OPCs, but are larger than
the Coast Guard’s older patrol boats.37 FRCs are built by Bollinger Shipyards of Lockport, LA.
The Coast Guard’s POR calls for procuring 58 FRCs as replacements for the service’s 49 Island-
class patrol boats.38 The POR figure of 58 FRCs is for domestic operations. The Coast Guard,
however, operates six Island-class patrol boats in the Persian Gulf area as elements of a Bahrain-
based Coast Guard unit, called Patrol Forces Southwest Asia (PATFORSWA), which is the Coast
Guard’s largest unit outside the United States.39 Providing FRCs as one-for-one replacements for
all six of the Island-class patrol boats in PATFORSWA would result in a combined
POR+PATFORSWA figure of 64 FRCs.
34 U.S. Coast Guard, Statement of Work, USCG Offshore Patrol Cutter Industry and Production Engineering Studies,
downloaded from link provided at “U.S. Coast Guard Offshore Patrol Cutter (OPC) Request for Information,” accessed
November 25, 2019, at https://beta.sam.gov/opp/e73a98302d8f43dbbd2d0ea9cc657e75/view.
35 In the designation WPC, W means Coast Guard ship and PC stands for patrol craft.
36 Source for class naming rule: U.S. Coast Guard bulletin, “ALCOAST 349/17 - Nov 2017 New Fast Response Cutters
Named for Coast Guard heroes,” November 22, 2017, accessed November 20, 2017, at
https://content.govdelivery.com/accounts/USDHSCG/bulletins/1c6c844.
37 FRCs are 154 feet long and have a full load displacement of 353 tons.
38 The Coast Guard states that
The planned fleet of FRCs will conduct primarily the same missions as the 110’ patrol boats being
replaced. In addition, the FRC will have several increased capabilities enhancing overall mission
execution. The FRC is designed for rapid response, with approximately a 28 knot speed capability,
and will typically operate in the coastal zones. Examples of missions that FRCs will complete
include SAR, Migrant Interdiction, Drug Interdiction and Ports Waterways and Coastal Security.
FRCs will provide enhanced capabilities over the 110’s including improved C4ISR capability and
interoperability; stern launch and recovery (up through sea state 4) of a 40 knot, Over-the-Horizon,
7m cutter boat; a remote operated, gyro stabilized MK38 Mod 2, 25mm main gun; improved sea
keeping; and enhanced crew habitability.
(Department of Homeland Security, United States Coast Guard, Fiscal Year 2013 Congressional
Justification, p. CG-AC&I-28 (pdf page 182 of 400).)
39 For additional information on PATFORSWA, see U.S. Coast Guard, “Patrol Forces Southwest Asia,
PATFORSWA,” accessed April 24, 2019, at https://www.atlanticarea.uscg.mil/Our-Organization/Area-Units/
PATFORSWA/, U.S. Coast Guard, “CG Patrol Forces SWA Org Chart,” accessed April 24, 2019, at
https://www.atlanticarea.uscg.mil/Our-Organization/Area-Units/PATFORSWA/Departments/; Edward H. Lundquist,
“PATFORSWA Serves Forward in the Arabian Gulf,” Defense Media Network, March 19, 2018; Eric D. Nielsen
(posted by Connie Terrell), “PATFORSWA: Guardians of the Arabian Gulf,” Coast Guard Compass, August 22, 2016.
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Figure 7. Fast Response Cutter
With an older Island-class patrol boat behind
Source: U.S. Coast Guard photo accessed May 4, 2012, at http://www.flickr.com/photos/coast_guard/
6871815460/sizes/l/in/set-72157629286167596/.
The Coast Guard’s FY2019 budget submission estimated the total acquisition cost of the 58
cutters at $3.748.1 billion, or an average of about $65 million per cutter.40 A total of 56 FRCs
have been funded through FY2019, including 6 in FY2019. Four of the 56 (2 of the FRCs funded
in FY2018 and 2 of the FRC funded in FY2019) are to be used for replacing PATFORSWA
cutters and consequently are not counted against the Coast Guard’s 58-ship POR for the program.
Excluding these 4 OPCs, 52 FRCs for domestic operations have been funded through FY2019.
The 35th FRC was commissioned into service on October 26, 2019. The Coast Guard’s proposed
FY2020 budget requests $140 million in acquisition funding for the procurement of two more
FRCs for domestic operations.
For additional information on the status and execution of the FRC program from a May 2018
GAO report, see Appendix C.
Funding in FY2013-FY2020 Budget Submissions
Table 1 shows annual requested and programmed acquisition funding for the NSC, OPC, and
FRC programs in the Coast Guard’s FY2013-FY2020 budget submissions. Actual appropriated
figures differ from these requested and projected amounts.
40 Government Accountability Office, Home Security Acquisitions[:] Leveraging Programs’ results Could Further
DHS’s Progress to Improve Portfolio Management, May 2018, GAO-18-339SP, p. 81.
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Table 1. NSC, OPC, and FRC Funding in FY2013-FY2020 Budget Submissions
Figures in millions of then-year dollars
Budget
FY13
FY14
FY15
FY16
FY17
FY18
FY19 FY20 FY21
FY22
FY23
FY24
NSC program
FY13
683
0
0
0
0
FY14
16
710
38
0
45
FY15
638
75
130
30
47
FY16
91.4
132
95
30
15
FY17
127
95
65
65
21
FY18
54
65
65
21
6.6
FY19
65
57.7
21
6.6
0
FY20
60
21
6.6
5
5
OPC program
FY13
30
50
40
200
530
FY14
25
65
200
530
430
FY15
20
90
100
530
430
FY16
18.5
100
530
430
430
FY17
100
530
430
530
770
FY18
500
400
457
716
700
FY19
400
457
716
700
689
FY20
457
716
700
689
715
FRC program
FY13
139
360
360
360
360
FY14
75
110
110
110
110
FY15
110
340
220
220
315
FY16
340
325
240
240
325
FY17
240
240
325
325
18
FY18
240
335
335
26
18
FY19
240
340
20
20
20
FY20
140
20
20
20
20
Total
FY13
852
410
400
560
890
FY14
716
885
348
640
585
FY15
768
505
450
780
792
FY16
449.9
557
865
700
370
FY17
467
865
820
920
809
FY18
794
800
857
763
724.6
FY19
705
854.7
757
726.6
709
FY20
657
757
726.6
714
740
Source: Table prepared by CRS based on FY2013-FY2020 budget submissions.
Issues for Congress
Contractual Relief and Follow-on Competition for OPC Program
The October 11, 2019, announcements by DHS and the Coast Guard of the decision to grant
extraordinary contractual relief to ESG for the first four OPCs and a conduct follow-on
competition for subsequent OPCs, and the Coast Guard’s October 18, 2019, RFI regarding the
follow-on effort, raise a number of potential oversight questions for Congress, particularly in the
context of the previously discussed 60-day congressional review period for contractual relief
actions that are announced under the authority granted by P.L. 85-804 as amended.
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Overall Course of Action
Potential oversight questions relating to the announced overall course of action include but are
not necessarily limited to the following:
What potential overall courses of action did DHS and the Coast Guard examine
for responding to the situation at ESG created by Hurricane Michael? For
example, did DHS and the Coast Guard examine the option of immediately
terminating the OPC contract, paying ESG any resulting contract-termination
costs, and conducting a new competition to build OPCs starting with the first ship
in the program? Alternatively, for example, did DHS and the Coast Guard
examine the option of providing contractual relief to ESG under P.L. 85-804 as
amended while maintaining the plan to build up to nine OPCs at ESG? What
other potential overall courses of action were examined?
What were the potential advantages and disadvantages of these and other
potential overall courses of action?
Why does DHS believe that the best overall course of action is to provide
extraordinary contractual relief for a limited number of OPCs under P.L. 85-804
as amended and then conduct a follow-on competition for the remaining ships in
the OPC program?
What impact, if any, does the announced overall course of action for the OPC
program have on the issue discussed in the next section regarding FY2020
funding for a 12th National Security Cutter (NSC)?
Contractual Relief
Potential oversight questions relating to specifically the contractual relief include but are not
necessarily limited to the following:
Why does the contractual relief extend to four OPCs, as opposed to a smaller or
greater number of OPCs?
Does the announced contractual relief include a financial adjustment? If so, what
is the dollar value of the contractual relief, how was this value calculated, and
what impact, if any, will the financial adjustment have on the OPC program’s
funding requirements in FY2020 and subsequent years?
What are the schedule adjustments for the OPC program that were granted as part
of the contractual relief, and what impact will they have on the scheduled
delivery dates of OPCs?
Regarding the first question above, as mentioned earlier, the first OPC was funded in FY2018, the
second OPC and long lead time materials [LLTM] for the third were funded in FY2019, and the
Coast Guard’s proposed FY2020 budget requests procurement funding for the third OPC and
LLTM for the fourth and fifth OPCs.
Regarding the third question above, an October 15, 2019, press report states:
The decision to reopen the competition for the Coast Guard’s new medium-endurance
cutter after the current shipbuilder builds up to four of the ships will result in fewer
Offshore Patrol Cutters (OPCs) being acquired in the initial years of the program than
planned, Coast Guard Commandant Adm. Karl Schultz indicated on Tuesday [October 15].
Under the new plan, the Coast Guard intends for Eastern Shipbuilding Group (ESG) to
build up to four OPCs rather than the minimum of nine contracted for a year ago, with the
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Coast Guard Cutter Procurement: Background and Issues for Congress
first ship now delayed 10 to 12 months and the three subsequent ships about nine to 10
months each from that point, Shultz said at an event hosted by the Center for Strategic and
International Studies. Delivery of the first OPC, which began construction in January, has
been pushed back to 2022….
If DHS decided to reopen the competition immediately, that would probably mean a three-
year delay before a new vendor delivers the first OPC, Schultz said.
“Eastern is still the quickest path to fielding the OPC,” he said.
If another vendor is selected through a recompetition, it’s unlikely the new shipbuilder
would be tasked with building multiple ships per year immediately, Schultz said.
Given about three years for a new competition and delivery of the first OPC from a new
vendor, it would appear the Coast Guard is hoping that they can slot in delivery of a fifth
ship within a year after ESG delivers the fourth OPC. But, for now, the service doesn’t
have an exact handle on the timing.
“There’s a lot of discussion between here and there,” Schultz said, noting that the
recompete is in the “not too distant future.”41
Follow-On Competition
Potential oversight questions relating specifically to the follow-on competition for OPCs 5
through 15 include but are not necessarily limited to the following:
If a follow-on competition is conducted for building ships 5 through 15 in the
OPC program, how much of a production learning curve advantage would ESG
have as a result of having some amount of production learning curve experience
in building its OPC design?
As mentioned earlier the Coast Guard envisions that OPCs 5 through 15 would
be built to a design that is largely similar to that of ESG’s design for the first four
OPCs. What are the potential advantages and disadvantages of this approach
compared to an approach under which bidders would be permitted to submit bids
for building their own OPC designs? What actions, if any, are needed for the
government to secure from ESG any design data rights that might be needed to
conduct a competition limited to ESG’s OPC design?
If OPCs 5 through 15 would be built to a design that is largely similar to that of
ESG’s design for the first four OPCs, how much of a design-related advantage
(as opposed to a production learning curve advantage), if any, would that provide
to ESG in the competition? To what degree, if any, does ESG’s design for the
OPC include features that are optimized for ESG’s construction facilities?
If a follow-on competition were to permit bidders to submit bids for building
their own designs for the OPC, and the winner of the competition is a builder that
has submitted a design different from ESG’s design, what might be the longer-
term implications of operating and supporting a class of perhaps no more than
four OPCs built to ESG’s design?
If a follow-on competition is conducted for building ships 5 through 15 in the
OPC program, will the bidders be required to submit bids for only a contract with
41 Cal Biesecker, “Decision To Reopen OPC Competition Will Stretch Out Acquisition,” Defense Daily, October 15,
2019. See also Gina Harkins, “Despite Hurricane Damage, Coast Guard Pressing On with Next-Gen Cutter
Construction,” Military.com, October 15, 2019; Ben Werner, “Coast Guard Seeks To Bring Bidders Onto Modified
Offshore Patrol Cutter Contract,” USNI News, October 15, 2019.
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options, or for both a contract with options and, alternatively, a block buy
contract? (See the section below on the issue of annual or multiyear [block buy]
contracting for OPCs.)
Regarding the second question above, pertaining to design data rights, the Coast Guard stated the
following to CRS in September 2017:
Eastern Shipyard Group, Inc. (ESG) (or its subcontractors) owns the data rights to specific
vessel design elements (e.g., hull form, etc.) that were developed wholly with contractor
funds; however, the Coast Guard (in the OPC contract) has the ability to purchase rights
regarding the hull form for re-procurement purposes. The data rights options for hulls 10-
25 are contained within the contract under Section B [of ESG’s OPC contract, called the
Phase II contract]. A part of the Phase II contract's data and software rights clauses, the
Coast Guard obtained either unlimited or government purpose data rights to vessel
components and systems that were designed and/or developed using government funds or
a mixture of contractor and government funds. As a result, the Coast Guard has data rights
licenses for parts of the vessel design but not the complete vessel design.
To construct the OPC with a yard other than ESG (i.e., potentially for hulls 10-25) the
Coast Guard would need to complete its data library by purchasing the data rights owned
by ESG (or its subcontractors); pricing for the Coast Guard to procure the additional data
rights specifically needed for re-procurement was provided as part of the Phase II
contract.42
Regarding the fifth question above, as shown earlier in the excerpts from the Coast Guard’s
October 18, 2019, RFI, the Coast Guard is requesting that firms responding to the RFI “provide
input on the potential use of a block buy contracting approach during the course of the program
and recommendations for incorporation of such an approach if your company deems that block
buy contracting is feasible. Also, if your company deems that block buy contracting is not
feasible, explain the rationale against using this approach.”
Notional Schedule
Potential oversight questions relating specifically to the Coast Guard’s notional schedule for
acquiring OPCs 5 through 25 include but are not necessarily limited to the following:
Does the schedule for soliciting and awarding industry studies for OPCs the fifth
and subsequent OPCs provide proper amounts of time for firms to prepare bids
for these contracts and to conduct the studies?
Does the schedule provide a proper amount of time for the Coast Guard to
evaluate the results of the industry study and use the studies to inform the RFP
for the DD&C contract?
Would the envisioned procurement rate for the OPCs complete the OPC program
too slowly, too quickly, or in about the right amount of time?
Regarding the third question above, one observer estimates that, under the Coast Guard’s
schedule, the final 270-foot medium endurance cutter would be replaced at an age of at least 48
years, and that the final 210-foot medium endurance cutter would be replaced at an age of 63
years.43
42 Source: Email from Coast Guard liaison office to CRS, September 6, 2017. The Coast Guard’s email was in response
to a question from CRS about whether the Coast Guard owned the data rights for ESG’s OPC design.
43 Chuck Hill, “First Look at new OPC Acquisition Strategy, ‘Coast Guard Issues RFI for Offshore Patrol Cutter’—
MarineLink,” Chuck Hill’s CG Blog, October 18, 2019.
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FY2020 Funding for a 12th NSC
One issue for Congress is whether to whether to provide funding in FY2020 for the procurement
of a 12th NSC. Funding long lead time materials (LLTM) for a 12th NSC in FY2020 could require
tens of millions of dollars; fully funding the procurement of a 12th NSC in FY2020 could require
upwards of $700 million.
Supporters of providing funding for a 12th NSC in FY2020 could argue that a total of 12 NSCs
would provide one-for-one replacements for the 12 retiring Hamilton-class cutters; that Coast
Guard analyses showing a need for no more than 9 NSCs assumed dual crewing of NSCs—
something that has not worked as well as expected; and that the Coast Guard’s POR record
includes only about 61% as many new cutters as the Coast Guard has calculated would be
required to fully perform the Coast Guard’s anticipated missions in coming years (see “Planned
NSC, OPC, and FRC Procurement Quantities” below, as well as Appendix A).
Skeptics or opponents of providing funding for a 12th NSC in FY2019 could argue that the Coast
Guard’s POR includes only 8 NSCs, that the Coast Guard’s fleet mix analyses (see “Planned
NSC, OPC, and FRC Procurement Quantities” below, as well as Appendix A) have not shown a
potential need for more than 9 NSCs, and that in a situation of finite Coast Guard budgets,
providing funding for a 12th NSC might require reducing funding for other FY2020 Coast Guard
programs.
As mentioned in the previous section on the contractual relief and follow-on competition for the
OPC program, one question that Congress may consider is what impact, if any, the announced
overall course of action for the OPC program might have on the issue of FY2020 funding for a
12th NSC, particularly in light of the delays in OPC deliveries that will occur under the newly
announced overall course of action.
Whether to Procure Two FRCs or a Higher Number in FY2020
Another issue for Congress is whether to fund the procurement in FY2020 of two FRCs, as
requested by the Coast Guard, or some higher number, such as four or six. Supporters of funding
the procurement of a higher number could argue that FRCs in past years have been procured at
annual rates of up to six per year; that procuring them at higher annual rates reduces their unit
procurement costs due to improved production economies of scale; and that procuring four or six
FRCs in FY2020 would accelerate the replacement of aging and less-capable Island-class patrol
boats with new and more capable FRCs.
Opponents of procuring more than two FRCs in FY2020, while acknowledging these points,
could argue that in a situation of finite Coast Guard funding, procuring more than two could
require offsetting reductions in funding for other FY2020 Coast Guard programs, producing an
uncertain net result on overall Coast Guard capabilities, and that replacing Island-class patrol
boats, while desirable, is not so urgent a requirement that the procurement of FRCs needs to be
accelerated beyond what the Coast Guard plans under its FY2020 budget submission.
Risk of Procurement Cost Growth on OPCs
Another issue for Congress is the risk of procurement cost growth the OPCs, particularly given
the increase in the OPC’s estimated full load displacement from 3,500 to 3,730 tons as of May
2017 to 4,500 tons as of November 2019—an increase of more than 20%—and how this might
affect the probability that OPCs can be built within the Coast Guard’s affordability requirement
for the OPC program of an average unit price of $310 million per ship, or less, in then-year
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dollars for ships 4 through 9 in the program for the shipbuilder’s portion of the ship’s total cost.
Since, as a general matter, the cost of a ship of a given type is roughly proportional to its
displacement, the increase of more than 20% in the OPC’s estimated full load displacement raises
a possibility that the cost to build OPCs may have increased, perhaps substantially, from earlier
estimates. As noted earlier, the draft statement of work (SOW) for the Coast Guard’s intended
follow-on competition for the OPC program that the Coast Guard posted on November 22, 2019,
requires contractors responding to the RFI to provide, among other things, “a risk assessment of
achieving the OPC Program’s previously established affordability target for production OPCs.”
Annual or Multiyear (Block Buy) Contracting for OPCs
Another issue for Congress is whether to acquire OPCs using annual contracting or multiyear
contracting. The Coast Guard currently plans to use a contract with options for procuring the first
four OPCs. Although a contract with options may look like a form of multiyear contracting, it
operates more like a series of annual contracts. Contracts with options do not achieve the
reductions in acquisition costs that are possible with multiyear contracting. Using multiyear
contracting involves accepting certain trade-offs.44
One form of multiyear contracting, called block buy contracting, can be used at the start of a
shipbuilding program, beginning with the first ship. (Indeed, this was a principal reason why
block buy contracting was in effect invented in FY1998, as the contracting method for procuring
the Navy’s first four Virginia-class attack submarines.45) Section 311 of the Frank LoBiondo
Coast Guard Authorization Act of 2018 (S. 140/P.L. 115-282 of December 4, 2018) provides
permanent authority for the Coast Guard to use block buy contracting with economic order
quantity (EOQ) purchases (i.e., up-front batch purchases) of components in its major acquisition
programs. The authority is now codified at 14 U.S.C. 1137.
CRS estimates that if the Coast Guard were to use block buy contracting with EOQ purchases of
components for acquiring the first several OPCs, and either block buy contracting with EOQ
purchases or another form of multiyear contracting known as multiyear procurement (MYP)46
with EOQ purchases for acquiring the remaining ships in the program, the savings on the total
acquisition cost of the 25 OPCs (compared to costs under contracts with options) could amount to
roughly $1 billion.47
44 These trade-offs include the following:
- reduced congressional control over year-to-year spending, and tying the hands of future Congresses;
- reduced flexibility for making changes in Coast Guard acquisition programs in response to unforeseen changes in
strategic or budgetary circumstances (which can cause any needed funding reductions to fall more heavily on
acquisition programs not covered by multiyear contracts);
- a potential need to shift funding from later fiscal years to earlier fiscal years to fund economic order quantity
(EOQ) purchases (i.e., up-front batch purchases) of components;
- the risk of having to make penalty payments to shipbuilders if multiyear contracts need to be terminated due to
unavailability of funds needed for the continuation of the contracts; and
- the risk that materials and components purchased for ships to be procured in future years might go to waste if
those ships are not eventually procured.
45 For additional discussion, see CRS Report R41909, Multiyear Procurement (MYP) and Block Buy Contracting in
Defense Acquisition: Background and Issues for Congress, by Ronald O'Rourke.
46 For more on MYP, see CRS Report R41909, Multiyear Procurement (MYP) and Block Buy Contracting in Defense
Acquisition: Background and Issues for Congress, by Ronald O'Rourke.
47 As part of the replacement scenario, the Coast Guard could end the implementation of the current contract with
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Annual OPC Procurement Rate
The current procurement profile for the OPC, which reaches a maximum projected annual rate of
two ships per year, would deliver OPCs many years after the end of the originally planned service
lives of the medium-endurance cutters that they are to replace. Coast Guard officials have
testified that the service plans to extend the service lives of the medium-endurance cutters until
they are replaced by OPCs. There will be maintenance and repair expenses associated with
extending the service lives of medium-endurance cutters, and if the Coast Guard does not also
make investments to increase the capabilities of these ships, the ships may have less capability in
certain regards than OPCs.48
One possible option for addressing this situation would be to increase the maximum annual OPC
procurement rate from the currently planned two ships per year to three or four ships per year.
Doing this could result in the 25th OPC being delivered about 4 years or 6 years sooner,
respectively, than under the currently planned maximum rate. Increasing the OPC procurement
rate to three or four ships per year would require a substantial increase to the Coast Guard’s
Procurement, Construction, and Improvements (PC&I) account,49 an issue discussed in Appendix
B.
Increasing the maximum procurement rate for the OPC program could, depending on the exact
approach taken, reduce OPC unit acquisition costs due to improved production economies of
scale. It could also create new opportunities for using competition in the program. Notional
alternative approaches for increasing the OPC procurement rate to three or four ships per year
include but are not necessarily limited to the following:
increasing the production rate to three or four ships per year at a single
shipyard—an option that would depend on that shipyard’s production capacity;
using two shipyards for building OPCs to a single OPC design;
using two shipyards for building OPCs to two designs, with each shipyard
building OPCs to its own design—an option that would result in two OPC
classes; or
building additional NSCs in the place of some of the planned OPCs—an option
that might include de-scoping equipment on those NSCs where possible to
reduce their acquisition cost and make their capabilities more like that of the
OPC.
The fourth alternative above would be broadly similar to how the Navy is using a de-scoped
version of the San Antonio (LPD-17) class amphibious ship as the basis for its LPD-17 Flight II
(LPD-30) class amphibious ships,50 and could be pursued in combination with one of the first
three alternatives.
options by not exercising an option.
48 For further discussion, see Government Accountability Office, Coast Guard Acquisitions[:] Actions Needed to
Address Longstanding Portfolio Management Challenges, GAO 18-454, July 2018, pp. 32-36.
49 Prior to FY2019, the PC&I account was called the Acquisition, Construction, and Improvements (AC&I) account.
50 For additional discussion, see CRS Report R43543, Navy LPD-17 Flight II and LHA Amphibious Ship Programs:
Background and Issues for Congress, by Ronald O'Rourke.
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Planned NSC, OPC, and FRC Procurement Quantities
Another issue for Congress concerns the Coast Guard’s planned NSC, OPC, and FRC
procurement quantities. The POR’s planned force of 91 NSCs, OPCs, and FRCs is about equal in
number to the Coast Guard’s legacy force of 90 high-endurance cutters, medium-endurance
cutters, and 110-foot patrol craft. NSCs, OPCs, and FRCs, moreover, are to be individually more
capable than the older ships they are to replace. Even so, a Coast Guard analysis conducted in
2011 (the most recent such analysis that the Coast Guard has released) concluded that the planned
total of 91 NSCs, OPCs, and FRCs would provide 61% of the cutters that would be needed to
fully perform the service’s statutory missions in coming years, in part because Coast Guard
mission demands are expected to be greater in coming years than they were in the past. For
further discussion of this issue, about which CRS has testified and reported on since 2005,51 see
Appendix A.
Legislative Activity in 2019
Summary of Appropriations Action on FY2020 Acquisition
Funding Request
Table 2 summarizes appropriations action on the Coast Guard’s request for FY2020 acquisition
funding for the NSC, OPC, and FRC programs.
Table 2. Summary of Appropriations Action on FY2020 Acquisition Funding Request
Figures in millions of dollars, rounded to nearest tenth
Request
Request
HAC
SAC
Final
NSC program
60
160.5
60
OPC program
457
457
457
FRC program
140
290
240
TOTAL
657
907.5
757
Source: Table prepared by CRS based on Coast Guard’s FY2020 budget submission, HAC committee report,
and SAC chairman’s mark and explanatory statement on FY2020 DHS Appropriations Act. HAC is House
Appropriations Committee; SAC is Senate Appropriations Committee.
FY2020 DHS Appropriations Act (H.R. 3931/S. 2582)
House
The House Appropriations Committee, in its report (H.Rept. 116-180 of July 24, 2019) on H.R.
3931, recommended the funding levels shown in the HAC column of Table 2.
H.Rept. 116-180 states:
National Security Cutter (NSC).—Although the original program of record for procuring
NSCs included only eight vessels, Congress has funded eleven NSCs to-date. The
Committee is aware of the potential requirement for one additional NSC as the Coast Guard
reassesses its fleet requirements, and that the discontinuation of the NSC production line
51 See Statement of Ronald O’Rourke, Specialist in National Defense, Congressional Research Service, Before the
Senate Commerce, Science, and Transportation Committee, Subcommittee on Fisheries and the Coast Guard, Hearing
on The Coast Guard’s Revised Deepwater Implementation Plan, June 21, 2005, pp. 1-5.
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could result in increased production costs in the future if the Coast Guard ultimately
determines that a twelfth NSC is required. In order to preserve the option of procuring an
additional NSC while the Coast Guard evaluates its future needs, the recommendation
includes an increase above the request of $100,500,000 for the NSC program, an amount
sufficient to procure long lead time materials for a twelfth NSC if the Coast Guard
determines it is needed. (Page 43)
H.Rept. 116-180 also states:
Fast Response Cutter (FRC).—The recommendation provides $290,000,000 for five
FRCs, $150,000,000 above the request. (Page 43)
H.Rept. 116-180 also states:
Asset Acquisition Report.—The Commandant is directed to provide to the Committee, not
later than one year after the date of enactment of this Act, a report that examines the number
and type of Coast Guard assets required to meet the Service’s current and foreseeable needs
in accordance with its statutory missions. The report shall include, but not be limited to, an
assessment of the required number and types of cutters and aircraft for current and planned
asset acquisitions. The report shall also specifically address regional mission requirements
in the Western Hemisphere, including the Polar regions; support provided to Combatant
Commanders; and trends in illicit activity and illegal migration. (Page 41)
Senate
The Senate Appropriations Committee, in its report (S.Rept. 116-125 of September 26, 2019) on
S. 2582, recommended the funding levels shown in the SAC column of Table 2.
S.Rept. 116-125 states:
National Security Cutter [NSC].—The Committee continues to support the acquisition of
the Coast Guard’s capital ship, the NSC. The NSC remains the Coast Guard’s largest and
most technologically advanced cutter, replacing the 378-foot Legacy High Endurance
Cutters built between 1967 and 1972. In fiscal year 2018, the Coast Guard interdicted 209
metric tons of cocaine and detained over 600 suspected smugglers, surpassing the
interdiction and detention efforts of all other Federal agencies combined. In November
2018, the USCGC JAMES (WMSL–754), in support of the Joint Interagency Task Force
South, seized nearly nine tons of cocaine and detained over forty suspected drug smugglers
from various drug conveyances. Despite its continued success in fiscal year 2018, the Coast
Guard was only able to target a fraction of known smuggling events. The Committee
recognizes the crucial role NSCs play in combatting the Coast Guard’s current and future
operational and capacity challenges in interdicting drugs, exercising U.S. sovereignty,
maintaining maritime security, and conducting search-and-rescue operations on high seas
and waters subject to the jurisdiction of the United States. The Committee believes that an
additional NSC would provide the Coast Guard with capabilities far beyond those
envisioned when the Coast Guard established the program of record for this highly
effective platform.
Offshore Patrol Cutter.—The Committee notes that the Coast Guard has declared the OPC
as its highest recapitalization priority and provides the requested amount of $457,000,000
to fund the construction of a third OPC. Additionally, the Committee provides funds for
LLTM for the fourth and fifth OPCs. OPC recapitalization will replace assets that have
surpassed their functional service life, subsequently enhancing the effectiveness of the
Coast Guard’s layered security strategy. While the Committee supports OPC
procurements, the Committee is concerned about potential cost overruns for the program
and directs the Coast Guard to brief the Committee within one week prior to taking any
procurement actions impacting estimated costs for the OPC program.
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Fast Response Cutter [FRC] Program.—In accordance with the Coast Guard’s
recapitalization plan, the Committee supports the replacement of legacy 110-foot Island
Class patrol boats with FRCs that will operate similarly in the coastal zone. The budget
request included two FRCs, two fewer vessels than the Coast Guard can currently purchase
under the current contract with the shipbuilder. The Committee recognizes that the Coast
Guard would have to renegotiate and likely pay as much as $10,000,000 more per unit if
purchasing fewer than four vessels. With additional FRCs required to support the Coast
Guard’s critical mission in support of the Department of Defense in Patrol Forces
Southwest Asia, the Committee recommends $240,000,000, as required to purchase four
FRCs in fiscal year 2020. (Page 71)
S.Rept. 116-125 also states:
Full-Funding Policy.—The Committee again directs an exception to the administration’s
current acquisition policy that requires the Coast Guard to attain the total acquisition cost
for a vessel, including long lead time materials [LLTM], production costs, and
postproduction costs, before a production contract can be awarded. This policy has the
potential to make shipbuilding less efficient, to force delayed obligation of production
funds, and to require post-production funds far in advance of when they will be used. The
Department should position itself to acquire vessels in the most efficient manner within the
guidelines of strict governance measures. The Committee expects the administration to
adopt a similar policy for the acquisition of the Offshore Patrol Cutter [OPC] and heavy
polar icebreaker.
Domestic Content.—To the maximum extent practicable, the Coast Guard is directed to
utilize components that are manufactured in the United States when contracting for new
vessels. Such components include: auxiliary equipment, such as pumps for shipboard
services; propulsion equipment, including engines, reduction gears, and propellers;
shipboard cranes; and spreaders for shipboard cranes. (Page 70)
Coast Guard Authorization Act of 2019 (S. 2297)
Senate
On July 31, 2019, the Senate Commerce, Science, and Transportation Committee ordered S. 2297
to be reported with an amendment favorably. In S. 2297 as introduced on July 25, 2019 (the only
version of S. 2297 posted at Congress.gov as of September 10, 2019), Section 104 states
SEC. 104. Availability of amounts for acquisition of additional National Security Cutter.
(a) In general.—Of the aggregate amount authorized to be appropriated for fiscal years
2020 and 2021 by section 4902(2) of title 14, United States Code, as amended by section
101 of this Act, $650,000,000 is authorized to be available for the acquisition of a National
Security Cutter.
(b) Treatment of acquired Cutter.—Any Cutter acquired using amounts available pursuant
to subsection (a) shall be in addition to the National Security Cutters approved under the
existing acquisition baseline in the program of record for the National Security Cutter.
Section 403 of S. 2297 as introduced states (emphasis added):
SEC. 403. Unmanned maritime systems.
(a) Assessment.—
(1) IN GENERAL.—The Commandant shall regularly assess available unmanned
maritime systems for potential use to support missions of the Coast Guard.
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(2) CONSULTATION.—The Commandant shall make the assessment required under
paragraph (1) after consultation with the Department of Defense, other Federal agencies,
the academic sector, and developers and manufacturers of unmanned maritime systems.
(b) Report.—
(1) IN GENERAL.—Not later than 1 year after the date of enactment of this Act, and
biennially thereafter, the Commandant shall submit to the Committee on Commerce,
Science, and Transportation of the Senate and the Committee on Transportation and
Infrastructure of the House of Representatives a report on the actual and potential effects
of the use of available unmanned maritime systems on the mission effectiveness of the
Coast Guard.
(2) CONTENTS.—Each report submitted under paragraph (1) shall include the following:
(A) An inventory of available unmanned maritime systems used by the Coast Guard, an
overview of such usage, and a discussion of the mission effectiveness of such systems,
including any benefits realized or risks or negative aspects of such usage.
(B) A prioritized list of Coast Guard mission requirements that could be met with additional
unmanned maritime systems, and the estimated costs of acquiring and operating such
systems. This list should take into consideration interoperability with the current and future
fleet of National Security Cutters, Fast Response Cutters, Offshore Patrol Cutters,
Polar Security Cutters, and in-service legacy cutters such as the 270-foot, 210-foot, and
225-foot Buoy Tenders.
(c) Definitions.—In this section:
(1) UNMANNED MARITIME SYSTEM.—
(A) IN GENERAL.—The term “unmanned maritime system” means a remotely operated
or autonomous vehicle that—
(i) is produced by the commercial sector;
(ii) is designed to travel in the air, on or under the ocean surface, on land, or any
combination thereof; and
(iii) functions without an on-board human presence.
(B) INCLUSIONS.—The term “unmanned maritime system” includes—
(i) associated components, such as control and communications, data transmission, and
processing systems;
(ii) an unmanned undersea vehicle;
(iii) an unmanned surface vehicle;
(iv) an unmanned aerial vehicle;
(v) an autonomous underwater vehicle;
(vi) an autonomous surface vehicle; and
(vii) an autonomous aerial vehicle.
(2) AVAILABLE UNMANNED MARITIME SYSTEMS.—The term “available
unmanned maritime systems” includes unmanned maritime systems that can be purchased
commercially or are available to the Coast Guard in coordination with the Department of
Defense or other Federal agency.
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Restore Coast Guard Capabilities Act (S. 2319)
Senate
S. 2319 was introduced in the Senate on July 30, 2019. The text of S. 2319 is as follows:
Be it enacted by the Senate and House of Representatives of the United States of America
in Congress assembled,
SECTION 1. Short title.
This Act may be cited as the “Restore Coast Guard Capabilities Act”.
SEC. 2. Modifications to contracts for offshore patrol cutters permitted based on impacts
of Hurricane Michael.
Notwithstanding Public Law 85–804, the United States Coast Guard is authorized to take
into account the impacts of Hurricane Michael for the purpose of modifying, without
consideration, but not exceeding the original affordability requirement as set forth in
section C of the existing contract to construct Offshore Patrol Cutters upon a determination
that doing so would facilitate national security.
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Appendix A. Planned NSC, OPC, and FRC
Procurement Quantities
This appendix provides further discussion on the issue of the Coast Guard’s planned NSC, OPC,
and FRC procurement quantities.
Overview
The Coast Guard’s program of record for NSCs, OPCs, and FRCs includes only about 61% as
many cutters as the Coast Guard calculated in 2011 would be needed to fully perform its
projected future missions. (The Coast Guard’s 2011 analysis is the most recent such analysis that
the Coast Guard has released.) The Coast Guard’s planned force levels for NSCs, OPCs, and
FRCs have remained unchanged since 2004. In contrast, the Navy since 2004 has adjusted its ship
force-level goals multiple times in response to changing strategic and budgetary circumstances.52
Although the Coast Guard’s strategic situation and resulting mission demands may not have
changed as much as the Navy’s have since 2004, the Coast Guard’s budgetary circumstances may
have changed since 2004. The 2004 program of record was heavily conditioned by Coast Guard
expectations in 2004 about future funding levels in the PC&I account. Those expectations may
now be different, as suggested by the willingness of Coast Guard officials in 2017 to begin
regularly mentioning the need for an PC&I funding level of $2 billion per year (see Appendix B).
It can also be noted that continuing to, in effect, use the Coast Guard’s 2004 expectations of
future funding levels for the PC&I account as an implicit constraint on planned force levels for
NSCs, OPCs, and FRCs can encourage an artificially narrow view of Congress’s options
regarding future Coast Guard force levels and associated funding levels, depriving Congress of
agency in the exercise of its constitutional power to provide for the common defense and general
welfare of the United States, and to set funding levels and determine the composition of federal
spending.
2009 Coast Guard Fleet Mix Analysis
The Coast Guard estimated in 2009 that with the POR’s planned force of 91 NSCs, OPCs, and
FRCs, the service would have capability or capacity gaps53 in 6 of its 11 statutory missions—
search and rescue (SAR); defense readiness; counterdrug operations; ports, waterways, and
coastal security (PWCS); protection of living marine resources (LMR); and alien migrant
interdiction operations (AMIO). The Coast Guard judges that some of these gaps would be “high
risk” or “very high risk.”
Public discussions of the POR frequently mention the substantial improvement that the POR
force would represent over the legacy force. Only rarely, however, have these discussions
explicitly acknowledged the extent to which the POR force would nevertheless be smaller in
number than the force that would be required, by Coast Guard estimate, to fully perform the
Coast Guard’s statutory missions in coming years. Discussions that focus on the POR’s
52 See Table 1 and Table B-1 of CRS Report RL32665, Navy Force Structure and Shipbuilding Plans: Background and
Issues for Congress, by Ronald O'Rourke. As shown in those tables, the Navy’s force-level goal of 2002-2004 was
followed by new force- level goals in early 2005, February 2006, mid-2011, September 2011, March 2012, January
2013, March 2015, and December 2016.
53 The Coast Guard uses capability as a qualitative term, to refer to the kinds of missions that can be performed, and
capacity as a quantitative term, to refer to how much (i.e., to what scale or volume) a mission can be performed.
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improvement over the legacy force while omitting mention of the considerably larger number of
cutters that would be required, by Coast Guard estimate, to fully perform the Coast Guard’s
statutory missions in coming years could encourage audiences to conclude, contrary to Coast
Guard estimates, that the POR’s planned force of 91 cutters would be capable of fully performing
the Coast Guard’s statutory missions in coming years.
In a study completed in December 2009 called the Fleet Mix Analysis (FMA) Phase 1, the Coast
Guard calculated the size of the force that in its view would be needed to fully perform the
service’s statutory missions in coming years. The study refers to this larger force as the objective
fleet mix. Table A-1 compares planned numbers of NSCs, OPCs, and FRCs in the POR to those
in the objective fleet mix.
Table A-1. Program of Record Compared to Objective Fleet Mix
From Fleet Mix Analysis Phase 1 (2009)
Objective
Objective Fleet Mix
Fleet Mix
compared to POR
Program of
From FMA
Ship type
Record (POR)
Phase 1
Number
%
NSC
8
9
+1
+13%
OPC
25
57
+32
+128%
FRC
58
91
+33
+57%
Total
91
157
+66
+73%
Source: Fleet Mix Analysis Phase 1, Executive Summary, Table ES-8 on page ES-13.
As can be seen in Table A-1, the objective fleet mix includes 66 additional cutters, or about 73%
more cutters than in the POR. Stated the other way around, the POR includes about 58% as many
cutters as the 2009 FMA Phase I objective fleet mix.
As intermediate steps between the POR force and the objective fleet mix, FMA Phase 1
calculated three additional forces, called FMA-1, FMA-2, and FMA-3. (The objective fleet mix
was then relabeled FMA-4.) Table A-2 compares the POR to FMAs 1 through 4.
Table A-2. POR Compared to FMAs 1 Through 4
From Fleet Mix Analysis Phase 1 (2009)
Program
FMA-4
of Record
(Objective
Ship type
(POR)
FMA-1
FMA-2
FMA-3
Fleet Mix)
NSC
8
9
9
9
9
OPC
25
32
43
50
57
FRC
58
63
75
80
91
Total
91
104
127
139
157
Source: Fleet Mix Analysis Phase 1, Executive Summary, Table ES-8 on page ES-13.
FMA-1 was calculated to address the mission gaps that the Coast Guard judged to be “very high
risk.” FMA-2 was calculated to address both those gaps and additional gaps that the Coast Guard
judged to be “high risk.” FMA-3 was calculated to address all those gaps, plus gaps that the Coast
Guard judged to be “medium risk.” FMA-4—the objective fleet mix—was calculated to address
all the foregoing gaps, plus the remaining gaps, which the Coast Guard judge to be “low risk” or
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“very low risk.” Table A-3 shows the POR and FMAs 1 through 4 in terms of their mission
performance gaps.
Table A-3. Force Mixes and Mission Performance Gaps
From Fleet Mix Analysis Phase 1 (2009)—an X mark indicates a mission performance gap
Risk levels of Program
these
of
FMA-4
Missions with performance
performance
Record
FMA-
(Objective
gaps
gaps
(POR)
1
FMA-2
FMA-3
Fleet Mix)
Search and Rescue (SAR)
Very high
X
capability
Defense Readiness capacity
Very high
X
Counter Drug capacity
Very high
X
Ports, Waterways, and Coastal
High
X
X
Security (PWCS) capacitya
Living Marine Resources (LMR)
High
X
X
[all gaps
capability and capacitya
addressed]
PWCS capacityb
Medium
X
X
X
LMR capacityc
Medium
X
X
X
Alien Migrant Interdiction
Low/very low
X
X
X
X
Operations (AMIO) capacityd
PWCS capacitye
Low/very low
X
X
X
X
Source: Fleet Mix Analysis Phase 1, Executive Summary, page ES-11 through ES-13.
Notes: In the first column, The Coast Guard uses capability as a qualitative term, to refer to the kinds of
missions that can be performed, and capacity as a quantitative term, to refer to how much (i.e., to what scale or
volume) a mission can be performed.
a. This gap occurs in the Southeast operating area (Coast Guard Districts 7 and 8) and the Western operating
area (Districts 11, 13, and 14).
b. This gap occurs in Alaska.
c. This gap occurs in Alaska and in the Northeast operating area (Districts 1 and 5).
d. This gap occurs in the Southeast and Western operating areas.
e. This gap occurs in the Northeast operating area.
Figure A-1, taken from FMA Phase 1, depicts the overall mission capability/performance gap
situation in graphic form. It appears to be conceptual rather than drawn to precise scale. The black
line descending toward 0 by the year 2027 shows the declining capability and performance of the
Coast Guard’s legacy assets as they gradually age out of the force. The purple line branching up
from the black line shows the added capability from ships and aircraft to be procured under the
POR, including the 91 planned NSCs, OPCs, and FRCs. The level of capability to be provided
when the POR force is fully in place is the green line, labeled “2005 Mission Needs Statement.”
As can be seen in the graph, this level of capability is substantially below a projection of Coast
Guard mission demands made after the terrorist attacks of September 11, 2001 (the red line,
labeled “Post-9/11 CG Mission Demands”), and even further below a Coast Guard projection of
future mission demands (the top dashed line, labeled “Future Mission Demands”). The dashed
blue lines show future capability levels that would result from reducing planned procurement
quantities in the POR or executing the POR over a longer time period than originally planned.
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Figure A-1. Projected Mission Demands vs. Projected Capability/Performance
From Fleet Mix Analysis Phase 1, Executive Summary
Source: Fleet Mix Analysis Phase 1, Executive Summary, Figure ES-1 on p. ES-2.
FMA Phase 1 was a fiscally unconstrained study, meaning that the larger force mixes shown in
Table A-2 were calculated primarily on the basis of their capability for performing missions,
rather than their potential acquisition or life-cycle operation and support (O&S) costs.
Although the FMA Phase 1 was completed in December 2009, the figures shown in Table A-2
were generally not included in public discussions of the Coast Guard’s future force structure
needs until April 2011, when GAO presented them in testimony.54 GAO again presented them in a
July 2011 report.55
The Coast Guard completed a follow-on study, called Fleet Mix Analysis (FMA) Phase 2, in May
2011. Among other things, FMA Phase 2 includes a revised and updated objective fleet mix called
the refined objective mix. Table A-4 compares the POR to the objective fleet mix from FMA
Phase 1 and the refined objective mix from FMA Phase 2.
As can be seen in Table A-4, compared to the objective fleet mix from FMA Phase 1, the refined
objective mix from FMA Phase 2 includes 49 OPCs rather than 57. The refined objective mix
includes 58 additional cutters, or about 64% more cutters than in the POR. Stated the other way
around, the POR includes about 61% as many cutters as the refined objective mix.
54 Government Accountability Office, Coast Guard[:]Observations on Acquisition Management and Efforts to
Reassess the Deepwater Program, Testimony Before the Subcommittee on Coast Guard and Maritime Transportation,
Committee on Transportation and Infrastructure, House of Representatives, Statement of John P. Hutton, Director
Acquisition and Sourcing Management, GAO-11-535T, April 13, 2011, p. 10.
55 Government Accountability Office, Coast Guard[:]Action Needed As Approved Deepwater Program Remains
Unachievable, GAO-11-743, July 2011, p. 46.
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Table A-4. POR Compared to Objective Mixes in FMA Phases 1 and 2
From Fleet Mix Analysis Phase 1 (2009) and Phase 2 (2011)
Refined
Objective
Objective
Program of
Fleet Mix
Mix from
Record
from FMA
FMA Phase
Ship type
(POR)
Phase 1
2
NSC
8
9
9
OPC
25
57
49
FRC
58
91
91
Total
91
157
149
Source: Fleet Mix Analysis Phase 1, Executive Summary, Table ES-8 on page ES-13, and Fleet Mix Analysis Phase
2, Table ES-2 on p. iv.
Compared to the POR, the larger force mixes shown in Table A-2 and Table A-4 would be more
expensive to procure, operate, and support than the POR force. Using the average NSC, OPC, and
FRC procurement cost figures presented earlier (see “Background”), procuring the 58 additional
cutters in the Refined Objective Mix from FMA Phase 2 might cost an additional $10.7 billion, of
which most (about $7.8 billion) would be for the 24 additional FRCs. (The actual cost would
depend on numerous factors, such as annual procurement rates.) O&S costs for these 58
additional cutters over their life cycles (including crew costs and periodic ship maintenance costs)
would require billions of additional dollars.56
The larger force mixes in the FMA Phase 1 and 2 studies, moreover, include not only increased
numbers of cutters, but also increased numbers of Coast Guard aircraft. In the FMA Phase 1
study, for example, the objective fleet mix included 479 aircraft—93% more than the 248 aircraft
in the POR mix. Stated the other way around, the POR includes about 52% as many aircraft as the
objective fleet mix. A decision to procure larger numbers of cutters like those shown in Table A-2
and Table A-4 might thus also imply a decision to procure, operate, and support larger numbers
of Coast Guard aircraft, which would require billions of additional dollars. The FMA Phase 1
study estimated the procurement cost of the objective fleet mix of 157 cutters and 479 aircraft at
$61 billion to $67 billion in constant FY2009 dollars, or about 66% more than the procurement
cost of $37 billion to $40 billion in constant FY2009 dollars estimated for the POR mix of 91
cutters and 248 aircraft. The study estimated the total ownership cost (i.e., procurement plus life-
cycle O&S cost) of the objective fleet mix of cutters and aircraft at $201 billion to $208 billion in
constant FY2009 dollars, or about 53% more than the total ownership cost of $132 billion to $136
billion in constant FY2009 dollars estimated for POR mix of cutters and aircraft.57
A December 7, 2015, press report states the following:
The Coast Guard’s No. 2 officer said the small size and advanced age of its fleet is limiting
the service’s ability to carry out crucial missions in the Arctic and drug transit zones or to
meet rising calls for presence in the volatile South China Sea.
56 The FMA Phase 1 and Phase 2 studies present acquisition and life-cycle ownership cost calculations for force mixes
that include not only larger numbers of NSC, OPCs, and FRCs, but corresponding larger numbers of Coast Guard
aircraft.
57 Fleet Mix Analysis Phase 1, Executive Summary, Table ES-11 on page ES-19, and Table ES-10 on page ES-18. The
life-cycle O&S cost was calculated through 2050.
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“The lack of surface vessels every day just breaks my heart,” VADM Charles Michel, the
Coast Guard’s vice commandant, said Dec. 7.
Addressing a forum on American Sea Power sponsored by the U.S. Naval Institute at the
Newseum, Michel detailed the problems the Coast Guard faces in trying to carry out its
missions of national security, law enforcement and maritime safety because of a lack of
resources.
“That’s why you hear me clamoring for recapitalization,” he said.
Michel noted that China’s coast guard has a lot more ships than the U.S. Coast Guard has,
including many that are larger than the biggest U.S. cutter, the 1,800-ton [sic:4,800-ton]
National Security Cutter. China is using those white-painted vessels rather than “gray-hull
navy” ships to enforce its claims to vast areas of the South China Sea, including reefs and
shoals claimed by other nations, he said.
That is a statement that the disputed areas are “so much our territory, we don’t need the
navy. That’s an absolutely masterful use of the coast guard,” he said.
The superior numbers of Chinese coast guard vessels and its plans to build more is
something, “we have to consider when looking at what we can do in the South China Sea,”
Michel said.
Although they have received requests from the U.S. commanders in the region for U.S.
Coast Guard cutters in the South China Sea, “the commandant had to say ‘no’. There’s not
enough to go around,” he said.58
Potential oversight questions for Congress include the following:
Under the POR force mix, how large a performance gap, precisely, would there
be in each of the missions shown in Table A-3? What impact would these
performance gaps have on public safety, national security, and protection of
living marine resources?
How sensitive are these performance gaps to the way in which the Coast Guard
translates its statutory missions into more precise statements of required mission
performance?
Given the performance gaps shown in Table A-3, should planned numbers of
Coast Guard cutters and aircraft be increased, or should the Coast Guard’s
statutory missions be reduced, or both?
How much larger would the performance gaps in Table A-3 be if planned
numbers of Coast Guard cutters and aircraft are reduced below the POR figures?
Has the executive branch made sufficiently clear to Congress the difference
between the number of ships and aircraft in the POR force and the number that
would be needed to fully perform the Coast Guard’s statutory missions in coming
years? Why has public discussion of the POR focused mostly on the capability
improvement it would produce over the legacy force and rarely on the
performance gaps it would have in the missions shown in Table A-3?
58 Otto Kreisher, “’Not Enough’ USCG Vessels to Meet Demand for Presence in South China Sea, Arctic,” Seapower,
December 7, 2015.
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What projected mission demands or other factors may have changed since the
Coast Guard’s 2011 Fleet Mix Analysis, and how might these changes affect
future required numbers of Coast Guard cutters and other Coast Guard assets?59
59 For a blog post discussing this issue, see Chuck Hill, “Is Our Fleet Recapitalization on Course? Do We Need to
Change the Destination?” Chuck Hill’s CG Blog, September 8, 2019.
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Appendix B. Funding Levels in PC&I Account
This appendix provides background information on funding levels in the Coast Guard’s
Procurement, Construction, and Improvements (PC&I) account.60
Overview
As shown in Table B-1, the FY2013 budget submission programmed an average of about $1.5
billion per year in the PC&I account. As also shown in the table, the FY2014-FY2016 budget
submissions reduced that figure to between $1 billion and $1.2 billion per year.
Table B-1. Funding in PC&I Account in FY2013-FY2020 Budgets
Figures in millions of dollars, rounded to nearest tenth
Budget
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
Avg.
FY13
1,217.3
1,429.5
1,619.9
1,643.8
1,722.0
1,526.5
FY14
951.1
1,195.7
901.0
1,024.8
1,030.3
1,020.6
FY15
1,084.2
1,103.0
1,128.9
1,180.4
1,228.7
1,145.0
FY16
1,017.3
1,125.3
1,255.7
1,201.0
1,294.6
1,178.8
FY17
1,136.8
1,259.6
1,339.9
1,560.5
1,840.8
1,427.5
FY18
1,203.7
1,360.9
1,602.7
1,810.6
1,687.5
1,533.1
FY19
1,886.8
1,473.0
1,679.8
1,555.5
1,698.5
1,658.7
FY20
1,234.7
1,679.8
1,555.5
1,698.5
1,737.0
1,581.1
Source: Table prepared by CRS based on Coast Guard FY2013-FY2020 budget submissions.
The Coast Guard has testified that funding the PC&I account at a level of about $1 billion to $1.2
billion per year would make it difficult to fund various Coast Guard acquisition projects,
including a new polar icebreaker and improvements to Coast Guard shore installations. Coast
Guard plans call for procuring OPCs at an eventual rate of two per year. If each OPC costs
roughly $400 million, procuring two OPCs per year in a PC&I account of about $1 billion to $1.2
billion per year, as programmed under the FY2014-FY2016 budget submissions, would leave
about $200 million to $400 million per year for all other PC&I-funded programs.
Since 2017, Coast Guard officials have been stating more regularly what they stated only
infrequently in earlier years: that executing the Coast Guard’s various acquisition programs fully
and on a timely basis would require the PC&I account to be funded in coming years at a level of
about $2 billion per year. Statements from Coast Guard officials on this issue in past years have
sometimes put this figure as high as about $2.5 billion per year.
Using Past PC&I Funding Levels as a Guide for Future PC&I
Funding Levels
In assessing future funding levels for executive branch agencies, a common practice is to assume
or predict that the figure in coming years will likely be close to where it has been in previous
years. While this method can be of analytical and planning value, for an agency like the Coast
Guard, which goes through periods with less acquisition of major platforms and periods with
60 Prior to FY2019, the PC&I account was called the Acquisition, Construction, and Improvements (AC&I) account.
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more acquisition of major platforms, this approach might not always be the best approach, at least
for the PC&I account.
More important, in relation to maintaining Congress’s status as a co-equal branch of government,
including the preservation and use of congressional powers and prerogatives, an analysis that
assumes or predicts that future funding levels will resemble past funding levels can encourage an
artificially narrow view of congressional options regarding future funding levels, depriving
Congress of agency in the exercise of its constitutional power to set funding levels and determine
the composition of federal spending.
Past Coast Guard Statements About Required PC&I Funding Level
At an October 4, 2011, hearing on the Coast Guard’s major acquisition programs before the Coast
Guard and Maritime Transportation subcommittee of the House Transportation and Infrastructure
Committee, the following exchange occurred:
REPRESENATIVE FRANK LOBIONDO:
Can you give us your take on what percentage of value must be invested each year to
maintain current levels of effort and to allow the Coast Guard to fully carry out its
missions?
ADMIRAL ROBERT J. PAPP, COMMANDANT OF THE COAST GUARD:
I think I can, Mr. Chairman. Actually, in discussions and looking at our budget—and I’ll
give you rough numbers here, what we do now is we have to live within the constraints
that we’ve been averaging about $1.4 billion in acquisition money each year.
If you look at our complete portfolio, the things that we’d like to do, when you look at the
shore infrastructure that needs to be taken care of, when you look at renovating our smaller
icebreakers and other ships and aircraft that we have, we’ve done some rough estimates
that it would really take close to about $2.5 billion a year, if we were to do all the things
that we would like to do to sustain our capital plant.
So I’m just like any other head of any other agency here, as that the end of the day, we’re
given a top line and we have to make choices and tradeoffs and basically, my tradeoffs boil
down to sustaining frontline operations balancing that, we’re trying to recapitalize the
Coast Guard and there’s where the break is and where we have to define our spending.61
An April 18, 2012, blog entry stated the following:
If the Coast Guard capital expenditure budget remains unchanged at less than $1.5 billion
annually in the coming years, it will result in a service in possession of only 70 percent of
the assets it possesses today, said Coast Guard Rear Adm. Mark Butt.
Butt, who spoke April 17 [2012] at [a] panel [discussion] during the Navy League Sea Air
Space conference in National Harbor, Md., echoed Coast Guard Commandant Robert Papp
in stating that the service really needs around $2.5 billion annually for procurement.62
At a May 9, 2012, hearing on the Coast Guard’s proposed FY2013 budget before the Homeland
Security subcommittee of the Senate Appropriations Committee, Admiral Papp testified, “I’ve
61 Source: Transcript of hearing.
62 David Perera, “The Coast Guard Is Shrinking,” FierceHomelandSecurity.com, April 18, 2012, accessed July 20,
2012, at http://www.fiercehomelandsecurity.com/story/coast-guard-shrinking/2012-04-18.
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gone on record saying that I think the Coast Guard needs closer to $2 billion dollars a year [in
acquisition funding] to recapitalize—[to] do proper recapitalization.”63
At a May 14, 2013, hearing on the Coast Guard’s proposed FY2014 budget before the Homeland
Security Subcommittee of the Senate Appropriations Committee, Admiral Papp stated the
following regarding the difference between having about $1.0 billion per year rather than about
$1.5 billion per year in the PC&I account:
Well, Madam Chairman, $500 million—a half a billion dollars—is real money for the
Coast Guard. So, clearly, we had $1.5 billion in the [FY]13 budget. It doesn't get everything
I would like, but it—it gave us a good start, and it sustained a number of projects that are
very important to us.
When we go down to the $1 billion level this year, it gets my highest priorities in there, but
we have to either terminate or reduce to minimum order quantities for all the other projects
that we have going.
If we're going to stay with our program of record, things that have been documented that
we need for our service, we're going to have to just stretch everything out to the right. And
when we do that, you cannot order in economic order quantities. It defers the purchase.
Ship builders, aircraft companies—they have to figure in their costs, and it inevitably raises
the cost when you're ordering them in smaller quantities and pushing it off to the right.
Plus, it almost creates a death spiral for the Coast Guard because we are forced to sustain
older assets—older ships and older aircraft—which ultimately cost us more money, so it
eats into our operating funds, as well, as we try to sustain these older things.
So, we'll do the best we can within the budget. And the president and the secretary have
addressed my highest priorities, and we'll just continue to go on the—on an annual basis
seeing what we can wedge into the budget to keep the other projects going.64
At a March 12, 2014, hearing on the Coast Guard’s proposed FY2015 budget before the
Homeland Security subcommittee of the House Appropriations Committee, Admiral Papp stated
the following:
Well, that’s what we've been struggling with, as we deal with the five-year plan, the capital
investment plan, is showing how we are able to do that. And it will be a challenge,
particularly if it sticks at around $1 billion [per year]. As I've said publicly, and actually, I
said we could probably—I've stated publicly before that we could probably construct
comfortably at about 1.5 billion [dollars] a year. But if we were to take care of all the Coast
Guard’s projects that are out there, including shore infrastructure that that fleet that takes
care of the Yemen [sic: inland] waters is approaching 50 years of age, as well, but I have
63 Source: transcript of hearing. Papp may have been referring to remarks he made to the press before giving his annual
state of the Coast Guard speech on February 23, 2012, in which reportedly stated that the Coast Guard would require
about $2 billion per year in acquisition funding to fully replace its current assets. (See Adam Benson, “Coast Guard
Cutbacks Will Cost 1,000 Jobs,” Norwich Bulletin, February 23, 2012, accessed May 31, 2012, at
http://www.norwichbulletin.com/x1138492141/Coast-Guard-cutbacks-will-cost-1-000-jobs. See also “Coast Guard
Leader Calls For More Ships,” MilitaryFeed.com, February 24, 2012, accessed May 31, 2012, at
http://militaryfeed.com/coast-guard-leader-calls-for-more-ships-5/; Associated Press, “Coast Guard Commandant Calls
for New Ships,” TheLog.com, March 10, 2012, accessed May 31, 2012, at http://www.thelog.com/SNW/Article/Coast-
Guard-Commandant-Calls-for-New-Ships-to-Replace-Aging-Fleet; Mickey McCarter, “Congress Poised to Give Coast
Guard More Money Than Requested for FY 2013,” HSToday.us, May 10, 2012, accessed May 31, 2012, at
http://www.hstoday.us/focused-topics/customs-immigration/single-article-page/congress-poised-to-give-coast-guard-
more-money-than-requested-for-fy-2013.html.) See also “Interview, Adm. Robert Papp, US Coast Guard
Commandant,” Defense News, November 11, 2013: 30.
64 Transcript of hearing. The remarks were made in response to a question from Sen. Mary Landrieu.
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no replacement plan in sight for them because we simply can't afford it. Plus, we need at
some point to build a polar icebreaker. Darn tough to do all that stuff when you're pushing
down closer to 1 billion [dollars per year], instead of 2 billion [dollars per year].
As I said, we could fit most of that in at about the 1.5 billion [dollars per year] level, but
the projections don't call for that. So we are scrubbing the numbers as best we can.65
At a March 24, 2015, hearing on the Coast Guard’s proposed FY2016 budget before the
Homeland Security subcommittee of the House Appropriations Committee, Admiral Paul
Zukunft, Admiral Papp’s successor as Commandant of the Coast Guard, stated the following:
I look back to better years in our acquisition budget when we had a—an acquisition budget
of—of $1.5 billion. That allows me to move these programs along at a much more rapid
pace and, the quicker I can build these at full-rate production, the less cost it is in the long
run as well. But there’s an urgent need for me to be able to deliver these platforms in a
timely and also in an affordable manner. But to at least have a reliable and a predictable
acquisition budget would make our work in the Coast Guard much easier. But when we
see variances of—of 30, 40% over a period of three or four years, and not knowing what
the Budget Control Act may have in store for us going on, yes, we are treading water now
but any further reductions, and now I am—I am beyond asking for help. We are taking on
water.66
An April 13, 2017, press report states the following (emphasis added):
Coast Guard Commandant Adm. Paul Zukunft on Wednesday [April 12] said that for the
Coast Guard to sustain its recapitalization plans and operations the service needs a $2
billion annual acquisition budget that grows modestly overtime to keep pace with inflation.
The Coast Guard needs a “predictable, reliable” acquisition budget “and within that we
need 5 percent annual growth to our operations and maintenance (O&M) accounts,”
Zukunft told reporters at a Defense Writers Group breakfast. Inflation will clip 2 to 3
percent from that, but “at 5 percent or so it puts you on a moderate but positive glide slope
so you can execute, so you can build the force,” he said.67
In an interview published on June 1, 2017, Zukunft said the following (emphasis added):
We cannot be more relevant than we are now. But what we need is predictable funding.
We have been in over 16 continuing resolutions since 2010. I need stable and repeatable
funding. An acquisition budget with a floor of $2 billion. Our operating expenses as I
said, they’ve been funded below the Budget Control Act floor for the past five years. I need
5 percent annualized growth over the next five years and beyond to start growing some of
this capability back.
But more importantly, we [need] more predictable, more reliable funding so we can execute
what we need to do to carry out the business of the world’s best Coast Guard.68
65 Transcript of hearing.
66 Transcript of hearing. The remarks were made in response to a question from Rep. John Culberson.
67 Calvin Biesecker, “Zukunft Wants $2 Billion Baseline Acquisition Budget; Sustained Growth In O&M Funding,”
Defense Daily, April 13, 2017: 1.
68 Jill Aitoro, “Interview: Adm. Paul Zukunft Demands Coast Guard Respect,” Defense News, June 1, 2017.
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Appendix C. Additional Information on Status and
Execution of NSC, OPC, and FRC Programs from
May 2018 GAO Report
This appendix presents additional information on the status and execution of the NSC, OPC, and
FRC programs from a May 2018 GAO report reviewing DHS acquisition programs.69
NSC Program
Regarding the NSC program, the May 2018 GAO report states the following:
DHS’s Under Secretary for Management (USM) directed the USCG to complete follow-
on operational test and evaluation (OT&E) by March 2019. According to USCG officials,
the program’s OTA began follow-on OT&E in October 2017, which will test unmet key
performance parameters (KPP) and address deficiencies found during prior testing. The
NSC completed initial operational testing in 2014, but did not fully demonstrate 7 of its 19
KPPs, including those related to unmanned aircraft and cutter-boat deployment in rough
seas. According to USCG officials, operators have since demonstrated these KPPs during
USCG operations. For example, USCG officials stated that they successfully demonstrated
operations of a prototype unmanned aircraft on an NSC. However, the USCG will not
evaluate the NSC’s unmanned aircraft KPP until the unmanned aircraft undergoes initial
OT&E, currently planned for June 2019. In addition, the NSC will be the first USCG asset
to undergo cybersecurity testing. However, this test has been delayed over a year with the
final cyber test event scheduled for August 2018 because of a change in NSC operational
schedules, among other things.
The DHS USM also directed the USCG to complete a study to determine the root cause of
the NSC’s propulsion system issues by December 2017; however, as of January 2018, the
study was not yet complete. GAO previously reported on these issues—including high
engine temperatures, cracked cylinder heads, and overheating generator bearings that were
impacting missions—in January 2016....
The USCG initially planned to implement a crew rotational concept in which crews would
rotate while NSCs were underway to achieve a goal of 230 days away from the cutter’s
homeport. In February 2018, USCG officials told GAO they abandoned the crew rotational
concept because the concept did not provide the USCG with the expected return on
investment. Instead, USCG officials said a new plan has been implemented that does not
rotate crew and is anticipated to increase the days away from home port from the current
capability of 185 days to 200 days.70
OPC Program
Regarding the OPC program, the May 2018 GAO report states the following:
DHS approved six key performance parameters (KPP) for the OPC related to the ship’s
operating range and duration, crew size, interoperability and maneuverability, and ability
69 Government Accountability Office, Home Security Acquisitions[:] Leveraging Programs’ results Could Further
DHS’s Progress to Improve Portfolio Management, May 2018, GAO-18-339SP, 109 pp., and Government
Accountability Office, Homeland Security Acquisitions[:]DHS Has Strengthened Management, but Execution and
Affordability Concerns Endure, GAO-16-338SP, March 2016, 110 pp. Hereinafter GAO-18-339SP and GAO-16-
338SP, respectively.
70 GAO-18-339SP, p. 92.
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to support operations in moderate to rough seas. The first OPC has not yet been constructed,
so the USCG has not yet demonstrated whether it can meet these KPPs. The USCG plans
to use engineering reviews, and developmental and operational tests throughout the
acquisition to measure the OPC’s performance.
USCG officials told GAO that the program completed an early operational assessment on
the basic ship design in August 2017, which entailed a review of the current design plans.
The program plans to refine the ship’s design as needed based on preliminary test results.
However, as of December 2017, USCG officials had not received the results of this
assessment.
The USCG plans to conduct initial operational test and evaluation (OT&E) on the first
OPC in fiscal year 2023. However, the test results from initial OT&E will not be available
to inform key decisions. For example, the results will not be available to inform the
decision to build 2 OPCs per year—which USCG officials said is scheduled to begin in
fiscal year 2021. Without test results to inform these key decisions, the USCG must make
substantial commitments prior to knowing how well the ship will meet its requirements....
The USCG is in the process of completing the design of the OPC before starting
construction, which is in-line with GAO shipbuilding best practices. In addition, USCG
officials stated that the program is using state-of-the-market technology that has been
proven on other ships as opposed to state-of-the-art technology, which lowers the risk of
the program.71
FRC Program
Regarding the FRC program, the May 2018 GAO report states the following:
In February 2017, DHS’s Director, Office of Test and Evaluation (DOT&E) assessed the
results from the program’s July 2016 follow-on operational test and evaluation (OT&E)
and determined that
• the program met its six key performance parameters, and
• the FRC was operationally effective and suitable.
During follow-on OT&E, the OTA found that several deficiencies from the program’s
initial OT&E had been corrected. For example, the OTA closed a severe deficiency related
to the engines based on modifications to the FRC’s main diesel engines. However, five
major deficiencies remain. According to USCG officials, the remaining deficiencies are
related to ergonomics (e.g., improving the working environment for operators) and issues
with stowage space. USCG officials stated that they plan to resolve the remaining
deficiencies by fiscal year 2020.
DOT&E noted that these deficiencies do not prevent mission completion or present a
danger to personnel, but recommended that they be resolved as soon as possible. USCG
officials indicated that they plan to resolve the remaining deficiencies through engineering
or other changes....
The USCG continues to work with the contractor—Bollinger Shipyards, LLC—to address
issues covered by the warranty and acceptance clauses for each ship. For example, 18
engines—9 operational engines and 9 spare engines—have been replaced under the
program’s warranty. According to USCG documentation, 65 percent of the current issues
with the engines have been resolved through retrofits; however, additional problems with
the engines have been identified since our April 2017 review. For example, issues with
water pump shafts are currently being examined through a root cause analysis and will be
redesigned and are scheduled to undergo retrofits starting in December 2018. We
71 GAO-18-339SP, p. 94.
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previously found that the FRC’s warranty resulted in improved cost and quality by
requiring the shipbuilder to pay for the repair of defects. As of September 2017, USCG
officials said the replacements and retrofits completed under the program’s warranty
allowed the USCG to avoid an estimated $104 million in potential unplanned costs—of
which $63 million is related to the engines.72
For a discussion of some considerations relating to warranties in shipbuilding and other
acquisition programs, see Appendix D.
72 GAO-18-339SP, p. 82. For additional discussions of warranties in acquisition programs, see Appendix D.
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Appendix D. Some Considerations Relating to
Warranties in Shipbuilding and Other Acquisition
Programs
This appendix presents some considerations relating to warranties in shipbuilding and other
defense acquisition.73
In discussions of Navy and Coast Guard shipbuilding, one question that sometimes arises is
whether including a warranty in a shipbuilding contract is preferable to not including one.
Including a warranty in a shipbuilding contract (or a contract for building some other kind of
military end item), while potentially valuable, might not always be preferable to not including
one—it depends on the circumstances of the acquisition, and it is not necessarily a valid criticism
of an acquisition program to state that it is using a contract that does not include a warranty (or a
weaker form of a warranty rather than a stronger one).
Including a warranty generally shifts to the contractor the risk of having to pay for fixing
problems with earlier work. Although that in itself could be deemed desirable from the
government’s standpoint, a contractor negotiating a contract that will have a warranty will
incorporate that risk into its price, and depending on how much the contractor might charge for
doing that, it is possible that the government could wind up paying more in total for acquiring the
item (including fixing problems with earlier work on that item) than it would have under a
contract without a warranty.
When a warranty is not included in the contract and the government pays later on to fix problems
with earlier work, those payments can be very visible, which can invite critical comments from
observers. But that does not mean that including a warranty in the contract somehow frees the
government from paying to fix problems with earlier work. In a contract that includes a warranty,
the government will indeed pay something to fix problems with earlier work—but it will make
the payment in the less-visible (but still very real) form of the up-front charge for including the
warranty, and that charge might be more than what it would have cost the government, under a
contract without a warranty, to pay later on for fixing those problems.
From a cost standpoint, including a warranty in the contract might or might not be preferable,
depending on the risk that there will be problems with earlier work that need fixing, the potential
cost of fixing such problems, and the cost of including the warranty in the contract. The point is
that the goal of avoiding highly visible payments for fixing problems with earlier work and the
goal of minimizing the cost to the government of fixing problems with earlier work are separate
and different goals, and that pursuing the first goal can sometimes work against achieving the
second goal.74
73 This appendix is adapted from Appendix C of CRS Testimony TE10019, Options and Considerations for Achieving
a 355-Ship Navy, by Ronald O'Rourke.
74 It can also be noted that the country’s two largest builders of Navy ships—General Dynamics (GD) and Huntington
Ingalls Industries (HII)—derive about 60% and 96%, respectively, of their revenues from U.S. government work. (See
General Dynamics, 2016 Annual Report, page 9 of Form 10-K [PDF page 15 of 88]) and Huntington Ingalls Industries,
2016 Annual Report, page 5 of Form 10-K [PDF page 19 of 134]). These two shipbuilders operate the only U.S.
shipyards currently capable of building several major types of Navy ships, including submarines, aircraft carriers, large
surface combatants, and amphibious ships. Thus, even if a warranty in a shipbuilding contract with one of these firms
were to somehow mean that the government did not have pay under the terms of that contract—either up front or later
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The Department of Defense’s guide on the use of warranties states the following:
Federal Acquisition Regulation (FAR) 46.7 states that “the use of warranties is not
mandatory.” However, if the benefits to be derived from the warranty are commensurate
with the cost of the warranty, the CO [contracting officer] should consider placing it in the
contract. In determining whether a warranty is appropriate for a specific acquisition, FAR
Subpart 46.703 requires the CO to consider the nature and use of the supplies and services,
the cost, the administration and enforcement, trade practices, and reduced requirements.
The rationale for using a warranty should be documented in the contract file....
In determining the value of a warranty, a CBA [cost-benefit analysis] is used to measure
the life cycle costs of the system with and without the warranty. A CBA is required to
determine if the warranty will be cost beneficial. CBA is an economic analysis, which
basically compares the Life Cycle Costs (LCC) of the system with and without the warranty
to determine if warranty coverage will improve the LCCs. In general, five key factors will
drive the results of the CBA: cost of the warranty + cost of warranty administration +
compatibility with total program efforts + cost of overlap with Contractor support +
intangible
savings.
Effective
warranties
integrate
reliability,
maintainability,
supportability, availability, and life-cycle costs. Decision factors that must be evaluated
include the state of the weapon system technology, the size of the warranted population,
the likelihood that field performance requirements can be achieved, and the warranty
period of performance.75
on—for fixing problems with earlier work done under that contract, there would still be a question as to whether the
government would nevertheless wind up eventually paying much of that cost as part of the price of one or more future
contracts the government may have that firm.
75 Department of Defense, Department of Defense Warranty Guide, Version 1.0, September 2009, accessed July 13,
2017, at https://www.acq.osd.mil/dpap/pdi/uid/docs/departmentofdefensewarrantyguide[1].doc.
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Appendix E. Impact of Hurricane Michael on OPC
Program at Eastern Shipbuilding Group (ESG)
This appendix provides additional background information of the impact of Hurricane Michael on
the OPC program at Eastern Shipbuilding Group (ESG).
An August 22, 2019, press released from Eastern Shipbuilding states
On August 16th, 2019 Eastern Shipbuilding Group, a Panama City, Florida shipyard
building both government and commercial vessels, successfully delivered the tug Capt. Jim
McAllister. This is the fifth vessel to be delivered by the shipyard since Hurricane Michael,
a category 5 storm—which devastated the region. This delivery marks another milestone
in Eastern’s accelerated return to normal operations, as well as its commitment to long term
sustained recovery and economic stability for the industrial base of the Florida Panhandle.
Other shipbuilding projects include three Staten Island Ferries, the Coast Guard Offshore
Patrol Cutters, a large commercial fishing trawler, two harbor tugs, and two river
pushboats. Eastern is actively bidding other projects and is poised to maintain its position
as the go to shipyard on the US Gulf. All of these projects support skilled manufacturing
jobs for Northwest Florida and over twenty five other states where Eastern buys material,
equipment, and specialized services.
Since the hurricane, Eastern has repaired or replaced all of its impacted equipment,
buildings, and shipbuilding infrastructure as part of a major company-funded
recapitalization effort. Additionally, Eastern has invested in new technology aimed at
increasing shipbuilding efficiency. Eastern has also partnered with State and local
Governmental agencies to plan additional investments of over $45 Million towards
enhancing shipbuilding efficiency and capacity in both Bay and Gulf Counties in order to
ensure long term stability and growth of the shipbuilding industry in Northwest Florida.
As part of its recovery and growth from a once-in-a-generation storm, Eastern is actively
recruiting and hiring additional personnel to join its team and support its long term
commitment to building the best vessels for its government and commercial customers.
Eastern remains grateful for the unwavering Federal, State, and local support during this
recovery—empowering a devastated area by providing manufacturing and industrial
employment opportunities.76
A July 31, 2019, press report states
A bill needed to continue a long-awaited multi-billion-dollar Coast Guard shipbuilding
project in Panama City sailed through a U.S. Senate committee on Wednesday [July 31].
The bill, which received bipartisan support in the Senate Committee on Commerce,
Science and Transportation, would let the Coast Guard renegotiate its $10.5 billion contract
with Eastern Shipbuilding Group to account for higher labor costs and shortages caused by
Hurricane Michael. The bill should help the project get back on track after the hurricane to
create hundreds of new jobs that are needed more than ever as the area still recovers from
the Category 5 storm, some officials say.
According to a Wednesday news release, the committee approved U.S. Sen. Marco Rubio’s
Restore Coast Guard Capabilities Act [S. 2319] as part of the Coast Guard Reauthorization
Act of 2019. Rubio’s bill would give the Coast Guard the authority to renegotiate the
contract with Eastern Shipbuilding to construct the first series of up to 25 offshore patrol
76 Eastern Shipbuilding, “Eastern Shipbuilding Group, Inc. Successfully Delivers Fifth Vessel Since Hurricane
Michael,” August 22, 2019.
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cutters. Without a way to renegotiate the contract, the project could be delayed by years,
Rubio’s office warned.
The Coast Guard requested the authority to renegotiate, while not exceeding the original
affordability requirement set forth by the government in the existing contract, because of
skyrocketing labor costs caused by the hurricane.
The historic storm, which hit the Panhandle on Oct. 10, significantly damaged Tyndall Air
Force Base. The press release states that the labor needed to rebuild the base is competing
directly with the labor required to fulfill Eastern Shipbuilding’s contract.77
A May 22, 2019, press report states
A Category 5 hurricane that battered Florida’s panhandle region last fall, including
shipbuilder Eastern Shipbuilding Group, will impact the new medium-endurance cutter
ship the company is building for the Coast Guard but at the moment it’s unclear what the
77 Patrick McCreless, “Bill Passes Committee to Renogotiate Panama City Coast Guard Shipbuilding Contract,”
Panama City News Herald, July 31, 2019. The press release mentioned in the article, dated July 31, 2019, states
Today, U.S. Senator Marco Rubio (R-FL) applauded the Senate Committee on Commerce, Science,
and Transportation’s approval of his Restore Coast Guard Capabilities Act (S.2319) as part of the
Coast Guard Reauthorization Act of 2019 (S. 2297). Rubio’s bill would give the U.S. Coast Guard
the authority to take into account the impacts of Hurricane Michael to modify its Offshore Patrol
Cutter (OPC) contract with Panama City-based Eastern Shipbuilding.
On October 10, 2018, Hurricane Michael wreaked havoc in Northwest Florida, and made history as
one of only four category 5 hurricanes to make landfall on the U.S. mainland. The Coast Guard has
requested this authority that would provide much needed flexibility to modify the OPC contract,
while not exceeding the original affordability requirement set forth by the government in the
existing contract, as a result of skyrocketing labor costs due to Hurricane Michael. The Coast
Guard maintains that acquisition of the OPC is its highest investment priority.
“Continuing authorizations for the Coast Guard to protect Florida’s waterways and our nation’s
homeland security is imperative,” Rubio said. “I applaud the Senate Commerce Committee on
approving this larger reauthorization, which includes several of my joint priorities that are critical
to the Coast Guard’s mission readiness. As a result of my partnership with Senator Scott, the bill
now includes our Restore Coast Guard Capabilities Act, which will ensure the Coast Guard has the
tools necessary to safeguard the Offshore Patrol Cutter even after the devastation caused by
Hurricane Michael.”
Today, the Senate Committee on Commerce, Science and Transportation approved the Coast Guard
Reauthorization Act of 2019 (S. 2297), which included several Rubio priorities:
The Restore Coast Guard Capabilities Act (S. 2319), adopted as an amendment offered by
Senator Scott
Section 426: Coast Guard Shore Infrastructure Improvement Act
Section 221: Continuation of Coast Guard pay during lapse in appropriations. Senator Rubio is
a cosponsor of the Pay Our Coast Guard Act (S. 21)
Background:
Eastern Shipbuilding is under contract with the Coast Guard to deliver up to 25 OPCs, the Coast
Guard’s highest priority investment program. However, Hurricane Michael significantly damaged
Tyndall Air Force Base and the labor needed to rebuild the base is competing directly with the
labor to fulfill the OPC contract. As a result, the Coast Guard has requested authorization from
Congress to potentially revisit the contract to take into account the increased labor costs associated
with the category 5 hurricane.
(“Rubio Applauds Commerce Committee Passage of the Restore Coast Guard Capabilities Act to
Build Offshore Patrol Cutters,” July 31, 2019, accessed September 10, 2019, at
https://www.rubio.senate.gov/public/index.cfm/press-releases?ID=52E5D8E4-2559-4F67-AFBD-
D70EE38FC7A5)
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effects will be on cost and schedule, Coast Guard Commandant Adm. Karl Schultz said on
Tuesday [May 21].
Eastern Shipbuilding’s analysis of Hurricane Michael’s impact on the Offshore Patrol
Cutter (OPC) is due to the Coast Guard by May 31, and from there the service expects to
have an understanding on the way forward with the program before the end of June, Schultz
said in response to questions from Rep. Garret Graves (R-La.), during a hearing hosted by
the House Transportation and Infrastructure Coast Guard and Maritime Transportation
Subcommittee. He said Eastern Shipbuilding will provide “perspectives” on the cost and
schedule and any other impacts.
“It’s safe to say that we understand the impacts of a Category 5 hurricane on Eastern
Shipbuilding Group will have an impact on the OPC program,” Shultz said. He expects
there to be some “puts and takes” after Eastern Shipbuilding submits its analysis.
Rep. Peter DeFazio (D-Ore.), citing a press report earlier in the hearing, said that Sen.
Marco Rubio (R-Fla.) has inserted language in a draft disaster assistance bill allowing the
Coast Guard and Eastern Shipbuilding to renegotiate the firm fixed-price contract the
shipbuilder is working under for the OPC to account for damage to shore side facilities
from Hurricane Michael and increased labor costs.
DeFazio said he is skeptical of the company’s claim, noting, “I’m pretty sure they had
insurance,” and adding that “I question whether or not this has something to do with their
original bid, which some thought was low.” He also said he has concerns that a former
Coast Guard Commandant that works for Eastern Shipbuilding has said he’ll have authority
to negotiate with his former service.
Retired Adm. Robert Papp, the 24th commandant of the Coast Guard, runs Eastern
Shipbuilding’s Washington, D.C., operations.
Eastern Shipbuilding did not respond to a query from Defense Daily about impacts to the
OPC program from Hurricane Michael and any relief it may need from the current contract.
Schultz said that the OPC contract can’t be renegotiated without legislative authorities from
Congress. He said the Coast Guard, in response to an “ask” from Congress, provided
language to help with drafting the proposed legislation related to the OPC in the disaster
bill.
Schultz also said that the Coast Guard is not involved in Eastern Shipbuilding’s lobbying
efforts with Congress.78
A May 17, 2019, press report stated:
As the Senate continues to negotiate the particulars of the supplemental disaster relief bill
that seems poised to go to a vote next week, a new provision to save something many likely
didn’t know was at risk has been added.
A new line in the draft bill will let Eastern Shipbuilding Group renegotiate its contract with
the U.S. Coast Guard to build up to 25 new off-shore patrol cutters.
“Under the old contract we were prohibited from negotiating for additional money for
increased costs,” said Admiral Bob Papp, President of Washington Operations for Eastern.
That meant that after Hurricane Michael, they would be unable to negotiate with the Coast
Guard to help cover a slew of new costs associated with both the project and the hurricane,
such as the damage from the Category 5 storm that needed repairs, the prolonged schedule
78 Calvin Biesecker, “Coast Guard Expects Impact To OPC Program From Hurricane Michael, Commandant Says,”
Defense Daily, May 22, 2019.
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and the “skyrocketing” costs of labor, Papp said. The contract—the largest in the Coast
Guard’s history at more than $10 billion—didn’t account for a natural disaster.
It was going to be hard, Papp said, for Eastern to complete the project and to “stay healthy”
without some negotiations. At stake in the community are 900 planned jobs and up to 5,000
indirect jobs officials believe will help jump-start the region’s manufacturing economy.
But an official in Sen. Marco Rubio’s office said the latest version of the supplemental
disaster relief bill now includes a provision that will allow negotiations.
Rubio, according to the official, spoke with the President Donald Trump on Air Force One
following the president’s rally in Panama City Beach last week, helping to secure the
language that made it into the bill.
“We’ve waited far too long (for disaster relief), and we’re also involved in some Florida-
specific issues,” Rubio said in a recent video. “For example, the Hurricane had an impact
on a very important Coast Guard project that’s in Northwest Florida and we want to make
sure that project stays on target and continues to feed jobs because Northwest Florida
desperately needs those jobs to recover. We’re very hopeful. Cautiously optimistic, that
next week can be a very good week.”
Papp thanked the area’s congressional delegation for stepping up to advocate for this
project, saying the company is “honored and delighted” to receive help.79
A January 28, 2019, press release from Eastern Shipbuilding stated:
Panama City, FL, Eastern Shipbuilding Group [ESG] reports that steel cutting for the first
offshore patrol cutter (OPC), Coast Guard Cutter ARGUS (WMSM-915), commenced on
January 7, 2019 at Eastern’s facilities. ESG successfully achieved this milestone even with
sustaining damage and work interruption due to Hurricane Michael. The cutting of steel
will start the fabrication and assembly of the cutter’s hull, and ESG is to complete keel
laying of ARGUS later this year. Additionally, ESG completed the placement of orders for
all long lead time materials for OPC #2, Coast Guard Cutter CHASE (WMSM-916).
Eastern’s President Mr. Joey D’Isernia noted the following: “Today represents a
monumental day and reflects the dedication of our workforce - the ability to overcome and
perform even under the most strenuous circumstances and impacts of Hurricane Michael.
ESG families have been dramatically impacted by the storm, and we continue to recover
and help rebuild our shipyard and community. I cannot overstate enough how appreciative
we are of all of our subcontractors and vendors contributions to our families during the
recovery as well as the support we have received from our community partners. Hurricane
Michael may have left its marks but it only strengthened our resolve to build the most
sophisticated, highly capable national assets for the Coast Guard. Today’s success is just
the beginning of the construction of the OPCs at ESG by our dedicated team of shipbuilders
and subcontractors for our customer and partner, the United States Coast Guard. We are
excited for what will be a great 2019 for Eastern Shipbuilding Group and Bay County,
Florida.”80
A November 1, 2018, statement from Eastern Shipbuilding states that the firm
resumed operations at both of its two main shipbuilding facilities just two weeks after
Hurricane Michael devastated Panama City Florida and the surrounding communities….
… the majority of ESG’s [Eastern Shipbuilding Group’s] workforce has returned to work
very quickly despite the damage caused by the storm. “Our employees are a resourceful
79 Katie Landeck, “Provision Added to Disaster Relief Bill to Help Eastern Shipbuilding,” Panama City News Herald,
May 17, 2019.
80 Eastern Shipbuilding press release entitled “Eastern Shipbuilding Group Announces Commencement of Steel Cutting
for USCGC ARGUS (WMSM-915),” January 28, 2019, p. 1.
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and resilient group of individuals with the drive to succeed in the face of adversity. This
has certainly been proven by their ability to bounce back over the two weeks following the
storm. Our employees have returned to work much faster than anticipated and brought with
them an unbreakable spirit, that I believe sets this shipyard and our community apart” said
[Eastern Shipbuilding] President Joey D’Isernia. “Today, our staffing levels exceed 80%
of our pre-Hurricane Michael levels and is rising daily.”
Immediately following the storm, ESG set out on an aggressive initiative to locate all of its
employees and help get them back on the job as soon as practical after they took necessary
time to secure the safety and security of their family and home. Together with its network
of friends, partners, and customers in the maritime community, ESG organized daily
distribution of meals and goods to employees in need. Additionally, ESG created an interest
free deferred payback loan program for those employees in need and has organized Go
Fund Me account to help those employees hardest hit by the storm. ESG also knew
temporary housing was going to be a necessity in the short term and immediately built a
small community located on greenfield space near its facilities for those employees with
temporary housing needs.
ESG has worked closely with its federal, state and commercial partners over the past two
weeks to provide updates on the shipyard as well as on projects currently under
construction. Power was restored to ESG’s Nelson Facility on 10-21-18 and at ESG’s
Allanton Facility on 10-24-18 and production of vessels under contract is ramping back
up. Additionally, all of the ESG personnel currently working on the US Coast Guard’s
Offshore Patrol Cutter contract have returned to work….
“We are grateful to our partners and the maritime business community as a whole for their
support and confidence during the aftermath of this historic storm. Seeing our incredible
employees get back to building ships last week was an inspiration,” said D’Isernia. “While
there is no doubt that the effects of Hurricane Michael will linger with our community for
years to come, I can say without reservation that we are open for business and excited about
delivering quality vessels to our loyal customers.”81
An October 22, 2018, press report states the following:
U.S. Coast Guard officials and Eastern Shipbuilding Group are still assessing the damage
caused by deadly category 4 Hurricane Michael to the Panama City, Fla.-based yard
contracted to build the new class of Offshore Patrol Cutters.
On September 28, the Coast Guard awarded Eastern Shipbuilding a contract to build the
future USCGC Argus (WMSM-915), the first offshore patrol cutter (OPC). The yard was
also set to build a second OPC, the future USCGC Chase (WMSM-916). Eastern
Shipbuilding’s contract is for nine OPCs, with options for two additional cutters.
Ultimately, the Coast Guard plans to buy 25 OPCs.
However, just as the yard was preparing to build Argus, Hurricane Michael struck the
Florida Panhandle near Panama City on October 10. Workers from the shipyard and Coast
Guard project managers evacuated and are just now returning to assess damage to the yard
facilities, Brian Olexy, communications manager for the Coast Guard’s Acquisitions
Directorate, told USNI News.
“Right now we haven’t made any decisions yet on shifts in schedule,” Olexy said….
Since the yard was just the beginning stages of building Argus, Olexy said the hull wasn’t
damaged. “No steel had been cut,” he said.
81 Eastern Shipbuilding news release, November 1, 2018, entitled “Eastern Shipbuilding Group, Inc. Resumes
Operations.”
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Eastern Shipbuilding is still in the process of assessing damage to the yard and trying to
reach its workforce. Many employees evacuated the area and have not returned, or are in
the area but lost their homes, Eastern Shipbuilding spokesman Justin Smith told USNI
News.
At first, about 200 workers returned to work, but by week’s end about 500 were at the yard,
Smith said. The company is providing meals, water, and ice for its workforce.
“Although we were significantly impacted by this catastrophic weather event, we are
making great strides each day thanks to the strength and resiliency of our employees,” Joey
D’Isernia, president of Eastern Shipbuilding, said in a statement.82
82 Ben Werner, “Coast Guard, Shipbuilder Assessing Hurricane Damage to Yard Building Offshore Patrol Cutter,”
USNI News, October 22, 2018. See also Paul McLeary, “Hurricane Michael Hits Coast Guard’s Largest Program,
Leaving Devastation,” Breaking Defense, October 18, 2018; Marex, “Despite Hurricane Michael, Eastern Shipbuilding
Keeps Working,” Maritime Executive, October 16, 2018; Samuel Hill, “Eastern Shipbuilding Hit Hard by Hurricane
Michael,” Workboat, October 16, 2018.
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Author Information
Ronald O'Rourke
Specialist in Naval Affairs
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Congressional Research Service
R42567 · VERSION 108 · UPDATED
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